Constantly in the news are issues and questions regarding the import tariffs the U.S. Government is instituting and how they will affect the steel fabricating and construction industries. Here is a quick overview from our perspective.
Most of the products The Steel Supply Company offers are manufactured in the United States. There are some unique items for which there is no domestic supplier such as Relieving Angle inserts, also known as Wedge Inserts and Askew Head Bolts. There are other lines where we carry ample stock for both domestic and imported but the cost difference leads most customers to the imports, such as Anchor Bolt Nuts and Washers.
This discussion will focus on the effect the tariffs are having in cost differences, and should be of interest especially to all steel fabricators and especially structural and miscellaneous steel estimators.
Made in USA
A simple example of a product melted and made in USA would be a Slotted Steel Shims. The Steel Supply Company makes these shims on 240-ton steel stamping machines. Flat Bar is 3” wide x 20’ lengths and is purchased from USA Steel Mills. Flat Bar cost going back over the past year has increased 13%. Note, all numbers are averaged to keep the conversation simple. That is the raw material cost. The bar is processed through the stamping press, forming a slotted shim in one stroke. Cost assigned to the press and the labor involved have remained constant over the past year. Hot Dip Galvanized Slotted Steel Shims require an extra process which has increased in cost approximately 5% over the last 12 months. Combining these various costs in a weighted average 100% Made in USA Slotted Steel Shims have increased 6% in a year.
Made in China
For this example, we will use the Relieving Angle Wedge Insert. There are companies in the United States that own the complex tooling required to manufacture these items however the cost they offer them at is often more than double that of the imports. This has shifted most of the volume to the imports and granted the offshore manufacturers significant economies of scale. For many years this has been the case and for better or worse the market for Wedge Inserts and Askew Head Bolts was stable. Had it stayed this way the imported products may have shown a price increase similar to the Slotted Steel Shims based on the increased demand this year for construction and steel fabrication products that is apparent nationwide.
Even though the picture is still not clear and the list of products that are subject to tariffs keeps changing, the effects have already appeared in the cost of the imports. Starting in October of 2017 the cost of both Long and Regular Wedge Inserts remained constant until June of 2018. At that point the cost of the landed products increased 13%. It is important to note “Landed” as part of the cost. The tariffs get applied at the Port of Entry, in our case Port Newark. With the next shipment of Askew Head Bolts due in November we calculate the landed cost will be 28% higher than it was a year ago. While we believe we have ample inventory of Wedge Inserts to carry through the rest of the year it is expected the next shipment of Wedge Inserts will reflect a total cost increase equal to what we have already seen with the Askew Bolts.
The Mindset of Repeated Increases
Part of the cost increase can be attributed to the increased demand for construction goods. The bulk of course is due to the tariffs. But there is a third factor at work. When there is cost stability at the manufacturing level costs tend to decrease slightly over time as manufacturers attempt to capture each other’s business by. Over time this puts the manufacturer in a tight position. Once a cost increase is justified they look to recoup lost margins and go beyond that. When increases happen with regularity the negotiation advantage shifts heavily to the manufacturer. Customers will try to place advance orders, usually for more inventory than they actually need. This creates an artificial demand that gives the manufacturer the freedom to increase prices beyond what the true market is calling for.
The Steel Fabricating and Construction Industry Estimator
There is no way to predict when and how the Tariff battle will play out. For the time being the obvious idea is to build a cushion into estimates requiring Wedge Inserts and Askew Head Bolts.
The Steel Supply Company will continue to implement ways to maintain the costs. With Slotted Steel Shims we have already increased the volume per run and that appears to be slowing the cost increase. When stamping the shims, the first step is to load the large and very heavy Punch and Die Tooling into the Stamping Press, then carefully align the upper and lower members so there is no conflict between the two which may cause the shim to deflect or crimp. This process can take up to 4 hours, the cost of which is built into the per piece cost. By doubling the quantity per run the cost per piece for set up is cut in half. As well, doubling the incoming flat bar orders produces a minor but desirable decrease in raw material cost.
Conversely, Wedge Inserts are produced by a process know as Sand Cast Molding, in batches of 48 pcs. Each batch requires the same amount of time regardless of the ultimate quantity. Therefore, increasing the order size produces no effect in the cost.As always, we will continue to work on methods of minimizing the impact of the Trade Tariffs and supply our customers with the best quality products at the best possible price. When estimating a project feel free to contact a representative to get an idea of the options available.