08.03.2018

US crane prices set to rise

Donald Trump’s threat to impose a 25 percent across the board import tariff on
steel, not to mention the 10 percent on aluminium, is already adding to recent steel price increases, and is set to push steel prices in the USA way beyond levels seen for some time.

Equipment manufacturers producing products where steel is a major component – such as cranes, telehandlers and large aerial lifts, are of course unable to absorb the likely price increases and are already drawing up plans to pass this on to their customers.

Terex is the first company to publicly state its plans which will include a steel surcharge which is transparent and separate from the base cost of the crane. Its chief executive John Garrison issued a public letter to the company’s customers yesterday which is published in full below:

Dear Valued Terex Cranes Customer,

As you have undoubtedly heard, on March 1, 2018 the Trump administration announced its intention to impose tariffs on imported steel and aluminum. Steel prices have been rising steadily for several months, and this action drove prices even higher, reaching heights not seen in many years. The longer term impact of the trade action is uncertain, but the inflationary impact on steel prices and related components is already increasing our product cost.

Terex is committed to continuously improving efficiency, managing costs, and when possible protecting our customers from the adverse impacts of rising costs – to help maximize the value and return on investment derived from our products. Unfortunately, the impact of the rising cost of steel is too large and too sudden for us to absorb.

Given the uncertain nature of these market dynamics, we are not increasing our base prices. Instead, we will be adding a steel cost surcharge on our equipment.

The surcharge will cover a portion of our cost increases – and will remain separate and transparent from our base prices. As the price of steel normalizes, we will adjust or remove the surcharge. Our aim is to minimize the impact on your business. We are still finalizing the details of the surcharge – your Terex representative will communicate with you very soon.

We regret that we have been forced to take this action. As a global manufacturer, we value free and fair markets, and see the imposition of these tariffs as a significant source of friction in the global economy.
It is particularly frustrating to have these added costs imposed now, creating unnecessary headwinds at a time when markets are trending favorably.

Thank you for your business; we look forward to continuing to serve you.


Yours sincerely,

John Garrison
President & CEO

UPDATE: Steve Filipov of Terex Cranes has now written to customers confirming that a 3.5 percent steel surcharge will be immediately applied to US built Terex cranes, while prices for Demag cranes built in Germany, will increase between two and seven percent - due to the higher steel and component prices. The increases will not apply to firm orders already placed and in the company's backlog/order book.

Vertikal Comment

One has to hope that common sense will prevent this crude and broad brush tactic from actually coming into force. If not it could threaten the global economic recovery and most particularly US manufacturing jobs, with equipment and automobile production alone providing almost 30 times the total number of jobs in the steel industry.

According to department of labour statistics the numbers employed in US Iron and steel mills and ferroalloy production has declined from 187,200 in 1990 to 84,900 now, much of it due to new production methods and plant modernisation (which has seen global steel employment more than halved in the same period). But also due to tougher competition from imports of course. In contrast the US equipment manufacturing sector employs 1.4 million in primary production, with many more than this in the supply chain. The US car industry is not far behind in terms of the number employed with 1.1 million jobs.

In 2002 George Bush tried a similar tactic with a 30 percent steel import tariff which only succeeded to stopping the decline in employment for a while. A year or so later when he pulled the measure due to the developing trade war the fall in employment saw a minor pick up – probably due to the fact that the threat on US manufacturing was lifted.

The move is if anything a gift to equipment importers who will be less affected by the 25 percent tariff. It also demonstrates how in the global economy attempts to protect specific industries can have a major knock on effect on others - which in this case might benefit from cheaper steel. There may well be a case for targeted anti dumping or unfair trade practice tariffs on specific countries or manufacturers, and if so these can and should be targeted.

How many times do we need to learn that knee jerk blanket protectionism simply does not work in the modern age?

Let us hope that sanity reigns before this gets too ugly.