Continued Supply Chain and Cost Increase Issues
It has been a few months now since my last letter telling you of the many supply chain issues affecting supply and pricing in our markets. I wish I could tell you that things were getting much better, but unfortunately they are not. There continues to be problems getting some products at all as well as delays in many of the products that we are able to get. Cost pressures also continue to build in many areas of the economy which is causing many price increases. In this letter I will let you know of some of the things we are hearing and seeing so you know better what to expect going forward and also arm you with information you can use when talking to your customers about these same issues.
Many products made in the US continue to be delayed in production as factories simply have more orders than they can handle. With the rapidly improving economy, demand jumped up a lot in the last 3-4 months which caught many suppliers by surprise. They have found it hard to source materials in a timely manner to be able to produce their goods in increasing volumes. Many of the goods they need are much delayed or on allocation which means that they are limited in how much they can buy. For those that are able to source their products, the most common frustration I hear is that they are not able to find additional workers to be able to produce the additional amounts of goods. This leads to further delays in shipments and longer lead times. Many items that we used to be able to have produced in 30 days are now taking 90 days for us to get in.
Products made overseas are also experiencing long delays. The problem is less about the factories being able to produce the products, and more about the shipping delays. It used to be that when a container was ready, the factory got a booking on an upcoming ship and the goods were often on a ship within a couple of weeks. Right now it is very difficult to get bookings in the first place due to not enough empty containers and ship space. When the factory does get a booking it is not unusual for the goods not to actually leave for a couple of months. Demand for space on the ships and empty containers is simply greater than the supply. Right now we have over 50 containers of products finished at factories that we are trying to get moved. We have never seen these types of lack of space or delay issues on this scale. As we are just now entering the normal peak shipping season in preparation of holiday gift season, it is not expecting to get any better until at least very late in 2021.
The strong demand in many markets is also causing prices to increase which I am sure you are hearing from most suppliers. It seems that we are getting new price increases from factories almost daily. We are doing all we can to mitigate the price increases or place large orders before they go into effect, but that is not always possible, and even when it is, it only delays the increases until our next round of orders. Most vendors we used to contract with at an annual price based on our expected volume, but today many vendors quote us a new price each time we need to place an order based on the market at the time of the order. Internationally, the costs of containers are shooting up at a rate we have never experienced before. Rates on many freight lanes are now 3-5 times what they were just 6 months ago. Average freight on a container from China for example used to be about $4000. Last week we had container space offered to us at about $20,000 per container. This is a huge increase in the landed cost of products that are now being shipped. If you consider an average container of goods to be worth $50,000 for example, this additional $16,000 in freight costs will increase the landed costs of those products by over 30%. These are very large and scary increases and at this time they seem to get worse each week. Our choice is to either pay the much higher prices, or further delay the shipment in hopes that rates will be better later. Delaying shipments causes big problems in the factories as they then have to store the goods until they can be shipped and most factories do not have the space to store more than a few containers until they have to stop producing.
Due to many of the reasons outlined above, you can expect to see a lot more products out of stock at many of your suppliers, including us, in the upcoming months. Right now we are in the summer season which is usually slower for us. This is the time that we usually are able to replace the inventory we sold in our busy spring season as well as build up for the upcoming busier fall season. This year with strong demand as well as supply chain issues, we continue to sell more each week than we are able to bring in and we are not seeing signs of this ratio improving in the next couple of months. You will also continue to see price increases on many products due to the increases I discussed above. We had hoped that by now cost pressures would be decreasing, but that is not the case, and not expected to be the case any time soon.
We encourage you to check with your vendors on availability of product as you are selling jobs and projects. You may need to bring in products sooner than you had planned to ensure that you have them for orders you have coming up that you know of. You may also need to be flexible and look for alternatives in some cases if items are not available in the time frame needed for your customer. Pricing is also going to continue to be fast changing, so be careful when quoting jobs very far into the future.
We do expect that over time things will normalize and supply chains will return to balance. How long this process will take though is unknown at this time.