Good afternoon, Mr. Chair.
Thank you for allowing Iafrate Machine Works to provide input into this study of federal support for the international trade activities of small and medium-sized firms.
I will cover our experience in international trade under the existing NAFTA, the challenge of providing machined products on a global basis and the possibility of utilizing the trade commissioner service to identify potential foreign customers that meet our unique production requirements.
As a custom machine shop, we do not manufacture our own line of products. Instead, we invest in sophisticated computer-controlled lathes and mills that are operated by semi-skilled operators and skilled tradesmen to produce products designed by our customers.
Approximately 30% of our sales do constitute international trade as automotive products under the current NAFTA. These products are components that are assembled into a driveline module by a major automotive parts supplier and then sold to one of the most popular sport utility brands in North America.
Automotive vehicle platforms typically have a seven-year production cycle. We are now into the second platform for this product line. This is an example of a successful long-term contract based upon compliance with the terms of an international trade agreement because it meets the following business requirements for us: long production runs to spread the cost of machine set-up over significant volume, stable and specified lead times for both raw material and production schedules, relatively short shipping distances, the ability to control the shipping environment to minimize the risk of the finished machined product rusting during transit, and the ability to discuss engineering and design changes in English during normal business hours.
However, approximately 70% of our business is complicated by the challenge of short production runs of custom-designed products that require significant machine set-up time and subsequent tear down after the product is complete. This type of work is further complicated by unique steel requirements, heat treating and specialized testing to prove compliance with engineering specifications.
Providing custom machined products requires the coordinating of schedules for steel production, raw material shipping, machine set-up, production scheduling, heat treat scheduling, off-site hardness testing, final machining, and the shipping of the finished product in a controlled environment to minimize the risk of rust.
To conclude, these requirements can be managed with long, known production schedules; however, the shorter the lead time, the easier it is for any one of the above elements to seriously impact the ability to meet a customer's deadline. We do not want to be responsible for shutting down a customer's production line. This is precisely our concern with trying to take advantage of any non-North American trade agreement. Distance, language barriers and significantly different time zones make it extremely difficult to justify the risk of accepting production contracts that have a large risk of error when we are not able to control all the various organizations involved in the entire process.
There is no question that we support international trade. However, we must be able to manage the process to ensure our customer receives the level of service we have promised.
One possibility for identifying potential customers in Europe or Asia that would meet our requirements for long and stable production forecasts would be to utilize the trade commissioner service, which has offices around the world and is connected to the local community. We have used the trade commissioner service in the past to investigate the possibility of expanding our customer base in the U.S. They may be able to identify international opportunities through their local networks that could provide manageable risk. Naturally, we have to feel confident that our machined products are not at risk during transit.
Thank you for your time.