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Building Your Own Supply Chain
More small businesses are finding creative ways to bring their manufacturing home.
Here are today’s highlights:
Inflation adjustments will mean lower taxes for many.
It might be time to electrify your trucks.
You probably should prepare to pay more for overtime work.
Silicon Valley is investing in “firetech.”
When the pandemic hit, Ken Rosenblood’s company, obVus Solutions, was outsourcing production of its ergonomic office equipment: “Unable to get more from his manufacturers in China, he saw his revenue plummet, and his main sales channel, Amazon, stopped ranking his company in searches. ‘If you run out of product, you are persona non grata on their algorithm,’ Mr. Rosenblood said. ‘So our business was just destroyed. We had to completely start over.’ So Mr. Rosenblood decided to bring obVus’s production and supply chain back to the United States, a process called reshoring. He bought an old 18,000-square-foot furniture store in Victor, N.Y., and spent $4 million to turn it into a factory. Products started rolling off the line last month.”
“‘I’ve got my plant here, and I’ve got my engineers—we can make the adjustments, and we can control things,’ Mr. Rosenblood said. ‘That gives us speed, and that is a huge advantage over China.’”
“He switched to recycled aluminum because he could not source enough aluminum domestically and opted to produce nuts and bolts in house at a tenth of the cost that suppliers were charging.”
“‘Most small businesses are family owned or privately held, so they are not answering to shareholders or private equity who are concerned about the next quarter rather than investing for the future,’ said [Scott N. Paul, president of the Alliance for American Manufacturing, a nonprofit advocacy group].” READ MORE
The energy crisis is wreaking havoc with European manufacturers: “The energy crisis that has closed steel mills and aluminum smelters across Europe is now spreading to the continent’s fashion industry. Thousands of small factories and workshops that supply brands such as Gucci and H&M have watched their business models unravel amid the surge in natural-gas and electricity prices following Russia’s invasion of Ukraine and its decision to reduce the flow of gas to the continent. Energy costs for many textile makers have risen from about 5 percent of production costs to around 25 percent, slashing their profit margins, according to data from European textiles and apparel trade group Euratex.”
“Energy prices have risen so high, textile makers said, that utilities and other energy vendors, concerned about not getting paid, are demanding that the textile companies secure bank guarantees or come up with cash advances to cover months of expected energy bills.”
“In Italy, Europe’s biggest textile producer, many manufacturers said they can no longer line up energy-purchasing agreements that previously insulated them from short-term price fluctuations.”
“Alberto Paccanelli, who runs a textile maker in Northern Italy, was stunned when his July gas bill jumped to 660,000 euros, the equivalent of about $650,000, from €90,000 a year earlier. ‘What’s happening now is this whole European industry risks going out of business,’ said Mr. Paccanelli.” READ MORE
Inflation in Britain hits double digits: “Consumer prices in Britain rose 10.1 percent in September from a year earlier, continuing their steep climb as the nation grapples with rapidly increasing food prices, high energy costs and political uncertainty. The annual inflation rate returned to its fastest pace since 1982, matching the pace set in July. It rose from 9.9 percent in August. Inflation was expected to peak next month, at a slightly higher rate, but a reversal in the government’s policy to hold down household energy bills has made the future path of prices even more uncertain.” READ MORE
Inflation adjustments will mean lower tax rates for many: “This is the largest automatic adjustment to the standard deduction since core features of the tax system were first indexed to inflation in 1985. Congress has significantly expanded the deduction beyond those automatic changes, most recently in the 2017 tax law, when it was nearly doubled. The changes will take effect for tax year 2023 and are generally designed to prevent inflation from causing tax increases. They will show up as lower tax withholding from paychecks as soon as January and thus create larger take-home pay early next year, all else equal. Taxpayers will use the larger brackets and standard deduction to file returns in early 2024.”
“The 37 percent top marginal tax rate will apply to individual income above $578,125 and married couples’ income above $693,750 next year, as those thresholds go up 7 percent from 2022 under inflation adjustments announced by the agency on Tuesday.”
“The standard deduction will climb to $27,700 for married couples and $13,850 for individuals, both also up about 7 percent from this year, letting taxpayers shield more of their earnings from income taxes. The maximum contribution to a healthcare flexible spending account will climb to $3,050 from $2,850.”
“Last week, the Social Security Administration released the 2023 inflation adjustment for the Social Security payroll tax, which will apply to earnings up to $160,200 instead of $147,000 this year.” READ MORE
Is it time to electrify your trucks? “The Inflation Reduction Act’s tax credits for electric passenger vehicles have garnered the most intense scrutiny. No shade to those tax credits — which are bringing a wave of battery and auto manufacturing to U.S. shores — but the tax credits to electrify medium- and heavy-duty transport could be an even bigger deal. A new report from policy modeling shop Energy Innovation and shared exclusively with Protocol shows that the law’s tax credits could double or even triple the share of electrified trucks and vans used in fleets by 2030 compared to business as usual.”
“There’s no precedent for a policy that could lead to that type of explosive growth in the commercial fleet sector. ‘The fact that the IRA includes a new commercial EV tax credit is, to my mind, a game changer,’ Sara Baldwin, the director of electrification at Energy Innovation, said.”
“The commercial EV tax credits differ from the ones for passenger vehicles in a few crucial ways. The IRA includes tax credits of up to $7,500 for light- and medium-duty vehicles and $40,000 for heavy-duty trucks.”
“Those credits don’t come with any requirements for where battery components and minerals can be sourced from or how much vehicles cost, both of which are facets for the passenger EV tax credits.”
“Some major businesses have already made major pledges to electrify their fleets. Amazon, for example, put in an order for 100,000 electric vans from Rivian and installed some of its own charging stations.” READ MORE
Gene Marks says you should be ready for new overtime rules: “Currently, the Department of Labor requires that employees covered by the Fair Labor Standards Act must receive overtime pay for working more than 40 hours in a workweek, unless the employee is covered by certain exemptions. Generally, the rule applies to any salaried worker who does not supervise other workers and makes less than $684 a week, or $35,568 a year. Certain executive, administrative, professional and outside sales employees are exempt from this rule.”
“Dena Calo, a Philadelphia-based employment lawyer with Saul Ewing Arnstein & Lehr, says that eligible overtime salary limits could be increased from the current $35,568 annual amount to anywhere from $60,000 to $80,000 — although the upper limit is not likely, in her opinion.”
“‘I think that high level would have too much of a negative impact on business,’ she said. ‘My guess is that the department will increase wages incrementally over time or have some automatic increase based on an index.’”
“The department is also expected to take a harder look at which employees are exempt from this rule in order to make more employees eligible for overtime.” READ MORE
Forgoing the commute has put 60 million hours back onto the clocks of those working remotely: “That’s according to new research from the Federal Reserve Bank of New York, released Tuesday. The Fed’s data comes from the American Time Use Survey, which tracked how employees spent their new influx of spare time. Sorry, bosses: It revealed that most of that time went toward sleep and personal activities, not to work. Younger workers tended to spend more hours per week on leisure activities, which encompass everything from socializing at bars or restaurants to exercising via a long run or going to a workout class. Older workers, on the other hand, spent more time on household chores and childcare.”
“Across age groups, however, everyone got more sleep—an inarguably good thing.”
“Not to be overlooked, a thoughtful hybrid work arrangement allowing for maximum flexibility also makes workers significantly less likely to quit. After all, being able to log on from a home office doesn’t just save millions of hours; it also saves a chunk of money.” READ MORE
Silicon Valley is investing in firetech: “California’s 2018 wildfires likely cost the state $148.5 billion. Their smoke can cause health problems over hundreds of square miles. They also contribute to climate change, with studies estimating that burning forests have cut into carbon offsets and added millions of tons of carbon dioxide to the atmosphere—emissions equal to more than twice the reduction caused by California’s decarbonization efforts. This is a big problem, and any big problem in California will attract two things: Hollywood treatments and venture capital money. Wildfires are no exception. Convective Capital, new investment fund backed by a group of successful entrepreneurs has raised $35 million to invest in businesses they call ‘firetech.’”
“Convective has begun investing in firms that are building robots to perform the controlled burns that are essential to avoiding megafires, and in autonomous drones that can drop fire suppressants from above.”
“Its companies are using satellites and drones to give forest managers better information to prioritize their limited resources.”
“One of Convective’s investments, Pano, has disrupted the old-fashioned fire tower. It uses off-the-shelf technology to put panoramic cameras on mountaintops, links them to a communication network, and uses machine learning to spot smoke and warn fire agencies and utilities.” READ MORE
THE 21 HATS PODCAST
Rule No. 1: We Will Not Have Civil Wars: This week, Shawn Busse, Paul Downs, and Liz Picarazzi talk about why it’s so easy for tension to break out inside a business. Liz sees tension brewing between her people in the office and her people in the field. Shawn often sees friction at businesses between sales and those who have to deliver what sales sells. Paul says there’s always the potential for problems when a project gets handed from one set of workers to another, and he’s created a very deliberate process to address it. We have, he says, “really tamped down the civil wars and started solving the problems, as opposed to letting them fester.” Plus: Are Shawn and Liz going to hit their numbers this year? And have the owners seen their health insurance rates for next year?
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Thanks for reading, everyone. — Loren