Dear Customers:

To all PWRS Customers:  what we are thinking and what we are doing about the US and Canadian tariff situation:

Up until now, PWRS/NARC has not made any formal communications with you, our customers, regarding the developing trade and tariff policies of the United States or the response by the Canadian government (and those of other countries) to the actions and guidance of the US on its tariff policies. 

While still lacking much clarity on what may actually happen, we feel it prudent to let our customers know:  1) what PWRS/NARC is thinking about regarding the trade/tariff situation, and; 2) what we are doing above the trade/tariff situation.

What we are thinking about regarding the trade/tariff situation:

There is still an almost complete lack of clarity about what the US tariff policies and levels will be, either country-by-country or generally.  This makes it extremely difficult (nearly impossible, actually) to make significant decisions about NARC product releases in the short- to intermediate-term.  It is important to remind our customers, that while NARC and PWRS are Canadian companies, the key driver of the level of tariffs that are applied to goods coming into the US and Canada is the country of ORIGIN (where each product is actually MADE).  As you know, NARC products are manufactured by our vendor in China, so NARC product sold in the US will be charged the tariff which is applicable to Chinese goods.  With the proposed (and apparently ever-rising) tariff that the US government has instituted on Chinese goods (currently 125%) and, importantly, with the revocation of the de minimis exclusion (which had permitted any basket of goods destined to a single US citizen which had a total value of less than $800 to enter the US tariff-free), with no change in the current PWRS/NARC business model, any NARC (or other Chinese-sourced) product entering the US would incur a tariff of 125% on the retail price of the product.  We are hopeful that there will be some truce reached between the US and Chinese governments on the current “trade war”, but until there is one, we obviously must abide by current rules, regulations and tariffs. 

Further complicating matters is the current friction regarding tariffs between the US and Canada.  At this point, the Canadian government has taken a hostile attitude in response to the proposed US tariffs on Canadian goods and has proposed tariffs on US goods similar to the tariffs the US has proposed on Canadian goods.  But, the policies and decisions of the Canadian government are subject to change, given that there will be a federal general election on April 28 to elect a new prime minister and parliament.  So, not only is the US policy regarding tariffs very fluid, but the that of the Canadian government is also potentially very fluid.

The PWRS/NARC Board/Management Team has been communicating and meeting regularly to review developments in the trade/tariff situation.  NARC entered the year with a product development and release plan and schedule for the next 24-36 months and have been reviewing each scheduled product release as well as planned work for the creation of new products (car body styles and types).  We have also brainstormed changes to our business model to minimize the impact of new tariffs on our customers.  Lastly, we have been working through all of the various implications of a new “tariff regime” – which we believe WILL exist in the future – on ALL aspects of the PWRS retailing business and our NARC products.

What we are doing regarding the trade/tariff situation:

We have three objectives for our decisions about what we should be doing in response to the likely new tariff regime:

1.     We must be in compliance with all tariff and trade laws, rules and regulations

2.     We want to minimize the impact of new tariffs on our customers, to the extent possible

3.     We want to ensure that our business model is economically sound, so we can continue to deliver excellent products and service to our customers while generating attractive returns to our shareholders

With these objectives in mind, here are the decisions we have made and what we are doing:

1.     We will make the changes to our administrative, financial and operating systems to ensure compliance and accurate recordkeeping.  (While this may sound trivial, it is actually quite complex, as we much identify FOR EACH PRODUCT its country of origin – which can obviously differ within each supplier – as well as track any tariffs already paid on each product.)

2.     As of today, we have decided to proceed with the next couple NARC product releases (the N-scale 5431 hoppers, which are already on the water to us, and the N-scale Marine Industry and Hawker Siddeley hoppers which are in production and will be shipping in August 2025).

3.     For the next 30 days, we will put all other future product releases on hold, while we await more clarity on US policy vis-à-vis China and the results of the Canadian national election, which should start to provide more clarity on the Canadian government’s stance on tariffs.

4.     We will move forward with the work necessary to put our next two HO-scale releases (Potash and 5431 Grain Cars) into production (complete any tooling work and paint scheme designs) if and when we have greater clarity on the tariff regime that is likely to exist longer term).

5.     Assuming the longer-term tariff policies of the US and other countries impose materially higher tariff levels, we will likely be making one or more significant changes to the PWRS/NARC business models to minimize the impact of those tariffs on our customers; for example, we may end up creating one – or more – US-based entities (NARC – USA, for example), to enable NARC product to enter the US at its manufacturing cost (vs its retail value), which would significantly reduce the burden of tariffs on our US customers.  (We have already done a significant amount of work to understand the steps necessary and the implications of creating a US-domiciled subsidiary.  The reason we haven’t yet undertaken the actual steps to create such an entity is that doing so will be expensive, in terms of money as well as management time, energy and focus.)  Or, there may be other changes we could make to the way PWRS/NARC operates to accomplish the same or very similar results.

We very much appreciate your past patronage and loyalty and we recognize that the only way PWRS and NARC can survive and thrive is if we deliver excellent value and service to each and every customer.  Please rest assured that we continue to monitor the situation very closely and that we will make decisions that ensure that we can continue to meet your expectations for excellent products and outstanding service at competitive prices.