IF ANY trailer, truck body, or truck equipment manufacturer still believes his is a local or regional business, he has not bought steel lately.
Even the smallest manufacturer is competing with countries all over the world for the privilege of buying one of the world's basic building blocks.
And just as the sound of an approaching freight train can be heard farther away by putting an ear to the steel rails, the repercussions in the steel market are being heard loud and clear by those who fabricate steel, those who sell or install the finished products, and those who buy them.
According to London's Metal Bulletin, the world-market price of cold-rolled steel has gone from $375 per metric ton in July 2003 to $440 by the end of January. While this is a huge jump at a time when inflation has been historically low, it is not as severe as the additional increases some trailer and truck body manufacturers are reporting in early February — 30% and more.
As one of the speakers at the recent National Association of Trailer Manufacturers convention said, it's possible for a butterfly to flap its wings and eventually generate a storm on the other side of the world — which is exactly the location of China relative to the Western world.
The strong Chinese economy is one of several contributors to the current turbulence in the steel market. According to The Birmingham Post of the United Kingdom, China now consumes 30% of the world's steel supply — which has kept Chinese steel producers busy selling steel for domestic consumption instead of for export.
And it is not just U S manufacturers feeling the pinch. In the industrial heartland of the U K, rising steel prices are viewed as a greater threat to the area's fledgling economic recovery than a quarter per cent rise in interest from the Bank of England Monetary Policy Committee. The Birmingham Chamber of Commerce and Industry says that as a result of Chinese demand for steel, imports of steel into the UK have been drying up, The Birmingham Post reported.
Of course, it's easy to point to China for the turbulence in steel pricing, but there are other factors that hit closer to home. The steel market is still feeling the effects of the now-you-see-them-now-you-don't tariffs the United States had in place last year on imported steel.
Ironically, the devaluation of the U S dollar may have done more to revitalize the domestic steel industry than anything positive the tariffs accomplished. Suddenly, thanks to the sagging dollar, U S producers have a pricing advantage.
Unfortunately, the tight supply and resulting escalation in prices comes at a time when the long-awaited upturn in truck body and trailer demand finally arrived. Those manufacturers who saw the upswing coming increased orders sharply in the third quarter. But as one manufacturer told us, “I sure would not want to have empty shelves at the end of February.”
Some manufacturers are placing the blame at the feet of domestic manufacturers, saying that the surcharges demanded by the steel industry are an effort to recoup losses caused by past mismanagement and poor decisions.
The increase is hitting small manufacturers particularly hard. By contrast, General Motors reportedly has informed steel suppliers that the world's largest automaker has no intention of paying surcharges and fully expects steel companies to honor their contracts. The truck body and trailer manufacturers we know, however, do not have the financial clout of GM. Instead, the ones we have talked to are honoring the quotations they gave customers and are absorbing the cost increase themselves.
The pinch is especially painful for dump body manufacturers whose product is made almost exclusively of steel. Other manufacturers are feeling it, too. “Add up the steel we use and the steel components that we install, and more than half of our trailers are steel,” a platform trailer manufacturer told us recently.
Manufacturers are expecting the pricing turbulence to continue into the second quarter, with stability returning for the second half of this year.
If we were resourceful enough to make it through the last few years, we will make it through this, too. But we in the U S no longer are local, regional, or even national players. The guys at Disney got it right years ago. It's a small world after all. And our small, small world is linked together tighter than ever before.