June 1, 2018

Trump's tariffs on steel imports could cause price hike in material handling equipment

Potential impact would be muted by strong demand for warehouse products to handle e-commerce orders, consultant says.

By Ben Ames

With the Trump administration's tariffs on steel and aluminum imports taking effect, some have voiced concern that the policy could dent the sales of steel-intensive material handling products such as racks and shelving.

However, any potential decline in investments in material handling equipment (MHE) will likely be muted by the tremendous demand for warehouse equipment driven by the fast growth of e-commerce sales, one expert said.

The Trump administration has levied a 25-percent tariff on steel and a 10-percent tariff on aluminum imports from the European Union, Canada, and Mexico, saying the move addresses U.S. national security concerns, including a global oversupply of the products. The tariffs follow similar levies on imports from other countries, including Russia and China, in March.

In a statement, the White House said that "current quantities and circumstances of steel and aluminum imports into the United States threaten to impair national security. These excessive imports are driven in large part by the worldwide glut from overproduction by other countries." Imports threaten to impair U.S. national security because further closures of domestic production capacity would make it harder to meet demand for critical raw materials in a national emergency, the Administration said.

Some in the business community are skeptical of that argument, voicing fears that tariffs could trigger repercussions across the U.S. economy, forcing steel and aluminum users to raise their prices to cover the higher prices of raw materials.

That effect could be particularly strong for providers of material handling equipment such as warehouse rack and shelving products, whose prices are directly influenced by the cost of steel, Paul Huppertz, a director at Crimson & Co., a London-based management consulting firm with U.S. offices in Atlanta, said in an email. It could also have a lesser impact on lift trucks, conveyors, and other types of warehouse automation, forcing additional price hikes, Huppertz said.

Yet the overall hit is unlikely to be severe, Huppertz said. "As far as impact on growth and investment, I don't see it making a big dent," said Huppertz. "There will be some projects that fail to be approved since the higher cost exceeds the expected benefit. But the bigger projects, especially in this e-commerce fueled boom, will likely continue."

Pallet-rack products will probably see a the biggest impact in unit cost compared to other categories of MHE, but racking is not usually the "big ticket" cost item in a new DC or expansion project, he said. "Bottom line, the price increase will dampen demand for MHE slightly, but strategic business drivers and expansion of digital channel capabilities will continue to be hot," Huppertz said. However, the tariffs could also send ripples through related parts of the industry if U.S. trading partners respond to the newly-imposed trade barriers by increasing tariffs on American exports, according to the Alexandria, Va.-based freight broker trade group Transportation Intermediaries Association (TIA). That could hit the business conducted by third-party logistics (3PL) providers, which play a growing role in increasingly digital global supply chains, the group said.

"TIA strongly supports the removal of barriers to the flow of goods in international and interstate commerce," it said in a statement. "Issues such as the tariffs on steel and aluminum, and the renegotiation of trade pacts like the North American Free Trade Agreement, will have a major impact on 3PLs and their customers."

About the Author

Ben Ames
Senior Editor
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

More articles by Ben Ames

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