Something Old—Something New
Last month I was preparing the September article just before Mr. Powell informed us of the rate change coming. He made that announcement right after I finished my creation for the month.
Duplicating that process again for the October issue, on August 26, just before Mr. Powell announced they were taking the hawkish route. My guess is another .75% rise in rates. Let us see what happens.
But before we get started, I want to thank Dave Baiocchi for his contributions to our readers. Always a great review of dealer operations and issues brought up to date to current market conditions along with insights of future challenges facing dealers. GOOD LUCK DAVE! AND MAKE MONEY!
So, let us get caught up to date on where we stand today. The OLD news.
The economy and inflation in particular will continue to be a problem longer than we think. The EAU issues will help keep inflation rates high, especially in the areas of fuel and food costs. Although the supply chain issues are reversing, they still add to the cost of doing business. The bottom line here is do not expect any return to normal in 2022 and not in 2023 (unless the Fed really tightens up the screws).
Personnel issues will also remain a problem and as of now add to our inflation woes. The Gordon Report expects wages to increase by 4 to 5 percent in 2023. (The Gordon Report can be found on the MHW website). What you are going to hear about in this issue is we do not spend enough on training people to work in this current environment.
I guess we can consider Taxes as old news. The Inflation Reduction Act contained a new AMT tax for companies showing $1 billion in profits on their income statement. The tax is based on book income and not taxable income. Those guidelines leave most of you out of paying the new tax, but I am sure they will get you somehow to contribute a bit more to offset the spending for climate change, etc. The IRA does, however, provide tax credits for any number of New Energy materials, manufacturing, and power. You may want to follow up on the credits and rebates to see if any make sense for you or your customers. A helpful review of the tax portion of IRA can be found in the Journal of Accountancy in the August 18, 2022, issue; a transcript of a podcast featuring Adam Schrom, CPA from Bloomberg Tax.
So, what is NEW news?
The biggest change I am just thrilled about is the reversal of the 30 years of Globalization where we became more interconnected and interdependent than ever. It worked, reduced production costs, lowered prices, provided more access to goods and services, and brought up the standard of living for many people. But as with all things, it works until it does not. And then it highlights the security and defense problems we have as a result of globalization. The good news is that the $52 billion CHIPS Act is geared toward incentivizing the manufacturing of semiconductors using the latest technology available. A big deal for all of us including the material handling industry. In short, high-tech manufacturing is coming back to the US of A.
And then we have the Inflation Reduction Act which focuses on energy security and climate change investments. This is in addition to the Infrastructure Act passed last November to encourage clean energy, EVs, power grid upgrades clean water, and funding for technology related to the supply chain.
No matter how you look at this, there is a ton of money out there to deal with rebuilding and upgrading our manufacturing and supply chain activities.
There appears to be an opportunity for the material handling business in all this. Don’t you agree? If you do, then the question becomes do we have the technology presence to participate in this work on the manufacturing and distribution sides. Two issues are attached to this work. #1 is this work requires high-tech design and construction methods. #2 is most of the contracts for this work contain a minority interest requirement. Are you prepared to deal with either of these issues? Maybe it is time to take Dave B’s advice to conduct a SWOT analysis regarding the new “market” showing up on your doorstep.
From all of my reading covering many different industries, PRODUCTIVITY improvement is the issue that should be on every management agenda you prepare. Productivity means doing more with less to reduce cost, which in turn makes you more competitive when it comes to winning and completing new work. Everybody is thinking about it. If they do not, they will find themselves losing sales opportunities and thus adequate cash flow to keep the doors open.
Material Handling Dealers have to embrace technology themselves as well as provide technology upgrades to customers. Expanding offerings to provide maintenance services on the technology employed should also be considered.
There is a new business world out there. Find what profitable niches work for you.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail email@example.com to contact Garry.