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In January, Marc Bitzer, Whirlpool CEO, heralded Donald Trump’s proposed tariffs on appliances from China. Today, he is singing a different tune albeit a bit off-key. The reason? Donald Trump did not stop with tariffs on appliances. The far-sweeping hand of government extended to steel and aluminum. Today, steel prices in the United States are 60% higher than world averages.
The impact of the tariffs is translating to earnings. On July 24th, Whirlpool’ released disappointing second-quarter 2018 earnings. Shares closed down 14.52% for the day to $128.82. The stock is down 22.9% in 2018 and 31.5% over the past year. The reason? Commodity volatility in the areas of steel, plastic resin and freight costs. Whirlpool expects to pay about $350 million more this year for raw materials.
For Whirlpool, it is a double whammy: higher costs and softening revenue. In this environment, growth is tough. Whirlpool reported North American operations net sales of $2.8 billion (flat year-over-year). Rising prices of appliances will continue to soften demand.
Impact on Supply Chains
Tariffs are poison for today's global supply chain. As the Trump administration begins to impose new tariffs with China, with targeted levies on $34 billion in Chinese imports and a promise of further duties on additional $216 billion in Chinese products. Whirlpool will be the first in a long line of earnings releases with disappointing results. Today the only known is the unknown. As a result, warehouses are full, and port volumes are high. Port infrastructure is fragile, and freight costs are rising.
Port infrastructure issues are a greater issue to business continuity than natural disasters. With the uncertainty of tariffs, supply chain leaders are buffering inventories in the face of uncertainty. Container imports at California’s ports of Los Angeles and Long Beach, Calif., rose 8.4%. Approximately 70% of the Port of Long Beach’s import volume is directly related to China. Of that, approximately 7% would be affected by the first round of tariffs. This will add lead time/cost to shipments and increase variability. The result? Higher costs and issues with on-time deliveries.
Supply Chains Are Not Prepared
Over the last decade, companies have focused on cost reduction. Today's supply chains lack agility to adapt in the face of market shifts. Only one in four public companies consider their supply chains agile with the ability to deliver the same cost, quality and customer service given demand and supply uncertainty. Contributing factors include business process outsourcing, M&A and IT standardization.
Supply chains are complex, non-linear networks. The relationships between companies are complex and fragile. Business continuity is dependent on frictionless borders and reliable logistics. Both are being challenged.
