Battle Creek

Battle Creek businessman set to be trade war winner with a way his customers can cut tariff costs

Editor's note: This story is part of Southwest Michigan Second Wave's On the Ground Battle Creek series.

In the wake of ongoing tariff wars, a Battle Creek businessman has developed a plan that will save money for those companies he does business with and his own company.

By Oct. 1, Erick Stewart, president of STEWART Industries, will have a fully functioning Free Trade Zone in his facility at 150 McQuiston Drive. Although operating as a fully-functioning FTZ, his will be a sub-FTZ of Foreign Trade Zone 43, established in Battle Creek in 1978 as the BC-Cal-Kal Inland Port Development.

FTZ 43 is located at 4950 W. Dickman Road and covers 14 counties — Allegan, Barry, Berrien, Branch, Calhoun, Cass, Clinton, Hillsdale, Ionia, Jackson, Kalamazoo, Ottawa, St. Joseph, and Van Buren. STEWART’s will be the first sub-FTZ under FTZ 43.

A Foreign Trade Zone is established to promote commerce on a global scale, according to Stewart. 

“It’s a designation within the United States where products can flow into it and once you get some in or onto the production floor, it’s not considered to have entered into the country yet,” he says. These parts or products can be inspected or transformed into other things so that when they leave our facility they are a more usable product.”

The cost savings come into play on several different fronts. STEWART Industries is a sub-assembler and as such has a wide variety of parts and pieces from vendors that they turn into products. STEWART employees inspect those parts and pieces for defects. Those that don’t pass inspection won’t be put into the manufacturing process and won’t be subject to a customs or duty charge.

“Sub-assembly is taking Part A and Part B and making a Part C and then shipping it in time to a customer,” Stewart says. “About 80 percent of what we do has been automotive related and another 10 to 15 percent is aerospace, recreation, or medical.” 

The pieces and parts that come through his company’s doors are assembled by hand by the majority of the more than 75 workers employed at STEWART Industries. He says the individual parts are too expensive to be handled by robots. STEWART Industry’s ability to perform quality inspections on parts and use only those that are in good condition to complete a ready-to-ship product provides cost savings to Stewart’s customers.

“At the end of the day when a car rolls off the production lines it has a variety of parts from all over the world,” Stewart says. By using parts that go through the Foreign Trade Zone, “This means you pay one tariff, versus tariffs on each individual part.”

It would not be out of the realm of possibility that a customer of STEWART  Industries could be importing $1 million worth of components with $200,000 in tariffs attached since the trade wars heated up. While the increased tariffs that have been imposed under the Trump administration haven’t had much of an impact on STEWART Industries, Stewart says he has customers who have faced more than $1 million in tariffs depending on the price of the parts they’re bringing in.

A good example of this, he says, is that before the trade wars, a company may have had a 4 to 5 percent in tariffs on their goods. The first round of tariff increases may have resulted in a 14 percent hike, followed by a 25 percent increase during the second round.
 
“The volume can be 200,000 units for one program and they may have to pay customs or duty charges on each of those parts,” he says. “To be able to import these components into our Foreign Trade Zone where we could sort the good from the bad is the key, at that point you’re only bringing the good products into the zone and you’re only paying duty on those good products.”

Adam Reid, manager of Special Projects and FTZ 43 for Battle Creek Unlimited, says tariffs are a program to help domestic manufacturers become more competitive by providing incentives to grow their businesses within the United States.

“STEWART Industries is developing a long-term, sustainable solution that will outlast all of the rhetoric swirling around trade issues right now,” Reid says. “Eventually a lot of these punitive duty taxes are going to evaporate and companies are going to take a closer look at what they’ve been paying in duty.”

The Foreign Trade Zone program was created by Congress at the height of the Great Depression to ease the strain of crippling tariffs on American businesses.

“The FTZ is a mechanism to lower the cost of goods sold by deferring,  reducing, and eliminating duty payments,” Reid says. “This tool enables STEWART Industries to be forward-thinking and allows them to be even more competitive regionally, nationally, and globally because they can do something that most of their competitors can’t do.”

Quality inspections of incoming parts and assembly are services that aren’t being provided by a lot of other FTZ operators.  

“Battle Creek is in a really good position,” Stewart says. “This allows other companies within the entire U.S. to use those services that our FTZ will be providing." 

The ability to offer additional services that will result in cost savings for customers is what will set the Stewart Industries FTZ apart, he says.

“Before paying 25 percent on top of parts coming into the country, companies may be able to avoid that depending on how the parts come into the country,” Stewart says. “That 25 percent goes right to the bottom line which creates viability for you to invest in other resources.”

A view from inside Stewart Industries.Some of his customers, he says, are very concerned because of the additional tariff-related costs and are concerned about the impact this will have on their bottom lines.

Cities, states, and companies — which began looking more to the zones several years ago when Donald Trump launched his campaign for the White House — are now stepping up their use of FTZs as a way to lessen the impact of Trump’s tariffs, according to experts such as Matt Gold, a professor of international trade law at Fordham University School of Law.

Quoted in a recent NBC News story, Gold says, "Generally, if tariffs increase, foreign trade zones become much more popular, and on the whole, a lot more valuable.”

There are currently about 250 FTZ’s in the United States, with the majority operating like multi-purpose warehouses where products come in as they are needed for production, Stewart says.

“The port of entry may be on the East Coast and the West Coast. Those goods get transferred from zone to zone until they enter the United States,” Stewart says. “The one in Battle Creek would be considered an inland port. Once the products in the shipping containers come off, they are segregated into bonded trucks for transport to an FTZ.”

The cost of establishing an FTZ varies and Stewart declined to say how much he is spending to make this happen.

“I’m hoping that it is insanely successful. My estimates are that customers will be beating down our doors,” he says.

But, he knows this will not happen without making the proper outreach and educating customers about how the FTZ could save them money. This is a similar approach to the one he took when he started STEWART Industries with his father, Joseph, a retired vice president with the Kellogg Co., 20 years ago.

The story of STEWART Industries begins with a desire on Joe Stewart’s part to start a business with his son who recognized it as an opportunity to make a difference and add to the economy of a community where the family has lasting ties.

Seven years out of college, Erick Stewart was working in purchasing for a local automotive company  when he decided to write a business plan and picked what he refers to “as this obscure little niche called sub-assembly.” He says that it was a “weird type of thing to pick at that time” because it was not necessarily a growing area of business.

He and a friend, Ed DeVito, who was an engineer and co-worker, spent one year creating a business plan.  

“We had a simple philosophy of what we wanted to do, so when we wrote the business plan we kept the things culturally that we liked about our work environment and threw out the things we hated,” Stewart says. “We wanted it to be young and quick-moving with a non-traditional approach to the sub-assembly process.”

After they left to make that plan a reality, BCU provided them with manufacturing and office space for one year to incubate their business.

“We shopped it around, went to customers, and said this is what we’re doing. Although we don’t have a stitch of business yet, we’d like to be your sub-assembler,” Stewart says of the pitch made by him and his partner. DiVito has since left the company to pursue other interests.

Toka Rika was their first customer followed shortly thereafter by Denso, which now accounts for between 70 and 80 percent of STEWART Industries’ total business. Stewart says his company now does more in one day of production than it did that entire first year in business.

The company has annual sales of more than $20 million placing STEWART Industries among the top two minority-owned businesses in Calhoun County. But, Stewart says he does not like the term “minority-owned” and instead refers to it as a diverse business.

“At the end of the day when you’re classified as a minority-owned company, I think it denotes 'less than',” he says. “A black-owned business is just as important as a non-black owned business. We’re a diverse business, but folks who are so used to hearing minority-owned business may not get that.”

That diversity has been helped along by a steady and ongoing influx of immigrants to the community, including those seeking refuge from violence and poverty in their native Burma.

“My attitude from Day One is that we provide jobs to people who represent all of the products that people buy,” Stewart says. “We were in business before the Burmese population exploded locally. Leaders in that community came to me and said, ‘We’ve got these folks and they need jobs and some were doctors and engineers in Burma, but their degrees didn’t mean anything in the United States'.”

The language barrier for the immigrant workers was eased with translation services provided by a staff person who spoke English and some of the languages in the Burmese dialect.

Stewart says he just wanted to make sure he had good workers. Culturally, he says, the Burmese workforce, like all of his employees, is dedicated to showing up and doing good work. 

“If you give people opportunities and the right environment, they’ll do well,” Stewart says. “We have a lot of bigger companies come in and ask how we have created such a diverse workforce.”

Battle Creek Unlimited offices,Despite the new FTZ on the horizon and a stable base of employees, Stewart says his company is not immune to issues facing other area employers, including a tight labor market. He says the size of his company makes it more of a challenge to attract skilled workers.

“We’re not a company the size of Denso or Toka Rika, so we don’t the have same pay rate. But, we try to create a culture and an environment where people want to stay. We try to provide the best environment that we can for growth by making sure we do business with customers that our people and their families can rely on for years to come.”

This strategy appears to be working since Stewart has employees who are still with him 20 years later.

“Ninety-five percent of the folks working for me will throw themselves in front of a train for this company,” he says. “I have folks I can come and ask to do anything. For us to be successful with new customers, the people on our floor have to be performing and building things that are a part of all of us.”

Photos by John Grap of John Grap Photography. His work is featured here.

 

Read more articles by Jane Simons.

Jane Simons is a freelance reporter and writer with more than 20 years of experience and also is the owner of In So Many Words based in Battle Creek. She is the Project Editor for On the Ground Battle Creek.
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