Tariff Quote Watch: HD Supply’s Supply Chain May Need Restructuring If Price Rises Fail — Panjiva
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Tariff Quote Watch: HD Supply’s Supply Chain May Need Restructuring If Price Rises Fail

China 1843 Industrials - Capital Goods 283 Tariff Quote Watch 113 Tariffs 1249 U.S. 3445 Vietnam 169

Industrial supplies distributor HD Supply cut its 2019 earnings guidance to assume EBITDA growth of 6% from 8% previously, blaming a mixture of poor weather conditions and increased tariffs on imports from China, according to S&P Global Market Intelligence.

CEO Joseph DeAngelo has indicated the firm will “negotiate lower prices on Chinese products by taking advantage of the strength in the U.S. dollar and incentives provided by the Chinese government to their manufacturing base“.

Should that not be possible the firm will “pass on the unavoidable cost increases from the rise in tariffs through price increases” though profit margins may be trimmed according to CFO Evan Levitt.

There’s already evidence at the macro-economic level of price reductions in response to tariffs. Panjiva analysis of official data shows U.S. import prices for chemicals from China fell 5.7% year over year in April, while those for plastics fell 1.8% and metals by 0.5%. Prices for machinery have yet to decline, though inflation has slowed to 1.6%.

BASIC IMPORT PRICES ALREADY FALLING IN RESPONSE TO TARIFFS

Chart segments import price inflation from China by product. Calculations based on BLS data.  Source: Panjiva

Panjiva data shows the company is also reorienting its supply chain away from China, with imports from there having fallen by 35.7% year over year in the three months to May 31. Supplies from China accounted for 80.0% of the total in 2018 and have been partly compensated for by a 13.8x increase in imports from Vietnam and a 38.2% rise in shipments from South Korea.

HD SUPPLY ALREADY TURNING TO VIETNAM TO REPLACE CHINA IMPORTS

Chart segments U.S. seaborne imports by HD Supply by origin.  Source: Panjiva

Further adaptations to HD Supply’s imports should prove do-able given it already sources alternative for its top three import lines from outside China. It may face more challenges for shipments of taps / valves (HS 8481 with 410 TEUs imported in the past 12 months) and metal hinges / mountings (372 TEUs) where it does not have significant alternative sources.

MAJOR PRODUCTS ALREADY HAVE ALTERNATIVES, BUT NOT ALL

Chart segments U.S. seaborne imports by HD Supply by origin and product (HS-4) in the 12 months to May 31, denominated in TEUs.  Source: Panjiva

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