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Talking tariffs

Politics aside, how are tariffs impacting construction costs in Dane County?

(page 2 of 3)

Case in point: Deacero, a Mexican company, acquired Mid Continent Nail, a Poplar Bluff, Missouri nail manufacturer, in 2012, and through the years doubled in size to grow to be the town’s largest employer.

But recent tariffs have forced the company to charge more for its nails — from a reported $27 for a box of 50 nails to $32.50 to cover the cost of the tariff — resulting in a 70 percent drop in orders over the past year, according to a story in the Chicago Tribune. At full capacity, Mid Continent employed 500 workers but had to cut 150 jobs in June, prompting executives to threaten a total shutdown. The problem, it claimed, was finding a U.S. company able to supply enough steel wire to continue production.

Mid Continent applied to the federal government hoping to be excluded from the tariffs, and after meeting with Commerce Secretary Wilbur Ross, left feeling “hopeful,” according to reports.

But they had to get in line.

As of Oct. 1, the U.S. Department of Commerce had received 35,872 such steel tariff exemption requests and nearly 6,000 had been approved, according to a MarketWatch report.

Whether or not the steel and aluminum tariffs are good or bad for the U.S. economy may depend on whether a company is a producer or a customer. While many metals manufacturers are expanding and adding jobs knowing they’ve gained tariff protections, customers like Cleary Building, which require and purchase metals for their livelihood, must pay the higher costs.

“We buy millions and millions of dollars worth of steel every year, usually from U.S. Steel,” Cleary says. In fact, Clearly Building Corp. has always purchased 100 percent U.S.-made steel because of its superior quality, he explains, suggesting that companies that try to lower costs by importing product may save money but risk quality.

Cleary cites another problem with imported products — sometimes the price quoted may not necessarily be the price companies pay when the product arrives in the U.S. “If you order a load with a three-month lead time, for example, and a tariff is applied in the meantime or something else changes, you’re responsible for the price hike when it gets into dock, which could be substantially higher.”

Cleary Building is also affected by tariffs on aluminum, which it orders primarily from Canada, a major exporter of the metal. “A lot of the components we use in our products are aluminum,” Cleary says, “including trim for doors and windows, and that drives up door and window prices.”

Those costs have increased 37 to 40 percent in one year, he says.

Does China affect the mix at all? Not necessarily, he says. “It’s kind of crazy because there’s only a small amount of steel that comes into the U.S. from China, but tariffs that have been put on European countries or Canada affects the prices of steel, aluminum, and lumber here. So it’s a real challenge. There’s no way a company could absorb all those increases and stay in business.”

Cleary Building Corp. frames its buildings with lumber. The U.S. grows a lot of lumber domestically, particularly in the south, he says, but Canada has always been a traditional resource. As recently as July, Cleary reported year-over year lumber costs rising between 50 and 75 percent on average, although he says they’ve come down somewhat since then.

Meanwhile, employers are struggling with the nationwide labor shortage. Cleary Building employs about 320 workers in Dane County and 900 nationwide, but the company also has about 200 job openings currently for a variety of positions at locations around the country.

“If you would have told me 35 years ago that my biggest problem would be finding people — just bodies to grow your company — I wouldn’t have believed it. It’s stunning to me, but that’s the world we live in now.”

Add to that a nationwide shortage of semitruck drivers as over-the-road drivers retire. At the end of 2017, some industry reports put that number at around 50,000. That, Cleary says, impacts deliveries, costs, and forces his company to carry more inventory than usual.

But weather this year, from snowstorms in April to unusually high rainfall throughout the Midwest, may have taken the biggest toll on the company’s operations in 2018.

“It’s a perfect storm,” Cleary says, with no pun intended. “We’ve got a good economy and a decent selling market, but all these other factors have made it a very complicated situation.”

Asked for his projections, Cleary suggests that if the tariff issue isn’t resolved by the second quarter of 2019, the country could be in for some economic pain. Some economists, he notes, are even suggesting a potential recession by late 2019. “Who knows? Economists look at things just like weather people. As great as technology is, sometimes it’s wrong.”

But Cleary believes there’s plenty of reasons for optimism, too. “Business is good and there are more people who’ve been out of the workplace that are now returning to the workforce because of the opportunities,” he explains. “I have a lot of faith in the United States. We’re the greatest country in the world, but with our 24-hour news cycle, everything becomes an issue and is always on the forefront of your mind.”

His advice is to just take a breath. “We’ve had bad issues forever. Every country does, and as human beings we tend to dwell on the negative, but I believe we’re still lucky to be living in the United States of America.”

Quality before price

Qual Line Fence Corp. in Waunakee has been containing children, animals, and landscapes for over 63 years. The company sells and installs residential and commercial fences of all types — chain link, ornamental iron, or plastic — but it specializes in customized wood fences usually made of domestically grown western red cedar. It does not use treated lumber and always uses steel posts.

Ray Statz founded Qual Line Fence in 1956 and ran it for 51 years, with wife Harriet joining as vice president in 1991. The second-generation took hold in 2007 when Statz’s son Al was named president and CEO. But make no mistake, the patriarch is still very much involved in the company, and he’s certainly no stranger to cost increases.

“Years ago, ’W’ [former U.S. President George W. Bush] put a 27 percent tariff on Canadian lumber. I couldn’t believe he would do that, but he did, and it’s still there,” Ray says. Fence boards are not really considered lumber, he explains, but they fall into the same category, which makes the company susceptible to increases.

“Within the last year or two, our wood costs have gone up about 25 to 30 percent and we have to pass that on,” he states, adding that they don’t always know why increases occur, whether specifically because of tariffs, shortages, or environmental issues.

(Continued)

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