The recent government shutdown has furloughed thousands of employees at a time of year when consumerism keeps manufacturers and retailers their busiest. The connection between the Affordable Care Act and the shutdown make the response to the impasse especially interesting in manufacturing, as the changes in health care have been an ongoing concern for manufacturers. What is the effect on manufacturing and retail so far, and how could that change?
Not surprisingly, the biggest impact the shutdown has had on manufacturing is with those companies tied to the US government. Companies that have contracts with the Department of Defense are experiencing a variety of effects. Some of these include: halts in production, delays in shipping, and other standstills due to required inspection and authorization from federal officials. Representatives from the Defense Department and the Federal Aviation Administration, for example, who need to sign off on products and planes are not on duty because of the shutdown. Delays on existing products and equipment are not the only setback. Delaware Steel Company of Pennsylvania, a metals distributor, had a $150,000 government contract fall through because the buyer couldn’t get the government paperwork done.
In other cases, no immediate effects are evident, but manufacturers are cautious about that changing soon. Firms like PGT Trucking and Huntington Ingalls Industries, Inc. – the Navy’s largest shipbuilder – have yet to see any impacts or absences. However, representatives from both companies anticipate that to change if the impasse goes on much longer.
Exports and Imports
The absence of inspectors and the delay on paperwork may soon affect exports and imports, though imports especially are solid at the moment. The Global Port Tracker report shows that import volume at US major retail container ports is expected to grow 9.1% this month over October of 2012. Tom Andels’ MH&L article, “Government Shutdown Isn’t Slowing Imports” looks at this anticipated growth. The author quotes National Retail Federation (NRF) Vice President for supply chain and customs policy Jonathan Gold: “With the holidays nearly here, retailers are making sure their shelves are well-stocked. Cargo is continuing to move through the ports but the government shutdown has left some agencies short-handed, so NRF will monitor the situation closely as the holidays approach.”
Merchandise that accounts for the increase in container imports coincides with the holiday season. It takes three months for goods to get through the supply chain and onto shelves, so retailers order months in advance in anticipation of the holidays. If the NRF can keep up with the orders, imports will hopefully see little to no backlash from the shutdown.
Exports may be impacted because of the process in which material goes through before it reaches the port. In the article, “Layoffs and Production Disruptions Loom at Firms Tied to U.S.” by James R. Hagerty, Doug Cameron and John W. Miller of The Wall Street Journal, exports are a reported concern for some manufacturers. The authors refer to Superior Products LLC in Cleveland; it exports 30-40 percent of its products, some of which carry liquid natural gas used to fuel trucks and other vehicles. Their Executive Vice President Greg Gens says, “If our ability to export is hurt by backlogs of paperwork and inspections, we would be hurt quite a bit. It won’t take long for our customers overseas to start looking for other people to fill their orders.”
The retail industry is affected by the shutdown – or anticipating an effect – in a few ways. Shelly Banjo of The Wall Street Journal digs into the topic in the article, “Retailers Weigh Into U.S. Government Shutdown Debate.” A major theme in the article is that of consumer confidence. A shaky government does not invoke a desire to spend, even for charitable reasons. According to Banjo, retailers like Wal-Mart and Macys already experienced a “muted” back-to-school season this year. Effects of the shutdown can make companies like these very nervous about their year-end sales and inventory. On the flip side, there have been steady improvements in hiring and the housing market. As people continue to see a bounce-back from the recession, consumer confidence should continue to grow.
Despite the optimistic look on imports, any snags in this sector will throw a giant wrench into holiday season preparation, and it has retailers nervous. Delays in US Customs and the FDA that affect imports will definitely hurt manufacturers, retailers, and the supply chain. Whether or not this happens is yet to be determined.
Overall, the general feeling doesn’t seem to be one of panic – at least not yet. Manufacturers may even hope to come out ahead by the end of it. The Hagerty, Cameron, and Miller article refers to Hamill Manufacturing Company’s chief executive Jeff Kelly, “Despite the disruptions, Mr. Kelly said he supported the efforts of House Republicans to use the budget impasse as a way to try to force changes in the Affordable Care Act. He described that act is ‘a disaster’ and which already had pushed up health-insurance costs at Hamill.”
Regardless of any effect this has on the ACA, a speedy resolution will limit the snowballing negative impacts on manufacturing and retail as we approach the biggest shopping season of the year.
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