Will the Price of Power Tools Be Changed By the Middle East Turning point?
In case haven’t listened to to the news the lately, there has been recent political turmoil in the Middle East. Egypt was the first to send everyone into a panic, and now Libya may be on their way shortly. The demand for change by the citizens in the Middle East is uplifting. How will this affect the price of power tools?
Firstly, we need to figure out that the majority of discount tools are built in China. A lot articles that declare to be made in the U.S.A are simply assembled here using imported parts. The quality of these power tools are extremely similar as many of the parts are coming from exactly the same factories in China. The cost differences are an outcome of brand names increasing the price of their products to portray the old saying or proverb “if it costs more, it must be a better product Those who have caught on are now buying discount tools at lower costs for relative quality.
Manufacturers of these tools will need commodities such as gas and oil to continue production. These resources are important in a manufacturing environment. Now you can see why there is panic on Wall Street when fuel prices are anticipated to increase. The leaders of manufacturing firms know that this will impact their profit margins significantly, thus influencing earnings results.
In addition to the impact of manufacturing costs, there are also shipping costs to the final destination that need to be considered. If fuel prices broaden by 25%, the cost will either be taken out of the importers margins or fielded on to the end user.
Let’s look at a quick example:
Firm A buys 40 Widgets for the same cost as always: $200 per widget- total of $8, 0000.
The gas and oil costs to handle the factory have increased with fuel prices. The company wants to buy 40 widgets, but the manufacturer must raise the price to offset their increasing costs. The cost per widget is now $220.
Shipping price is usually $1,200 for the above from Shanghai to the US. The shipping price includes fuel and other miscellaneous charges. Fuel prices have increased 25 %. The company will charge a 20% additional charge on their price.
The shipping price is now $1,440.00. The price to ship a widget has now gone from $30 to $36.
From this above example, the all-in cost for 40 widgets went from $9,200 to $10,240. This is just an example of how things may play out. I am going to to stockpile power tools before the suppliers have a chance to react and adapt prices appropriately.
Jim Kessler is the President of JKI Tools, which is a discount tool and hardware supplier. He also has a professional background in international finance. JKI Tools sells discount tools and hardware. Their site can be viewed at http://www.jkitools.com .
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