CBIZ Manufacturing & Distribution Series in NYC Highlights

State of the Manufacturing and Distribution Industry: An Event Overview

The manufacturing and distribution sectors face many challenges that demand strategic foresight and adaptability from business owners and executives. Economic uncertainty remains a significant hurdle, with fluctuating market conditions and interest rates impacting financial planning and stability. Additionally, technological advances such as artificial intelligence and automation present opportunities and challenges, requiring businesses to invest in new technologies while managing the potential disruption to existing workflows.

Talent acquisition and retention are critical issues as the competition for skilled workers intensifies. Moreover, globalization continues to exert pressure on supply chains, demanding that leaders navigate complex regulatory environments and cultural differences.

These are just some of the many issues discussed at CBIZ’s Manufacturing and Distribution Economic Series held on Nov. 7 in New York City. The event was part of a roadshow hosted by Howard Hoff, National Manufacturing & Distribution Industry Practice Leader, featuring six CBIZ experts.

Wealth Transfer

There was an undeniable frisson in the air as the day began just hours after the 2024 presidential election had been called for former President Donald Trump. Howard Hoff introduced Anne Long, president of CBIZ Individual Insurance Solutions and Donna Palumbo, tax director in the CBIZ Metro New York practice. Palumbo opened, saying, “We’re on a tax holiday right now. The Tax Cuts and Jobs Act will sunset at the end of 2025, and the advice we all hear is to use it or lose it – but whatever you do, start planning now.” After pointing out that the lifetime cap on tax-free distributions (now at $13 million) will increase by the end of 2025 to approximately $14 million, Palumbo stressed that if the Act sunsets, the deduction drops to an estimated $7 million per person.

Building on this, Hoff continued with questions for Long. “Family business owners in M&D need to think hard and quickly to make informed decisions,” she said. “What kind of timeline should they be looking at?” Long offered a scenario that touched on several critical decisions, starting with the need — 6-8 months out — to select a highly qualified estate attorney if one can be found during a backlog. “This is closely followed by choosing the right trustee, who might not be a family member but, rather, a seasoned, experienced professional familiar with the complexities of trust and estate law.” Long concluded by stressing the importance of securing accurate valuations based on IRS bullet-proof appraisals and the adequate funding of survivorship insurance.

Data Transformation

Howard brought John Shoemaker, managing director of CBIZ Financial Services, to the stage for a spirited overview of the challenges to business owners caused by disparate data systems that are limited in their interoperability. “You are all trying to extract information from systems as varied as accounting, HR and CRM, but as your businesses become increasingly complex, especially through M&A, there is real difficulty integrating data that will help you make informed decisions efficiently,” Shoemaker said. He added that there are solutions in the offing. “One process we recommend is to use newly available software solutions and technologies to custom-build a data warehouse with a dashboard to direct attention to KPIs.” These new technologies are increasingly affordable and will continue to develop robust performance profiles, allowing for rapid and wide adoption.

Supply Chain Risk

“Black swan events are prevalent and show few signs of abating,” said Jeff Dehart, managing director of CBIZ Risk Advisory Services. Citing just a few of the world’s most recent upheavals, Dehart spoke about weather disasters caused by climate change, the wars in Ukraine and Gaza and the requirement now for risk managers to expect the next crisis and plan accordingly. Dehart said, “I tell our clients to have their Plan A but to keep Plans B and C close at hand.” Providing just one glimpse at how this might play out, Dehart related the very recent problems with cargo containers, which saw prices spike during the pandemic before temporarily receding but which remain high due to global uncertainty — those Black Swan events again. Dehart rounded out his overview of risk by adding his concerns about tariffs (again in context with the election results) and potential trade wars. He cautioned about a troubling rise in sophisticated cargo thefts, and the value to manufacturers to explore using third-party logistics organizations (3POs) to consolidate their shipments and to take advantage of multiple modal carriers.

An Economic Forecast

“Did anyone see the markets yesterday?” asked Anna Rathbun, chief investment officer of CBIZ Investment Advisory Services. “The S&P soared. The NASDAQ soared. Small caps went up almost 6%. Treasury yields spiked, as did the U.S. dollar. This is what we would call the Trump Trade.”

So, what’s next? With the White House, Senate and House all going Republican, Rathbun does not see the Tax Cuts and Jobs Act of 2017 expiring. However, she does see a re-emphasis on deregulation, especially in energy exploration and production. As for what to expect from the new administration’s policies, Rathbun said, “I’m looking at several. First, corporate taxes, now at 21%, may go down, perhaps as low as 15%., despite a warning that such a decrease could push the deficit up by $7.5 billion over a decade, or upwards of 140% of GDP.”

As for tariffs, Rathbun said, “The tariffs are likely to be 10% across the board, but China is very special. I think it’ll be 60% because of geopolitical problems.” Rathburn further noted that it is apparent that China is flooding inexpensive products [that manufacturers can’t compete with] into markets across the world…especially with electric vehicles, and that retaliatory tariffs by the U.S. and the EU are “really about China's relationship with the rest of the world.”

Regarding interest rates, the Fed just announced a second decrease, this time a .25bp drop. Rathbun sees this as the Fed cutting rates toward normalization. “And where is that? What does the market say after the election? [Economists thought that] the terminal rate was going to be 2.9%. Now, based on election results, the market is anticipating that to be 3.75%.”

Last, the still challenging global supply chain situation will likely see policies to further encourage onshoring or safe shoring to bolster domestic job growth and manufacturing. She emphasized that the pandemic created real problems with the global supply chain and that near-shoring was at least a temporary solution to this challenge. The biggest challenge to near-shoring or onshoring is the skilled labor shortage nationwide, resulting in higher wage costs that fuel inflation and the expensive tasks of building new plants and facilities. Further, the problem may not be the final goods crossing the border. It may also be a longer supply chain.

Rathbun also suggested that “it wouldn't hurt to check your supply chain and your suppliers to see what is actually coming from China. This is China against the world. This isn’t the U.S. versus China. That is very important to remember, because I believe this is a bipartisan priority. And I don't think it's going to stop. What are the hurdles here?We spent 20 or more years trading with China, and supply chains are not easy to change.”

What you can do

Manufacturers and distributors are confronted with global forces well outside their control. Theirs is a reality of reactivity. There is some comfort in knowing that countervailing factors are working in their favor, including interest rate decreases, a more favorable regulatory environment and an administration much more aligned with the private sector. As always, in times of uncertainty, it pays to be alert to change and flexible in strategic outlook. Your CBIZ professionals urge you to remain receptive to new ideas and opportunities as they present themselves. For more guidance on the ideas expressed in the Manufacturing and Distribution Economic Series, please connect with your CBIZ advisor.