Virus Puts Pressure on Farm Equipment Supply Chain

The coronavirus has stalled some global commerce, and it may lead to higher prices for everything from tubes to metal pieces, which could further dent earnings of tractor and machinery makers on the front edge of a recovery from a downturn in America’s agriculture economy.

Illinois-based Morton Industries is trying to find a domestic source for tooling and fixtures used to shape metal that it previously imported from China. But limited domestic supply—and a rush to secure the supplies—have sent prices up as much as 30 percent, said Kevin Baughman, vice president of operations at Morton.

Baughman said the company has asked customers to shoulder the higher costs for the components “as we couldn’t absorb them.”

The increased costs are not limited to the parts these companies make. Shifting sourcing often means buying new tools and spending money to ensure that new parts fit the specifications demanded by equipment makers.

Executives of half a dozen suppliers said they are taking measures that include tying up sources outside China and booking air freight—as opposed to normal sea freight—to fly in the available parts and components from China, where roads and ports have been restricted, to ensure they can keep their customers supplied.

Executives from Deere and Caterpillar declined to comment.

Unlike the trade war with China, which ultimately contributed to limited production and layoffs for some manufacturers, the coronavirus impact may be short term. Prices could spike, then decline as supplies improve.

An Illinois-based supplier of Caterpillar and Deere, who declined to be named, said the company is paying 40 percent more to domestic vendors for components that used to come from China—costs it is passing on to customers.

Evan Poulakidas, director for North America at CCTY Bearing, says his company is ready to fly in products “piece by piece” from its plant in China.

The bigger challenge is how to keep the facility running if the factories of sub- suppliers remain closed. CCTY has informed its customers that stocks on hand would not last beyond April.

“It is not just for our products, but also for other products, there could be shortages,” Poulakidas said.

Source: Reuters