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Friday, 20 July 2018 17:34

STAYING PUT: Tariffs not likely to influence production decisions in short term, manufacturing execs say

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Executives at custom kitchen cabinet manufacturer Woodways say the recent tariffs and trade disputes will have no bearing on the company’s production plans in Zeeland. Executives at custom kitchen cabinet manufacturer Woodways say the recent tariffs and trade disputes will have no bearing on the company’s production plans in Zeeland. COURTESY PHOTO

New tariffs and an escalating global trade war in recent weeks have stoked fears that global manufacturers will move production outside of the United States to protect their margins. 

Those fears were fanned in part as companies like Milwaukee-based Harley-Davidson Inc. announced plans to shift some of its motorcycle manufacturing outside of the U.S. to avoid stiff retaliatory tariffs imposed by the European Union.

Locally, Zeeland-based office furniture manufacturer Herman Miller Inc. (Nasdaq: MLHR) said it was closely monitoring how the tariffs played out globally in deciding how to react.

“While stable overall, there are still pockets of political uncertainty, and we continue watching the recent U.S. actions related to tariffs and the responses from other nations,” President and CEO Brian Walker said during a quarterly conference call earlier this month to discuss the company’s financial performance. “As a result, we’ve proactively developed and continue to refine contingency plans.”

According to a report in Bloomberg, those plans include shifting production overseas if tariffs become too onerous to keep manufacturing in the U.S. However, a spokesperson told MiBiz the quotes from CFO Jeff Stutz included in the report were “taken out of context in response to theoretical questions of the escalating trade war.”

“One of the core tenets of Herman Miller’s manufacturing strategy is to produce goods as close to the end customer as possible,” Stutz said in a statement to MiBiz. “Keeping this in mind, we are continually developing and refining business contingency plans to best utilize our global supply base and manufacturing resources. This includes planning around sourcing decisions that could be made in response to escalating global trade tensions.

“With that said, based on current conditions we have no plans to relocate or otherwise negatively impact any of our West Michigan manufacturing operations.”

However, the push to locate production close to end customers has long driven manufacturers’ decision making, said Jim Robey, director of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. He doubts many companies are making long-term decisions based on the near-term volatility caused by the tariffs.

He cites the Harley-Davidson offshoring move as an example of that push for a localized production model.

“With Harley-Davidson, they had already planned to move production offshore because they wanted to move production closer to markets,” Robey told MiBiz. “This is not a short-term situation. With tariffs, it’s a volatile time right now. But, until more certainty comes into the market, I can’t see companies making big capital decisions to move production. It would be a quick reaction to a situation that hasn’t played out yet.

“In my opinion, large capital moves is a very strategic thing, not a quick-reaction thing.”

SABER RATTLING?

While the tariffs are cause for concern and pose challenges for manufacturers seeking to protect their margins, executives tell MiBiz they are only one factor in their production planning processes. In some cases, manufacturers don’t have the option to move production.

“In the relatively short time since tariffs and trade wars became front page news, no company could have credibly assessed and formulated a plan of action for major offshoring based on these issues,” said Jim Monterusso, president of the Wyoming-based HME Inc., a manufacturer of heavy-duty truck chassis and fire apparatuses.

From his perspective, Monterusso sees two possible scenarios playing out with the recent attention to companies considering offshoring production. He said either “the company already had such a plan well underway and the current tariff issue provides some coincidental cover,” or “the company is doing some saber-rattling to ensure public leaders are thinking through the potential consequences of an extended trade war or trade uncertainty.”

“I think we are starting to see some of (the latter) and are likely to see more, especially if the media and the public begin parroting these consequences as ‘done deals’ when they really aren’t,” Monterusso said. “After all, who loses if/ when one or more elected official announces later that they ‘saved’ American jobs from the crosshairs of the tariff threat?”

As many manufacturers strategize what to do next, Woodways Inc.’s Marta Fenu said the Zeeland-based manufacturer of custom kitchen cabinetry has no plans to move its production. According to Fenu, the marketing and business development manager for Woodways, the manufacturer had already set its development and expansion plans for the U.S. when the tariffs were announced.

In May, Woodways was acquired for $2.3 million by the Italy-based Zordan Group, which manufactures store fixtures and interiors.

“The market that we want to serve with Woodways is the U.S. market,” Fenu wrote in an email to MiBiz. “Our goal is to be sustainable locally and not subject to the influence of external elements we can’t control, such as duties and imports tariffs. So, basically, we are not affected as part of our strategy.”

UNCERTAINTY RISES

At Norton Shores-based Seabrook Plastics Inc., General Manager and COO Bill Veldboom said the tariffs are creating a lot of disruption within the automotive supply chain, but not enough to force a move of its production. The company serves the automotive, military, medical, consumer product, and food and beverage industries.

“There is an incredible amount of uncertainty out there,” Veldboom said. “One of our sales reps based on the east side of the state is completely focused on the automotive industry and he confirmed that all the major suppliers are developing contingency plans because it is not clear whether there will be any reprieve on tariffs.”

Veldboom added that his sales rep who just returned from China said major tooling suppliers are “reeling as uncertainty has disrupted their lives.”

The effects of the tariffs may take “some time … to ripple through the supply chain,” according to Veldboom.

“One of our customers that supplies Harley- Davidson reportedly expects some disruption, but not to the extent that plans have been communicated to move any production,” he said.

Similarly, Robey said the current conversation about tariffs and manufacturing should bring up issues related to uncertainty, rather than companies opting to move production elsewhere.

“Not knowing how much materials will cost — that may be hampering optimism, and I am just speculating,” Robey said. “When companies can’t plan for the future, that makes them nervous, but I think it’s more uncertainty than moving production.”

Read 2037 times Last modified on Sunday, 22 July 2018 19:09

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