How metal fabricators can protect themselves from inflation in 2022

Metal fabricating companies need to act now to protect themselves from the pain of inflationary costs. erhui1979/Getty Images

We’re only in the first half of 2022, but it’s already shaping up to be a challenging year across the board.

And while some of these challenges are not new—the supply chain has been in low gear for well over a year now, and labor shortages have affected everyone—the added complexity of inflation and rising interest rates will affect bottom lines, both in 2022 and beyond.

Over the past two years, many fabricators have been cautious, and with good reason. But the current economic climate can present opportunities for shops to shelter themselves from inflation and rate increases by being decisive and moving quickly.

Don’t Wait. Buy Now!

Inflation has been on the rise. The core Consumer Price Index rose 6.0% over the last year (January to January), the largest one-year increase in nearly 40 years. The Federal Reserve typically responds by increasing rates to mitigate rising inflation, and almost every economist feels this is a certainty in 2022. According to Forbes, rates could be increased five or six times in 2022. This will play out all year, as the Fed will likely raise rates at almost every meeting they have—a quarter-point here, half a point there.

The bottom line is that prices and rates are likely at their lowest right now. And as "right now" moves deeper into the year, this will still ring true for the foreseeable future. Prices and rates likely are going to rise slowly, again and again, until inflation finally peaks. Once that happens, rates will slowly fall.

But if history is any indicator, these things happen deliberately over months and even years. A decisive fabricator prepared to act now can hedge against this by acquiring equipment and machinery it knows it will need in the near future.

In other words, if you know prices and rates are going to rise, and you also know you’ll need a new press brake in the next 18 months, the best move might be to buy it right now rather than wait. Locking in a better price and rate now is a definite competitive advantage and puts you in a better financial position than if you waited.

Besides obvious financial issues, availability and delivery of needed goods can come into play. The supply chain is still quite slow, and very unpredictable, and certain pieces of equipment are already into 2023 for delivery dates. That’s one more reason to be proactive and acquire that press brake (or any machine your shop might need in the next 18 months) immediately.

Section 179: Make Sure You Get It

Section 179 is especially robust in 2022, with the deduction increased to $1,080,000. To qualify for this deduction in 2022, you must purchase business equipment and put it into service during the calendar year (before Dec. 31, 2022). That means it must be installed, plugged in, and turned on.

Traditionally, many companies delay major Section 179 purchases until Q3 or Q4. But in 2022 there is a risk of missing out on the deduction if the purchase gets held up in production and/or shipping. If the machine is sitting on a loading dock somewhere else, you can’t put it into service.

Consider Preowned Equipment

Supply chain issues have required companies of all sizes and industries to look at used machinery, trucks, fixtures, and almost any other type of equipment. For many, the preowned market opens doors they didn't consider previously—and it’s eligible for Section 179.

There's also an upside for sellers. If you have a good piece of used machinery, you might be surprised just how much you can get for it if you sell it now. Take this into consideration with your 2022 plans. As mentioned much earlier, buying a new piece of equipment could be advantageous now, but that advantage is magnified if the piece you are replacing will command a good price on the used market.

Many fabricators have taken a wait-and-see approach in response to the events of the previous two years. But the economic circumstances that are taking hold today are beginning to favor their being more proactive. Those companies that act now can help their bottom line both today and tomorrow.