Tariffs are collected on the invoice value of the imported goods. Think of it like wholesale value but it’s a little more complicated.
Pivot, for example, appears to be importing container loads of frames from China. If they are paying XDS Carbon-Tech $200 (I have no idea what actual wholesale frame cost is) for a made in China frame, that $200 invoice value is the basis for the standard duty rate applied to the import as well as the special trade war tariff of 10%. As of Monday, Pivot has to pay an additional $20 to US Customs to import the frame. However, Pivot is buying Fox shocks and DT Swiss wheels from Taiwan, which are probably not be subject to the duty unless they happen to be made in China and are just being sent from Taiwan. Pivot is probably kitting up, assembling, and boxing bikes in Arizona for shipment to retailers. So the 10% increase should really be on the wholesale value of the Chinese made components of the bike. It’s tough to know exactly how much the cost for a bike actually increasing but bike manufacturers, or really anybody importing items on the list have very real and immediate cost increases.
I use Pivot as an example but the same is true for most of the bike companies.
The reason companies are already starting to push price increasss through is because they don’t receive their entire stock all at once so they cost average the antipated increase over their full buy. Yes, this means that they will be making higher margin on the unit the sell tomorrow at the higher price but they’ll be eating it on units received after the tarfif increases to 25% in January. They didn’t build the extra 10% or 25% increases in when they did their costing way back in March or whenever they planned the 2019 season because these tariffs were all just theoretical until about 2 weeks ago.
Thank you for the synopsis.
It sounds like uncertainty is more of the problem than the tariff.
just to run it through a little further - What did i miss?
let's say a $1000 bike costs $250 in parts and 100% are subject to the 25% tariff .
worst case is $63 in extra tariff, and let's throw the cost of money in at 10%, so $70
The cost of sale also has a cost of money, another 10% increase, so another $7,
add the cost to sell - assuming the sales people are not on commission, and most people use credit cards
at a 3.5% (high side) of $77+$5 increase in sales tax = $3
so the consumer should see an $85 increase on a $1,000 bike at the 25% tariff rate to maintain margins all the way through.
so 8.5% to the consumer. Worst case. unless wildly wrong on the cost of parts - and i think i'm probably high.
Are the margins are higher on higher-end bikes? Then percentage should be lower.
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Al and Fe are traded on the futures market (futures means contracting the obligation to buy it in the future at a specific price, on/by a specific date)
This is different from the spot market - which is the price often quoted. (think bbl of oil, you see the spot price, but the refiners don't pay that,
as they have locked in a price and supply - reducing uncertainty)
Al is down 15% in the last couple months (i just dropped 100lbs off at the local metal scrap, and the price they pay is down 25%)
Fe seems to be up 15% - interesting.