High Point — Supporters of an antidumping investigation of wood bedroom furniture from China had hoped for higher preliminary duties, but winners and losers are emerging among the Chinese manufacturers in the category.
While most Chinese plants face initial U.S. import duties of less than 11%, an all-China rate of 198.08% leaves factories that sent around $320 million of bedroom furniture to the United States essentially priced out of the market in the category.
Should that all-China rate stand, some of China's largest manufacturers are likely to gain market share in the long run as companies with favorable rates soak up business from those facing prohibitive duties.
That's the concern of Suzy Wei, a spokesperson for Royala Pacific, an importer whose source plants include some facing the all-China rate.
"When someone else pays 5%, that's where everyone will go. The big will get bigger," she said. Many of the smaller factories "can't afford to pay a lawyer to come represent them" in seeking lower duties, she added.
Even some companies that had U.S. lawyers were hit with the high rate. Kuan Lin, which produces case goods for Klaussner's licensed line with Dick Idol, had attorneys helping it fill out a questionnaire to qualify for the 10.92% Section A rate, but was one of 36 Chinese manufacturers who sought Section A status but were denied. (Many other factories didn't apply for Section A and also face the all-China rate.)
"We're trying to find out why they didn't get the better rate," said Patrick O'Briant, general manager of case goods for Klaussner International.
Klaussner already had arranged contingent production at other factories and is having samples made at the new locations, he said.
"We're moving one of the groups to Vietnam. We'll be able to move the other groups within China to plants subject to the (Section A) rate," O'Briant said.
Pricing becomes an issue
Klaussner still has to figure out the effect of the 10.92% rate on pricing at the new Chinese sources, and has to deal with the logistical and quality control issues of shifting production. That has put temporary brakes on business.
"We haven't started issuing new purchase orders yet at the new plants," O'Briant said. He did note that Klaussner already had arranged sourcing of case goods for the World Vineyards license, which debuts in October, at Section A-rate plants in China, so those goods will arrive on time.
The harsh reality is that many companies will soon need to adjust prices and business strategies to cope with the proposed duties.
Case goods importer AICO's China sources would mostly face 10.92% duties. It has begun some sourcing in Vietnam, but still plans to buy from China. That will likely force price adjustments in the next two months.
"I would say that right now, AICO is still assessing that," said President Larry Rinaldi. "We cannot hold on forever ... time will tell what we have to do to keep the level of profits there. You can't be hit with an 11% increase and have to absorb all that."
Fine Furniture Design & Marketing had raised prices 9.5% at the April market in anticipation of duties When it learned its Chinese plant fell within the 10.92% rate, it reduced that price hike.
"We are actually rescinding some of that increase," said FFDM President Geoff Beaston. "That will go into effect immediately ... We certainly planned for it and anticipated it and are now making that minor adjustment and making sure we kept our promise of sharing in the responsibility."
FFDM plans to continue sourcing in its dedicated Chinese plant instead of seeking out alternative source locations.
"We intend to continue to maximize the asset we have and are going to continue to go after the quality end of the business at a value," Beaston said.
Little change at FBI
Furniture Brands International also will generally stick with its existing sourcing. It does some business with smaller suppliers that were hit with the 198% duties, but predicts most of its duties will fall under 11%.
"With the tariffs at the relatively low levels where they are and with the anticipation that those tariffs might even go down or be eliminated entirely at the time of the final order, we don't have any intention to change our business, or change our business plan," said FBI Senior Vice President Lynn Chipperfield.
Like FFDM, he said, some FBI companies based market pricing on the possibility of duties. He wasn't aware of any immediate changes to those prices and said those would be reviewed on a company-by-company or collection-by-collection basis.
Case goods importer Kemp Enterprises was discussing possible price increases last week after the U.S. Department of Commerce's preliminary ruling. While most of Kemp's China sources got the 10.92% Section A duty, others face the 198% rate — which concerns President Bill Kemp.
"We have legislated a competitive advantage for some companies and a competitive disadvantage for other companies, and I have a hard time believing that is in the American spirit," he said.
Rattling the supply chain
While Kemp said price increases are likely, he also believes they won't only hit Chinese-made bedrooms. Shifting production to other plants and other countries and will have a broad effect on the supply chain, he said.
"It strains the suppliers and the supply of lumber and will probably have an inflationary impact on other countries in the world," Kemp said. "I think we will see price increases worldwide as a result of this thing."
Some importers don't expect duties to significantly affect their business. That includes case goods importer Legacy Classic, which sources from Chinese producers Lacquer Craft Mfg. and Markor, whose proposed rates are 4.9% and 8.38%, respectively.
"We felt very confident from the beginning," said Legacy Classic President Kevin O'Connor, "and that is why we ... told our dealers we would cover their duties for a period of 90 days."
