How to Lessen the Impact of Tariffs When Purchasing Pallet Rack

John Geddes
July 3, 2018

Are you a commodities trader? Having knowledge of these speculative markets is not essential for investing in pallet racking; but it doesn’t hurt. Increasing prices are not a new phenomenon. Prices are continually in a state of flux, going up and going down to meet demand in the marketplace. However, the change imposed on the marketplace—tariffs on many products including steel and aluminum—is only one factor affecting steel prices. But the mention of tariffs draws considerable attention and angst.

Before going any further, this post neither favors tariffs nor is against the practice. It merely explains the current economic climate affecting the manufacture and sale of pallet racks.

Tariffs and other factors

The United States is the largest importer of steel in the world. According to the International Trade Administration, the U.S. imported 34.6 metric tons but had a net trade deficit [from steel] of 24.6 metric tons. The price tag for this steel in 2017 was $29 billion, up from $22 billion in 2016. The type of steel imported varied. However, the main types of steel imported were flat products (35 percent), semi-finished products (22 percent), pipe and tube products (22 percent), long products (19 percent), and stainless steel accounted for the rest. Flat products along with pipe and tube steel are used in the manufacture of pallet racks.

The price of steel has increased steadily since the fall of 2017 in response to a strong economy. The president’s talk of imposing tariffs has added another layer to the price increases. Even before tariffs against China and other countries were imposed, the mere suggestion of tariffs was enough to send steel suppliers scrambling to cover potential losses. The idea behind the tariffs are to protect national interests and ensure steel makers in the United States do not go out of business, making the country vulnerable to the whims of unfriendly governments. It also created a domino effect with manufacturers.

Many large manufacturers purchase steel in negotiated contracts. This serves as a buffer against short-term price fluctuations. However, few have enough steel reserves to ride out what may be a long-term trade war. Small manufacturers—and most rack manufacturers fall into this category—are at the mercy of rapidly rising costs. As a result, many manufacturers are passing price increases on to customers. Customers are seeing price quotes include escalator clauses and shorter windows of acceptance leaving few options.

Tariffs and rack prices

There is no getting around higher prices for new pallet racks. Pallet racks are manufactured from steel. No substitutes can withstand the weight of loads while providing the economy of space and strength. New pallet racks will cost more; and the cost will be substantial. Sure, the price of a single rack may cost a few dollars more. For any large installation, customers could see the price tag jump by several thousand dollars. Rack manufacturers likely will not negotiate favorable prices, as they must protect their investment. The effects of a prolonged trade war could cause smaller companies to close.

So what does this mean for companies in the market for pallet racks? There is quite a bit of uncertainty. If you purchased new racks but have not taken delivery, check your agreements, making sure the seller did not include an escalator clause without your knowledge or you may have a big surprise still coming. If you are still looking but have not purchased, you have a little flexibility.

Your rack options

One possibility is holding off until prices go down. This will save on the investment cost for new racks. However, you will need to weigh this decision against your need to expand. You may save thousands of dollars by waiting. But will the delay cost you tens of thousands in lost business? That is a possibility.

There is another alternative. Pre-owned racks are an excellent option. The current price of steel has little impact when purchasing pre-owned racks. However, you must do your due diligence. Have a plan based on what you need and deal with a reputable company that specializes in pre-owned racks. Given the current situation, it is possible you not only will receive a quality product, you will save money and the wait time for installation could make the investment even more appealing.

Are tariffs causing prices for pallet racking to become more expensive? Sure, but it is only one part of the problem along with supply, demand and market fluctuations.

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