Today on Bloomberg Baystate Business, Riverdale CEO Jim Knott discusses President Biden’s new Made-in-America initiatives, how tariffs impacted his business, and owning 80% of the marine wire mesh market.

Listen to the Segment Below:

Transcript

[Tom Moroney]: Down the home stretch tonight, we want you to hear an interview we did earlier today, and I’m really excited about this. The company’s in Northbridge. Now, okay, I’ve been saying this this afternoon… Northbridge? Yeah, way out there in the middle of nowhere. Well, I’m in Hopkinton so I did a little mapquesting. Northbridge is ten miles from my front door… ten miles. You know, it just shows you… and I don’t want to get off track here, but it just shows you how you can be so wrong about the geography of your own state. You think oh that’s, you know, that’s way out there. Anyway, Northbridge, so keep that in mind. The company is Riverdale Mills. Now, the building out there we were told by the CEO was first a sickle factory. You got to go way back for that. Then they made bayonets in the Civil War, then this building became a woolen mill, a paper mill. Now the home as I said for the last 41 years of Riverdale Mills, the makers of specialized wire mesh that goes into 80 percent of all the world’s lightweight steel lobster traps. Joe’s been kidding me about this, but he’s right. I was drawn to this company because the word lobster showed up. COVID-19, steel tariffs have hit this place hard, and as I said earlier today, Joe and I talked to CEO Jim Knott, Jr. about the hardships and how President Biden’s new Executive Order dubbed Made in America could help or not. I began our discussion by asking Jim to tell us about the operation.

[Jim Knott, Jr.]: We’re an integrated steel wire mill. So, we draw wire, we weld wire, we galvanize it, we PVC coat it, and often times we’ll sheet it, or we’ll sell it in roll form. And it goes to many markets such as construction, marine products, oyster cultivation, lobsters, trap… crab traps. And we have a very, very diverse number of different products that are used in many industry sectors.

[Joe Shortsleeve]: Jim Knott is the CEO of Riverdale Mills Corporation, and he’s our guest. And of course, we booked him because Tom loves to talk about lobsters and lobster traps. So, you know, Jim, whenever I think about a lobster trap, I think about, you know, wooden ones that we see down in Cape Cod or up on the North Shore. But that changed in the 1980s. Now tell us a little bit about that.

[Jim Knott, Jr.]: So back in the ‘60s my father was in the plastic coating business, and he had an interest in converting wooden traps and having people use wire instead of wooden traps. So, he was plastic coating wire mesh, and they were converting them into traps. And it started off in a very slow fashion where people would buy pieces of wire from him and nail them on the side of a wooden trap. And then it started to develop so that the… all the traps were made completely out of wire. And the advantage of that is that they’re lighter on deck and heavier in the water because when you have a wooden trap for instance if it’s in the water it’s got some buoyancy to it, so it doesn’t weather storms very well and the worms eat the wood, and the traps eventually fall apart. Whereas the wire traps are heavier in the water, they don’t shift during storms and they’re much easier for the lobstermen to use.

[Tom Moroney]: Jim, who do you sell these lobster traps to? Is it just the east coast lobstermen or do they go elsewhere?

[Jim Knott, Jr.]: We don’t actually make lobster traps. We make all the fabric that goes into lobster traps. And we sell all over the world. We’re all the way up to the Faroe Islands, down through the Gulf of Mexico. Our product goes all over the world. And we probably do have 80-85 percent of the world market for this fabric that goes into these marine applications.

[Joe Shortsleeve]: But let’s talk about… in the note we have here in front of us about you and your company, talk about over the past 18 months how you’ve been significantly impacted by the Section 232 tariff. Tell us about that.

[Jim Knott, Jr.]: So, the Section 232 tariffs have been in place for about two years now. When they first were implemented, the price of steel was trading at about $500 a ton. And over the, I’d say nine months later, it was trading at $940 a ton. And the problem we were having with that is the prices went up for the raw materials that we were using, which was steel wire rod, but there was fabric coming in from, wire mesh fabric, coming in from places like China or their European Union, and it was coming in at almost the same price that we were paying for the wire rod. So that made it very, very difficult to compete. And we did not pass any of those price increases along because you can’t. If you try to pass those price increases along people will just shop elsewhere, and they would be buying from China or the European Union in that case. So, we managed to survive that. It really cut back on what we were able to spend on […] equipment and investing in the community and investing in the people that we typically like to do. But we got through it. And then along came COVID.

[Tom Moroney]: A one-two punch, Jim. Jim Knott, Jr. with us, Riverdale Mills in Northbridge. Jim, what did this do to your headcount, to your workforce at the… at your shop?

[Jim Knott, Jr.]: The COVID or the tariffs?

[Tom Moroney]: Well, both.

[Jim Knott, Jr.]: Okay, so the tariffs cut us back probably about 20 percent. And then with COVID, what happened is we cut back from 24/7, working 24 hours a day, seven days a week, to 24/5. But we had a very, very difficult time staffing. And we’re still having a difficult time staffing. Our headcount was probably down 40 percent due to COVID. And the reason why is people were getting paid a lot of money to stay home based on the benefits that they were getting, the $600 benefit plus their unemployment benefit. So, it made it difficult.

[Tom Moroney]: So, Jim, yeah, they were making more by staying home. We’ve actually touched on this issue. That must have been very frustrating for you.

[Jim Knott, Jr.]: It was. An average shop floor guy working for us was making about $56,000 a year to stay home, and that makes it tough to compete with the U.S. government in that situation. But we need employees, and our good and loyal employees stuck with us, and we were able to continue to produce. And we’re still producing right now.

[Joe Shortsleeve]: Yeah, and Jim, things got better. I was reading in your material here that by August you were back where you needed to be. What happened?

[Jim Knott, Jr.]: Well actually, we took a very strong hit to the revenue line in March. March through perhaps August we lost probably 60 percent of our revenue […]. And now it’s picked back up, and I’d say our bookings today are 2 ½ times what they normally would be if COVID didn’t exist at all. So, there’s a very… there seems to be a pent-up demand for our product. I’m not sure if people are fearful that they won’t be able to get product in the future, or if they’re just making up for lost time when they couldn’t get the product in the past.

[Tom Moroney]: Yeah. Jim, tell us a little bit more about how the… your product line is sort of divvied up. I mean we’ve been talking about these lobster traps. The fabric you talk about is called Aquamesh. That’s what you manufacture.

[Jim Knott, Jr.]: Right.

[Tom Moroney]: But… is this Aquamesh, is this the principal product? Or, what’s the breakdown so we can get an idea?

[Jim Knott, Jr.]: Well, Aquamesh is the flagship product that we started with. It was the first product that we made for the marine industry. And the reason it’s so popular it’s a very cost effective, corrosion-resistant product. And, again, as a result of that, we ended up with a huge market share because we make this very good product. That is probably 40 percent of what we make. And then we’re in the agricultural section… sectors, we’re in lawn and garden, we’re into security fencing, we do some construction mesh, we do bastions. For instance, we were doing DOD bastions for the military, which all of that got offshore believe it or not, and the U.S. military’s buying that product from the European Union at this point in time.

[Joe Shortsleeve]: Tell us about the U.S. military bases and the work you’ve done. That stands out to me.

[Jim Knott, Jr.]: We’ve recently done, using our WireWall product… our WireWall product is a product that you can’t cut and climb very easily. It’s a very tight mesh. You can’t get cutters into it. You can’t get a grip on it to climb it, and you can’t put your toes in it to climb. We just recently did an air force base for the DOD. But one of the products that we made for many, many years were bastions. Those were… it was a box, a wire mesh box, that was 3 feet by 3 feet by 12 feet, and it’s lined with fabric. And they fill the box with sand and put them around military camps when they’re out in the field to protect the soldiers from machine gun fire or rifle fire. And that product… we were making the fabric and sending it to a company in South Carolina, and those people were turning them into the bastions. But that company has closed, and we’re no longer making that fabric. And that product’s being made in Europe and being shipped back to the U.S.

[Tom Moroney]: Jim, I want to talk a little bit about some of the pressures that might be on your operation. [CHUCKLE] We’ve already talked about a couple… you know, the pandemic and these tariffs. But, you know, as Joe said at the beginning of our conversation, I really am interested in lobsters and the lobster market. And what I’ve been able to glean from Massachusetts lobster people and those south, waters are getting warmer, people are getting out of the lobster business. Maine is still pretty good, and Canada of course where the water’s colder, they’re doing just fine, but I wonder if you see that reflected in this Aquamesh you talk about that goes into the lobster pots. Are… is that something that’s going to… that’s either influenced, you know, the volume you sell or will influence in the future? Is this a concern?

[Jim Knott, Jr.]: Not at this time. We have three distinct markets in the marine industry. One is the crab industry, which is from Louisiana all the way up to Canada. And then we have the lobster market. And then we have a lot of people who are cultivating oysters with our Aquamesh product. And many lobstermen have decided not to fish and to go and cultivate oysters. You’ve seen… you see the oyster farms down on Martha’s Vineyard and Ducksbury and that area. That’s all our product. But in general, the catch has been very good for the lobstermen. They had a good year this year in Massachusetts, and they had a good year last year in Massachusetts. So, they’re spending…

[Tom Moroney]: That’s good.

[Jim Knott, Jr.]: …at this point in time, and they’re doing quite well. I’m… we’re all aware of the science and data that’s coming out about the waters warming and the lobster population declining, but we’re not seeing it in catch numbers.

[Joe Shortsleeve]: Talking with Jim Knott. He’s the CEO of Riverdale Mills Corporation. Among other things, they make the wire mesh that is used for lobster traps, crab traps and oyster trays. I guess if you could, President Biden signed an Executive Order the other day encouraging Americans to buy American. Are you aware of that, and how would it impact Riverdale Mills Corporation?

[Jim Knott, Jr.]: We’re fully… we are aware of it… we’re fully aware of it, and I think it’s a great idea. But it all turns on the specifics of what goes into that Buy American Act, which hasn’t been determined yet. Now the Buy American Act has been in place since 1933. And what they did back for many years is they focused on the content of American product within the product that you’re producing. So typically, you had to have 51 percent content in it to call it an American-made product. So, the Biden Administration is moving the content piece to a value-add piece. But they haven’t determined at this point in time to my knowledge what that value-added piece needs to be.

[Tom Moroney]: So, Jim, at this point it is… it sounds like, you know, your take… it’s a bit of… it’s some political rhetoric. It has some potential there but not a lot of detail. I’m wondering what your initial thoughts are about the Biden presidency as far as business goes. I mean what are you looking for from President Biden, and what should he be doing to help you and others get out of this mess we’re in with COVID-19?

[Jim Knott, Jr.]: Well, with COVID-19, we would want for the administration to help us get our employees vaccinated. I think many employees on the shop floor are looking forward to that or asking when can we get it done because we’re essential workers essentially [CHUCKLE] because we’re making products that go into many different essential uses such as infrastructure, food stuff, marine applications. So, a COVID-19 vaccination for our employees would be a good thing that he could help us with.

[Tom Moroney]: And beyond that, Jim, anything else long term? I’m sure you don’t want to see another tariff situation, but what else might…

[Jim Knott, Jr.]: Well…

[Tom Moroney]: …this President do?

[Jim Knott, Jr.]: Well, that’s an interesting situation. With this Buy American Act, we’re hoping that there are not additional tariffs attached to that because the tariffs are still in place, and they’re still penalizing us in some areas of our business. We do buy product. We have a very, very global supply chain. We’re buying product all over the world, and some of those products that we’re purchasing now still have tariffs on them.

[Tom Moroney]: Like what?

[Jim Knott, Jr.]: But I think it… we buy wire, stainless steel wire. We buy pigments. We buy certain chemicals that aren’t readily available in the U.S. Of course, zinc is coming from Canada. So, but that’s protected under the NAFTA agreement or the USMCA agreement at this point in time.

[Joe Shortsleeve]: Talking with Jim Knott, CEO of Riverdale Mills Corporation. You know what, reading one of your interviews in recent months, I’m curious as to whether or not you’re still hiring cause in this particular interview you’re talking about hiring. But you also talked about the future… the future of… is getting digitized, even more modernized than it is right now. You are… you’re highly automated at this point but more is coming. Could you talk about those two elements?

[Jim Knott, Jr.]: Sure, we’re hiring right now. We’re probably looking for about 40 employees—both shop floor and engineers—and people who work in the manufacturing sector, not necessarily on the… in the office. We do want to try to digitize the plant. We have a very low… we’re highly automated, and we have a very low direct labor cost in our product. But what we want to do is actually drive the labor cost down further and start to digitize the equipment so that it will self-diagnose itself if there’s a problem so you don’t need as skilled workers to troubleshoot the equipment because the equipment will take data from different parts of the equipment, feed it into a computer and tell the operator what the issue is.

[Tom Moroney]: You know, Jim, I want to… Joe’s question made me think about your workforce and what you said earlier—specifically about these payments that were being made in the midst of the pandemic and that your guys on the shop floor could make $56K by staying at home. It’s a two-part question. First of all, what were they able to make in the shop before this? It was something under $56K, right?

[Jim Knott, Jr.]: A typical employee for us was making anywhere from $15 to $30 an hour.

[Tom Moroney]: Okay.

[Jim Knott, Jr.]: So, if you annualize that, it could be $30,000 to $60,000 a year. So…

[Tom Moroney]: So, you know… so, okay, so but you… you know, again, these people are making good money. The point of my question though is this: Now that you’re looking for people and now that they’ve… some of these folks have been able to make this kind of money by staying at home, if you had to raise your wages…

Jim Knott, Jr.]: We have raised our…

[Tom Moroney]: …in order to attract people…

[Jim Knott, Jr.]: We have raised our wages in order to attract people, and…

[Tom Moroney]: And did the government… Jim, did the government program specifically lead at least in part to that necessity?

[Jim Knott, Jr.]: Certainly, it impacted it completely. But, you know, in general, manufacturers pay very well. And I think based on what I’ve been told from outsiders that people want to work at Riverdale Mills because Riverdale Mills does pay well. But you do have to compete with the unemployment sector at this point in time.

[Tom Moroney]: Jim Knott, he is the owner/operator of Riverdale Mills, a company began by his father. They’re in their 41st year. Jim, we wish you best of luck going forward. Want to check back with you, and thanks for being with us today on Bloomberg Baystate Business.

[Jim Knott, Jr.]: Thank you. Thanks for having me.

[Tom Moroney]: Alright, there you go, Jim Knott, Jr. Now look, often times it happens, and we get chatting after we tape, and I wanted to say we got into a pretty good conversation, and it’s worth giving you folks the takeaway from all that. We talked more about these tariffs, and he did mention it in the interview, Joe, he said, “You know, we don’t want more tariffs.” But the ones that are in place, you know, we got talking about those and whether or not those would be good to go away, and I assumed he thought, “Yeah, yeah sure.” He said, “No.” He said, “By the way, the tariffs in place now that they’re working with, what’s happened essentially is that the marketplace has settled those, so the price has gone up on the finished product which is compensating for what they have to pay for raw material.” In fact, Jim Knott said to us, “I don’t want to see these tariffs lifted because it would create more disruption, and we’d have to start from scratch again.” So, Joe, I thought that was very interesting because, you know, your assumption is, yeah, get rid of these tariffs but…

[Joe Shortsleeve]: Sure…

[Tom Moroney]: … Jim says no that wouldn’t be a good thing right now.

[Joe Shortsleeve]: Well, the other little factoid that caught my attention is the facility there in Northbridge. That location and that facility was previously, the location, where they forged bayonets for the…

[Tom Moroney]: … Yeah.

[Joe Shortsleeve]: …Union Army in the Civil War. I mean, you know, that’s how deep it runs and how long that manufacturing plant has been standing there. But that’s what caught my attention, Tom.

[Tom Moroney]: Yeah, and then a woolen mill and a paper mill. I mean this building has history. We ought to go out there someday. I get all excited when you run across one of these. I mean this is hard manufacturing in the heart of Massachusetts. You know, it’s an old industry, but you know they make durable goods, and they make these industries go. I mean they make the lobster industry go. Where would I be without Jim Knott’s lobster traps and melted butter? I mean it just…

[Joe Shortsleeve]: [CHUCKLE]

[Tom Moroney]: … I can’t fathom that. [CHUCKLE]