I want to thank the committee for extending this opportunity to MSE today. Here is a little introduction.
MacDougall Steel Erectors Inc., MSE, has been a family-owned business since its inception in 1998. MSE fabricates and erects structural steel and miscellaneous metals for our main plant in Borden-Carleton, Prince Edward Island. Our current markets are all across Canada and into the eastern United States. We currently employ approximately 150 people.
In terms of tariff impact on prices, currently MSE products crossing the border to the U.S. are not being affected by the U.S. tariff as we are shipping fabricated structural steel, not raw materials. The issue MSE has been experiencing is the rapid increase in costs of raw material and the availability of some products.
Over the last 12 months, steel prices have significantly increased by as much as 40%. As tariffs came into effect, all prices started to climb rapidly. We are an end-user of the steel, so our prices have gone up, but since we are not buying directly from the United States, we do not have the invoices/support for the direct amount of tariff that we ended up covering. We are somewhat confused about how the tariff is being collected by the Canadian government and how it is to be redistributed. It seems we are paying the higher price but are unable to get compensated.
In terms of direct negative effects to MacDougall Steel, it was steel prices quickly moving higher earlier in the year that affected our company the most. This had a major negative effect on both profitability and cash flow.
There was an effect on profitability. We had jobs and signed contracts based on current steel prices. Once the price of steel started to increase, we took a hit directly. We couldn't pass it on to customers as we had already received purchase orders or contracts that were signed. In the case of raw materials for a couple of projects, just to give an example, on two or three projects our cost for materials alone would have been over $100,000 higher on each project than what we had in the bid, which was a direct hit to our bottom line.
Another aspect is cash flow. When the prices started to climb, we had to lock in as many of our steel prices as we could so that we didn't continue to bleed our job profits. Once we committed to buy, our suppliers wanted payment in 30 days. Some of these jobs were months away from hitting the shop floor, and we typically cannot bill a customer until steel is on site, so we had to cash flow millions of dollars more in inventory than we usually would. Prices were so volatile for a while that we had to tell customers their quote was only good for one day.
Uncertainty within the marketplace had an effect. There is still a lot of uncertainty in the marketplace with the tariffs. We were hoping the steel tariffs would have been dealt with as part of the NAFTA renegotiations. We recently expanded our shop to do more work in the United States before the tariff talks started. With our increased overheads and capacity, we need to be able to do the work in the United States to stay competitive.
As for future work, we are trying to keep jobs within our company. The downturn in the oil markets and the limited number of significant industrial projects on the go have been a significant challenge, as current capacity in Canada is larger than the demand. With the oversupply and lower demand within the Canadian market, margins have significantly decreased and profitability is suffering. We are quite disappointed to hear that the B.C. LNG project might be exempt from the current import duties on FISC, or fabricated industrial steel components. We feel Canada has the resources and knowledge to fabricate these modules, and Canadian steel fabricators need a project like this. There could be a couple of more LNG projects announced, and once the government provides the exemption for one project, they will have to provide it for all the projects.
Thank you.