When tariffs spiked on imported goods in 2024, most suppliers did what seemed logical: they passed the cost to customers. Surcharge letters went out. Prices went up. The math was simple.
But not every company followed that playbook.
The decision to raise prices when costs increase seems straightforward. Yet it masks a more complex question: Is the cost increase temporary or permanent? And have you genuinely exhausted every other option?
These questions matter more than most companies realize, especially when customer relationships are at stake. In an era of frequent supply chain disruptions, tariff changes, and commodity volatility, how a company responds to cost pressures reveals something fundamental about its business strategy and its relationship with customers.
The Tariff Test Case
Tariffs on imported fiber trays reached 50 percent in 2024, creating a real-world test of how different suppliers would respond. Most treated it as a permanent cost increase and sent surcharges to customers. But some companies, like sustainable packaging manufacturer Cirkla, read the situation differently.
“Tariffs are policy risk, which is the most volatile input there is,” explains Vaibhav Goel, CEO of Cirkla. “It moves by ruling, not by market. That is exactly the cost you never put into a customer’s price, because you cannot unwind it gracefully.”
The distinction matters. Temporary costs like freight spikes, yield problems, and commodity price swings are different from structural ones. If a company prices on the way up, it owes customers a conversation on the way down. That conversation, Goel notes, tends to stick with customers longer than the surcharge itself.
“Those duties have since come down,” Goel says. “The suppliers who priced on the way up now owe their customers an uncomfortable conversation.”
The Two-Test Framework
According to Goel, a cost increase earns a price increase only if it passes two tests. First: Is it structural, meaning it will not reverse? Second: Have you genuinely run out of moves on your side?
Pulp costs, freight, a bad yield quarter. None of these pass the first test. They swing. If a company prices on the way up, it owes the customer a conversation on the way down. That is the company’s balance sheet, not the customer’s invoice.
And even a structural cost that a company can still engineer or source around fails the second test just as hard. Price is the last lever, not the first.
This framework forces companies to ask harder questions before raising prices. It requires engineering solutions, supply chain innovation, and operational discipline. It is harder than sending a surcharge letter. But it builds something different.
The Alternative Playbook
Rather than pass costs to customers, Cirkla made two moves designed to absorb the tariff impact without relying on price increases.
First, the company engineered cost out of the product itself. The team took cost out of the product, the liner structure, the basis weight, and the case pack, without touching barrier performance or shelf life. And Cirkla went multi-origin.
Second, Cirkla accelerated its US manufacturing footprint. The company already operated a factory in India; it pulled forward plans to establish a second manufacturing base in the United States. Suddenly, the company was not exposed to any single trade lane.
“The customer’s numbers never moved,” Goel says. “That is what they noticed.”
Why This Matters
The decision to absorb costs rather than pass them along reveals a different business philosophy: price is a last resort, not a first response.
This approach has practical implications. A surcharge is a one-time transfer of pain that leaves a company in exactly the same position the next time policy shifts. But product optimization and manufacturing diversification create permanent advantages. The company ends up with a more cost-effective product and reduced supply chain risk, benefits that do not expire when tariffs change.
For customers, stability matters. In industries like food packaging, where supply chain reliability is critical, a supplier that absorbs volatility rather than passing it along builds trust. That trust becomes valuable when the next crisis hits.
The Broader Pattern
Not every company can absorb cost increases the way Cirkla did. Smaller suppliers may lack the engineering resources or capital to diversify manufacturing. Commodity businesses operating on thin margins may have no choice but to pass costs along.
But for companies with the resources to engineer solutions, the question becomes strategic: What message does a price increase send? And what does absorbing the cost build instead?
Goel frames it simply: “Price is the last lever, not the first.”
That philosophy, exhausting every other option before raising prices, is increasingly rare in an era of frequent cost shocks. Yet it may be precisely the kind of thinking that separates suppliers that customers want to keep, from those whom they are forced to tolerate.
When the next tariff hits, or the next supply chain crisis emerges, that distinction will matter more than ever.
