Tales of the Tariffs - MPI
MPI, Inc. designs and manufactures capital equipment for the investment casting industry.
We export custom machinery and parts all over the world including China, Europe, Japan, India, UK, Mexico and others. Exports comprise a large % of our sales. As for imports, we import electronic and pneumatic components from Europe, and steel from Canada. We also rely heavily on US steel suppliers who have also announced price increases based on the supply/demand dynamics created by the tariff on Canadian steel. Many electronic components we use are comprised of parts from China and will also likely be negatively impacted by supply chain disruptions.
MPI will see significant impact to our business because of US/China tariff situation. China represents a major segment of our customer base, so we are facing the potential for a significant loss of a major sales revenue stream. The smaller reciprocal tariffs being implemented by Europe and others may also impact demand for our products in those markets. On the supply side, we are already being negatively impacted by higher input costs as supplier price increase announcements are arriving to us daily.
The short-term impact is that we have over $1M in current orders of highly customized equipment that is either in transit to China or in the process of being made in our factory for customers in China. Our customers cannot afford to accept the orders with the current 125% tariff and are declaring force majeure. We have been forced to turn around shipments that are on ocean vessels at significant cost to us.
Additionally, we are in the position of having to pay for the material, parts, and labor used to produce these orders, now without the sales $ to back up those expenditures. It will be very difficult to find other customers for this equipment quickly since it is highly customized and will require extensive reworking to sell it elsewhere. It is likely that we will have cash tied up in these machines for many months.
The tariffs will also create many longer-term impacts. We manufacture very specialized equipment and rely on worldwide demand to support our current business model. Without demand from international markets, our sales will be lower. Since we operate in such a specialized, "niche" market, there isn't much untapped potential for our equipment here in the US to help bridge the sizeable gap.
Additionally, when there is uncertainty in the economy, businesses typically hold back from high dollar spends such as investing in capital equipment. When you add to that the higher input costs that we will have to pass along (considering steel comprises such a high % of our product), it will further deter customers from buying. It seems inevitable that the future is going to be very, very, (VERY!), challenging. Layoffs are a possibility. Cash flow will be a problem that hurts our supplier relationships. Supply chain disruptions are inevitable.
I hate to speculate, but we are looking at a potentially catastrophic circumstance (dare I say, perhaps worse than the pandemic??) that could reshape the business landscape.
On the bright side, we have strong demand for automation/robotics in the US, a solid reputation in our industry, and a great/creative workforce. We will be looking to capitalize on those strengths as much as we can during the stormy times ahead. MPI is a strong company that has been around for over 50 years, and we plan on staying around for much longer.
COI, PLEASE ADVOCATE FOR US WITH GOVERNMENT OFFICIALS!! WE NEED YOU MORE THAN EVER!!