Production Machining

DEC 2018

Production Machining - Your access to the precision machining industrial buyer.

Issue link:

Contents of this Issue


Page 29 of 51

CONTRIBUTOR Michael Guckes is chief economist at Gardner Intelligence, the research and market intelligence division of Gardner Business Media. He provides forecasting, modeling and consulting services to GBI clients and provides content for all Gardner brands. For more information about GBI, visit segments, in dollars, will include commercial air trans- portation followed by business jets and military aircraft. Of the many positive factors that will expand the demand for air transportation services in the coming years, International Air Transportation Association's (IATA) model for passenger growth in a contracting globalization scenario would cut air traveler growth by almost 30 percent from 8.2 billion to approximately 5.7 billion. e Association's October survey of airline CEOs indicates that 60 percent of them expect higher passenger demand and 52 percent expect higher freight demand over the next 12 months. While these results are good, they are lower than survey results from the prior two quarters. is may suggest that near-term growth may experience more headwinds, the report indicated that a significant cause for concern involves the growth trade tensions between the U.S and China. Outside of commercial markets, the demand for military aerospace products cannot be understated. Military demand is often driven by programs, which in the near future will be robust. e U.S. Air Force's requested budget for 2019 at $156.3 billion is a 6.6 percent increase over the prior year's. Specific and significant aircraft programs recognized in the budget include the procurement of new fighter jets and aerial refueling tankers. e combined outlook for the industry generally points to long-term growth based on solid fundamentals. Growing global demand for air transportation services combined with muted expectations of oil price volatility as previously discussed should provide many carriers with the confidence necessary to grow their businesses in the coming years. Tariffs. Tariffs have played a significant role in affecting business during the second half of 2018. e U.S. has been adjusting its trade position not only with China during 2018, but also many other nations. e latest tri-lateral agreement between the U.S., Canada and Mexico may see NAFTA replaced by a new tri-lateral agreement. In addition, Britain's exit ("Brexit") from the European Union is due to occur in late March 2019. In short, U.S. manufacturing will see significant impacts to the agriculture, aerospace and software industries because of the changing trade stance between American and China, Canada and Mexico. While China is the largest trading partner with America, almost 80 percent of that trade is imports from China. Conversely, when examining exports, America's exports to Canada, at almost 49 percent of total U.S.-Canada trade, represents a value that is 220 percent higher than America's exports to China. e situa- tion is similar with Mexico. In total, U.S. exports to Mexico and Canada are more than four times higher than to China. Imports from China equal more than 80 percent of total imports from Canada and Mexico to the U.S. Manufacturing executives who take a nuanced approach to navigating the current and pending trade volatility should consider if their greatest exposure(s) is on the supply side or on the sales side of their business. For example, are most of your firm's customers domestic while your supplies are imported? Or are your supplies domestically produced, while your most significant consumers are foreign-based? Correctly answering this question will likely require learning more about your supplier's supplier and your consumer's consumer. In Gardner Intelligence's consulting work with clients, we find that a firm must have a strong understanding of their supply chain and revenue risks before determining how to use limited resources to effectively and efficiently maintain and further grow a business. By diversifying across end-markets, a company may also be able to mitigate the unforeseeable impacts of the latest trade tariffs along with those trade changes that have yet to fully materialize. Doing so will allow manufacturers to take advantage of a broader range of unforeseeable market opportunities while also hedging against being overly exposed to a single unforeseeable market event. roughout 2018, there have been several rounds of tariffs put into place that have affected the price and volumes of aluminum, steel and machine tools of various kinds. In late September, the third and most significant round of Section 301 tariffs took effect, impacting $200 billion of imports across more than 5,700 tariff lines. Gardner's material prices reading indicates that almost every production machinist experienced material price increases, resulting from either the on-going economic expansion, tariffs or most likely both influences. Manufacturers who take a nuanced approach to navigating the current and pending trade volatility should consider if their greatest exposure is on the supply side or on the sales side of their business. 28 PRODUCTION MACHINING :: DECEMBER 2018 SPECIAL REPORT

Articles in this issue

Links on this page

Archives of this issue

view archives of Production Machining - DEC 2018