The National Retail Federation reported Aug. 9 that imports at the nation’s major container ports have set new records this summer and are expected to set another one this month.
The federation and Hackett Associates, a consultant to the international maritime industry, issued the monthly Global Port Tracker report, which indicated that retailers appear to be stocking up before new tariffs on most consumer products take effect.
“We’re seeing new record levels every month,” National Retail Federation Vice President for Supply Chain and Customs Policy Jonathan Gold said. “Much of that is to meet consumer demand as tax reform and a thriving economy drive retail sales, but part of it seems to be concern over what’s to come. The good news for consumers is that avoiding tariffs holds off price increases.”
Such increases are inevitable, however, if the trade war continues, Gold said.
“Global Port Tracker has only marginally downgraded imports for 2018, but we expect to see a larger downturn going into 2019 resulting from the trade war, as well as a slowing down of the economy,” Hackett Associates Founder Ben Hackett said.
Ports covered by Global Port Tracker handled 1.85 million Twenty-Foot Equivalent Units in June, the latest month for which numbers are available. That was an increase of 7.8 percent over June 2017. A TEU is one 20-foot-long cargo container or its equivalent.
The June imports set a new record for the number of containers imported during a single month, beating the previous record of 1.83 million TEU set in August 2017.
The record-breaking pace is expected to continue in July and August. July imports were estimated at 1.88 million TEU, up 4.4 percent over last year. August is forecast at 1.91 million TEU, also up 4.4 percent over August 2017.
Although cargo numbers do not correlate directly with sales, the record imports mirror strong results seen by retailers this spring and summer that are expected to continue through the remainder of the year.
The National Retail Federation calculated that U.S. retail sales, excluding automobiles, restaurants and gas stations, were up 4.2 percent in June over the previous June and increased 4.4 percent on a three-month moving average. The federation is forecasting that total 2018 sales will be up between 3.8 percent and 4.4 percent over 2017.
In Colorado Springs, sales tax collections are pointing to retail sales increases that are running ahead of the national averages.
Sales tax collections in June, which reflect retail sales in May, totaled $14.2 million, a 6.3 percent increase over June 2017.
Merchants in miscellaneous retail sector of the city’s economy, which includes purchases from Amazon, posted a 17.4 percent increase in June sales tax collections as compared with June 2017.
But sales tax collections from department and discount stores declined in June by 10.4 percent from the numbers posted in June 2017.
For the year to date, sales tax collections in Colorado Springs are running 5.27 percent ahead of collections in the same period of 2017.
Manufacturers getting hit
While retailers have been able to stock up in advance of the trade tariffs taking place, manufacturers that use steel and aluminum have been less able to lock in lower prices and stock up on materials ahead of the Trump administration tariffs.
When President Trump announced in March that the United States would impose a 25 percent tariff on imported steel and a 10 percent levy on imported aluminum, domestic producers and distributors started raising their prices.
According to Trading Economics, which tracks economic data from exports to commodity prices, steel prices are up more than 9 percent this year to date.
Local manufacturers are dealing with volatile prices, shortages and uncertainty about the future.
“We’re seeing price increases of 20 percent-plus in the aluminum and steel we use,” said Doug Rhoda, CEO of Diversified Machine Systems.
The firm is one of only a few companies in the country that produce machines for other manufacturers.
“Generally, because of the strong economy, we are having trouble with some components that we source globally, with shortages and long lead times. It’s a challenging environment for supply, forcing us in some cases to increase our prices.”
The company uses raw aluminum and steel for the frames of its machines. Diversified Machine Systems buys its steel from a domestic service center and has seen some price increases in anticipation of the tariffs.
Other components, including precision rails, gearboxes and bearings are sourced globally and are in high demand right now, Rhoda said. That has resulted in shortages, extended lead times and increased prices.
“We anticipated some of this,” he said. “We did make some larger purchases of high-value components in advance to try to impact our lead times for our customers. We did make some attempts to get small contracts, but we’re too small a buyer.”
The price increases have been difficult to swallow.
“It requires us to pass them on to our customers,” Rhoda said. “That’s dangerous, inflationary pricing. Our supply management team is trying to develop alternative sources, stay on top of changes and costs, and buy in quantities we think we need in order to meet lead times we need to be competitive.”
While demand is still very strong, “it’s a challenge to maintain profitability with costs increasing,” he said. “Our challenge is to make sure we’re getting commensurate price increases and delivering on time, even with delays in key components. It’s a very dynamic, volatile time, where we’ve got to adjust quickly as needed.”
Springs Fabrication, which engineers, designs and builds metal products for customers including oil and gas, government, mining and general industry, also is at the mercy of the market.
The company did buy ahead on some jobs that had already been contracted, President and CEO Tom Neppl said, but “we are a custom business. We can’t really pre-buy; we don’t know exactly what we’re going to need.”
The company started to see major commodity price increases last spring, before the tariffs were put in place.
“There was a lot of what I would consider people taking the opportunity to raise prices well ahead of costs,” Neppl said. “Steel mills and large service centers that distribute steel both definitely took advantage of the market. They got really carried away; it was really unpredictable. The consumer always ends up with the bill.”
Prices have leveled off now and stabilized “at a pretty significant increase as to what base prices were,” Neppl said. “We have done what most people have done in our industry, coming out with terms and conditions that clearly state we pass increases through to the client. We’re not in position to absorb those price increases.”
Neppl said he is now concerned about the economy in general: “Is inflation going to drive pricing to the point where it slows things down? Our industries are in rebound; we are seeing significant activity increases this year over the last two years. The industry itself can handle where we are currently, but if it goes up substantially, it will be a problem.”
Although the immediate effects of the tariffs have caused heartburn for manufacturers like Springs Fabrication, “I don’t dispute that we need to address the problem,” Neppl said. “In manufacturing, we’ve been dealing with an unlevel playing field with China and some other countries for a long time, but I can’t tell you whether it’s being done the right way. I don’t know if Trump has a definite strategy behind what he’s doing.”