With steel and aluminum tariffs between the U.S. and Canada lifted, North America’s service truck sector is eying possible price drops and the ratification of a new North American trade deal.
Just over a year ago, the U.S. government of President Donald Trump imposed import duties of 25 percent on Canadian steel and 10 percent on aluminum.
Ostensibly the tariffs were a tactic to push for a new North American free-trade pact, known as the U.S.-Mexico-Canada Agreement, a.k.a. USMCA. But their sudden introduction proved controversial because President Trump invoked an obscure clause in U.S. trade legislation — Section 232 is meant to address national security issues, not economic ones.
The U.S. initially spared Canada and other key trading partners though a temporary carve-out. However, this expired on May 31 of last year, and one month later Canadian Prime Minister Justin Trudeau slapped retaliatory tariffs on a variety of U.S. imports, including steel and aluminum.
The tariffs brought uncertainty to markets and led to a spike in steel and aluminum prices, with automotive markets feeling a significant impact.
Bang, tariffs lifted
Don Moore, director of government and industry relations with the Canadian Transportation Equipment Association, told Service Truck Magazine he was at his desk on a Friday afternoon in late May when news feeds on his computer announced the tariffs had been lifted.
“It was like bang, bang, bang, and I put out a very quick announcement to our membership,” Moore said.
While the removal of the tariffs potentially heralds price reductions for Canada’s truck equipment sector, Moore said it remains to be seen if steel suppliers and truck and trailer manufacturers will pass on the savings.
“(Prices) were already starting to rise before the tariffs got put on,” Moore said. “The trailer industry was doing quite well, so there was a supply-demand issue with regards to those products.”
Canada’s truck equipment sector is relatively small, doesn’t generally order directly from steel mills, and so was mostly unable to qualify for government measures designed to help industry recover some duty-related expenditures while the tariffs were in place, Moore said. “Our members aren’t quite big enough to be the importer of record of some of these products that duties were being put on to, so they took pretty much the full hit of any increases,” he said.
Still, business carried on pretty much as usual thanks to strong markets for truck up-fitters and body manufacturers, distributors and suppliers higher up the supply chain. “They (customers) needed that product, so their margins were limited because of that,” Moore said.
While the jury’s out on where steel and aluminum prices will land with the tariffs removed, Moore said the business mood seems positive. “I think everybody’s pretty happy that the tariffs are out of the way. There’s still a lot of uncertainty and a lot of things have to settle out, but everybody’s feeling a little more positive it will go in the right direction. We can now focus on other things.”
Other factors in play
At the National Truck Equipment Association, market data and research director Steve Latin-Kasper also welcomed the lifting of the tariffs. He explained that, while it’s reasonable to expect price reductions to match the percentage the tariffs imposed, other factors will also ultimately affect pricing.
While steel and aluminum prices should technically return to where they were prior to the tariffs, roughly a year’s worth of inflation that occurred while they were in effect would have raised prices regardless and must therefore be factored in, Latin-Kasper said.
It also takes time for existing material supplies to work their way through the system. “It took about a half a year for pricing to stop adjusting to the tariffs between April and the end of 2018, and you’re probably going to see that same process now of price adjustments as we go forward,” Latin-Kasper said. “We’ll see how it goes.”
Asked if he’s worried mills might try to keep prices high despite the removal of tariffs, Latin-Kasper said he doesn’t see this as a significant threat because there’s considerable competition in the steel and aluminum sectors in the US. “That’s why it takes awhile. They react to each other as prices start changing, and over the course of time you finally get to what becomes the new level.”
While the tariffs are lifted with Canada, and Mexico was also included, President Trump has put Mexico on notice for a separate round of tariffs, starting at five percent and possibly ramping up, if the southern neighbour doesn’t take steps the US approves of to contain migration from Latin America.
Ongoing trade talks with China, coupled with a dispute over the arrest of Huawei executive Meng Wanzhou could further complicate matters. “It’s difficult to predict what’s going to happen,” Latin-Kasper said.
With the USMCA dependent on Congressional approval, Latin-Kasper said strong support from business sectors might help see the deal through. “There’s a lot of political support from the business community in general throughout the U.S. so I feel that it will probably be done in the not-too-distant future. But no one knows for sure.”
Service truck insiders have expressed gratitude the tariffs are dropped and anticipate price reductions in the not-too-distant future.
Large inventories remain
Jim Guest, sales manager with Pride Bodies Ltd. in Cambridge, Ont., said any easing on pricing will take time because the all-aluminum service crane body-maker has a large inventory of aluminum and steel sheeting already paid for under the tariffs.
“Until we exhaust that supply of product and our suppliers exhaust that supply of product it’s not going to have a positive effect on our customers from a price point of view,” Guest said, anticipating a roughly six-month turnaround.
Given that the tariffs apply mainly to the sheeting portion of its product, overall costs have risen by $800 to $2,000 per unit as a result, Guest said. He added that 90 percent of what Pride builds in Canada remains there, with roughly 10 percent exported to the US.
Still, demand has remained strong, Guest said. “Last year at this time I was quoting November/December delivery and now I’m quoting February/March delivery. And some large manufacturers in the U.S. are out to 48 to 52 weeks.”
Albert Ribeiro, marketing manager, for Wilcox Bodies Ltd., says the tariffs proved costly to Ontario-based body manufacturer.File photo: Keith Norbury
At Wilcox Bodies Ltd. in Milton, Ont., sales and marketing manager Albert Ribeiro said orders booked prior to the price spikes that resulted from the sudden imposition of the tariffs proved costly for his company. “We couldn’t go back to the customer and ask for more money, so we took a hit on a lot of jobs,” Ribeiro said.
Wilcox wanted to reduce labor costs but business remained so strong even with the tariffs that the company actually had to hire additional personnel to fulfill orders. So, rather than layoffs, Wilcox is improving tooling and increased production efficiency in order to keep pace.
This experience ultimately gave Wilcox insight as to how to plan for future crises. “We just have to make sure we can cover ourselves, especially on units that are going to take about a year’s turnaround time, if this happens again,” Ribeiro said.
China tariffs still a problem
Venco Venturo Industries LLC is a Cincinnati, Ohio-based manufacturer of telescopic service cranes and underbody conversion hoists for dump trucks and flatbeds. President Brett Collins said business wasn’t too adversely impacted by the North American tariffs.
“The tariffs that are affecting us most significantly are from China,” Collins said, explaining that the manufacture of primary components such as rotation devices, winches and valves have over the years been outsourced to Asia.
“It’s been a long-term trend,” Collins explained. “It’s not the raw steel that has affected us. It’s these components that can only be sourced from Asia that have dramatically impacted us.”
Collins said the U.S.-China tariffs, which remain in place, have resulted in multiple, successive price increases starting early last fall.
“We’ve been shopping, looking around for alternatives, and there’s a few here and there. But we don’t automatically have domestic alternatives to key components that are only manufactured in China.”
Mexican duties also worrisome
“We have a couple specific parts we get for our product that come from Mexico that are made of steel and aluminum, and tariffs would drive up costs.”— Aaron Sage, president, Sage Oil Vac
At Amarillo, Texas-based Sage Oil Vac, CEO Aaron Sage is glad the steel and aluminum tariffs are off, yet any new U.S. duties on Mexican imports would again raise his company’s import prices.
“We have a couple specific parts we get for our product that come from Mexico that are made of steel and aluminum, and tariffs would drive up costs,” Sage said. He added that if the government of Mexico enacts a matching, retaliatory tariff, this would affect the price for customers in Mexico.
Still, tariffs are only part of a broad economic picture. While they influence prices, so do other factors.
“I would think the Canadian-U.S. dollar has more of an effect on how much we export into Canada than do the tariffs,” Sage said. “But to be honest I don’t know that we’re doing enough volume up there to really see a difference.”
At the end of the day, Sage takes a glass-half-full view of tariffs.
“We need to take the short-term inconveniences with the faith that we’re going to have better and more robust business in the United States here in the long term. I’m hoping they’ll make our market and business climate more robust in the future.”
— Saul Chernos
Saul Chernos is a freelance writer based in Toronto.