The Section 232 tariff on steel and aluminum that went into effect in March 2018 has had an impact on Mauser Packaging Solutions. The tariff, which was designed to support the US steel industry, has significantly raised the cost of steel, particularly in the United States. Steel related products such as our steel drums, cans, and IBC cages, account for 35% of our product revenue.
For many years MPS has been an active buyer of international steel for its US operations in both large and small packaging. While the majority of the steel used in our North America operations is sourced domestically, international steel has become an increasingly important part of our steel procurement program. Not only are international steel mills producing a high quality product at attractive prices, but they are producing products that cannot be sourced domestically as US steel mills are changing their product offerings. We currently import about 20-30% of steel used in our products.
Tariffs have been costly to not only MPS but most manufacturing firms who use steel as a raw material. Companies that are forced to spend money on tariffs are unavailable to spend that money for capital expenditure, hiring of additional employees, and development of new products.
What solutions do we have?
- Receive tariff exemptions from the US Government
As of January 2019, Mauser has submitted over 80 requests to the Department of Commerce petitioning for certain steel products to be exempted from tariffs. US steel companies have argued that they can (or will be able to) produce the products that we need. Unfortunately, the current system gives large interpretive latitude to the claims by the US steel companies, not matter the true reality. We will continue to actively file exemption requests.
- Manufacture metal components internationally
We are leveraging our international facilities to manufacture metal parts such as can handles and lids which can be imported as a product instead of a raw material.
- Lobby the US Government to revoke these tariffs
We are currently working with senators and congressmen in our manufacturing regions to explain the hardships that trade tariffs bring to our business. We will continue with these efforts as long as necessary.
- Adapt our production processes to increase sourcing options
We need to buy raw materials that have more commonality and are readily available on the market so that we are not limited to 1 or 2 suppliers. This will necessitate some changes on how we buy steel. Flexibility is the key.
As we focus in 2019 on raw materials as one of our critical success factors, it is important that we find solutions to the challenges presented by the Section 232 tariff without compromising our company's integrity or reputation. We will continue to petition the U.S. Government for relief from these tariffs as we remain committed to finding innovative solutions that enable us to provide an unparalleled range of quality products to our customers.