It’s A Free Market! (Or Was.) More On Direct Sourcing And Metals Prices

As you might suspect, I got a lot of response to my last FER Dealer Report opinion piece on the quandaries of dealers sourcing directly from Asia and elsewhere. (See "What Are Dealers Doing In China?" And, as you might also imagine, most of the response was from OEMs and manufacturers’ reps telling me: 1) How brave I am, and 2) Essentially yelling “right on!”

I wrote back to them all and said, no, I’m not that brave. I’ve just been hanging around a long time, have friends at every level of this wonderful business and so sometimes can get away with saying things others can’t. And for nearly two weeks, I also told them that while I heard from more than a dozen manufacturers and reps, I hadn’t heard from any of my dealer friends.

I did hear from a friend who, you might say, plays the middle. He astutely noted that of course I would defend the OEMs because media companies such as FER are more or less completely dependent on branded OEM advertisers. And that’s true to a point, except that FER also has quite a few dealer advertisers, many of which are sourcing directly either through their own organizations or their buying groups or both. Remember, given FER’s diverse circulation and product comparison format, we have to love all our friends equally, even those sometimes mean chain E&S buyers.

But then last week, I did hear from a couple of prominent dealer friends. One first threatened to fit me for cement shoes and throw me off his yacht. But I think he was joking because he went on to say “Ain’t America and the free market grand?” And then finished with “Peace and Love!” I think he was joking.

But the missive from the other was equally interesting. He said his company looked at direct sourcing a couple years ago and decided, for exactly the reasons I cited, to not source directly and make that a point with their OEM suppliers. If you think about it, this is a similar strategy to what parts distributors such as Heritage Parts, Parts Town and 3Wire have pursued. (Full disclosure: Heritage and Parts Town are also advertisers.)

I know there are no easy answers or simple routes to success in this regard. When broadliners and nontraditional distributors are direct sourcing,  it becomes a way for traditional dealers to compete.

And one of the reasons I’ve always supported free trade, in spite of what most of you know is my liberal political slant, is that I don’t believe one can or should try to restrict it. Let those who can make things most efficiently and of the highest quality at the most affordable cost do so. Folks gotta eat in China and Bangladesh too. Though of course as a country, one should strike the best deals possible and then support and re-train those hurt by the fall out. At the end of the day, issues such as this one are seldom black or white, but there is lots of evidence that restricting trade eventually hurts everyone.

This doesn’t mean I’m backing off what 1 said a couple weeks ago. It’s still hard to ask to have it both ways.

Which brings me back to metal prices and the Trump Administration’s various tariff gambits. I received last week the latest metals price reports from Metal Miner. The good news is prices for aluminum and copper moderated some over the past month, at least on a global average basis ((MM tracks prices worldwide and also domestically). On a global basis, even the trend for raw steels (carbon steels such as hot-rolled and cold-rolled coil, galvanized etc.), which have doubled in price the past two years, softened a bit worldwide.

But the global number masks what’s going on in the U.S., where prices for carbon steel rose again. Stainless steel prices also crept up again, both globally and in the U.S., where rising nickel prices are leading local suppliers to raise their surcharges.

I also met with a well-known manufacturer last week. He said they fortunately bought metals forward beginning almost a year ago, and have been OK so far. But he fully expects his core metal costs to rise and is pursuing strategies to minimize any increases.

One of the most interesting charts I’ve seen in some time, also in Metal Miner, was a look at raw steel prices in China, where the threat of the tariffs have driven down prices, versus the U.S., where prices have spiked. This is exactly one of the fears NAFEM and U.S. OEMs have about the steel and aluminum tariffs. If metals prices are lower in China, and the finished goods made from them, including foodservice equipment and supplies, are not on the tariff lists, doesn’t it make sense to source or manufacture the finished goods in China, rather than buy the metals at higher costs and make the products here? And how is that supposed to support job creation in the U.S.? It’ll be interesting to see how it all plays out. Good luck with it and I mean that. We’re going to need it.

Cheers,

Robin Ashton

Publisher