As with many sectors in the UK, the channel is under pressure from numerous external factors. What are you experiencing, what will the outcome be and what do dealers need to know?
Simon Howorth, marketing and design manager, Dams
The COVID-19 pandemic has not only caused global health issues, but continues to create challenges throughout the world economy. We are seeing, first-hand, the effects on raw material prices which are continuing to rise to unseen levels as demand outstrips capacity.
From a manufacturer’s perspective, there’s been disruption to our supply chain since the start of the pandemic. We’ve seen a continuous upturn in pricing and increased demand for materials such as steel, MFC, plastic and foam that we use throughout our manufacturing process. Furthermore, there have been shortages in available containers, and space on container ships from the Far East, with freight costs rocketing and restrictions being implemented on capacity over the coming months.
At Dams we use our manufacturing and purchasing strength to ensure we maintain stocks of materials at appropriate levels to keep the prices stable for our customers throughout the year, absorbing any costs internally where possible. However, some things are, unfortunately, out of our control and the global pandemic has left us in the position where we have no choice but to implement price increases and share a proportion of the increases, which have been directly related to the significant rises in raw material prices and the cost of freight and containers.
Over the last few months we’ve continually managed an unprecedented level of cost increases – and they have just kept on coming. We’ve been forced to renegotiate all our raw material costs, freight costs and fuel costs – with some materials now on their fourth and fifth increases for the year, some as high as 40% – and freight costs quadrupling.
As I’m sure everybody is aware there remains continued pressure on material prices and availability across a large number of sectors, and office furniture is no exception. As a result there has been a general understanding amongst dealers and end-users of the continuing escalation in raw material prices and external supply issues – including the driver and fuel shortages which are in the news at the moment.
We appreciate that these are challenging times and Dams remain fully committed to supporting our customers throughout – and we look forward to the return of some stability in the near future.
Stuart Seymour, European sales and marketing director, Hopax Europe Ltd
Quite simply, when costs increase it is inevitable that prices must rise sooner or later.
As you know, Taiwan Hopax is the second largest manufacturer in the world of repositionable notes and indexes. The production department has informed us that there are pressures to increase prices as a result of higher labour, adhesives and packaging costs.
In addition, as you have previously reported, the cost of shipping doubled during Q1 this year, compared with Q4 last year; at that time, the freight forwarders didn’t expect it to increase further, but currently, importers are experiencing costs that are between four and five times higher than in Q3 last year!
The situation has been caused by a lack of available shipping containers – it is a simple case of demand exceeding supply. The demand for PPE last year resulted in numerous containers being used to ship the goods around the globe. I have been told that many of those containers are no longer in the supply chain. They are not being returned to the purpose for which they were made; instead, they’re being used as storage units, (seven have arrived in a carpark near here). Pop-up restaurants are another use; someone has put one at a local picnic site, from which they are serving tea and coffee…I guess they don’t need planning permission.
So, consumers should expect prices to increase, because the margins for manufacturers and distributors are not sufficient to cover the extra costs. Inflation in market prices is not necessarily a bad situation for dealers, providing price increases are managed sensibly. The key may be to quote relatively small increases more often than in the past, so that the customer does not receive a nasty surprise. In this way, consumers don’t notice the increases so much when they receive the invoice. Little and often is a method used by the supermarkets. If successfully implemented, price rises can increase sales revenue, whilst some other overhead costs may not go up by as much.
The shipping cost increases are unprecedented. In my humble opinion, these increases are unsustainable; the bubble must burst, or perhaps the costs will reduce gradually, like a slow puncture. When will the shipping costs be reduced? The freight forwarders are suggesting no significant change until at least Q2 next year! Even then, they are forecasting that the average container will cost three times more to import than it did in 2020. Thus, be prepared for more price increases next year!
Mark Wilkinson, regional vice president and general manager for UK & Ireland, ACCO
The office products industry has faced a number of significant challenges over the past year–and-a-half. The pandemic, and resulting lockdowns, caused a major shift in demand for the types and quantities of products customers needed, as well as where they shopped for them. Across Europe, the Middle East and Africa ACCO has experienced particularly strong growth against both 2019 and 2020 in categories such as business machines, computer accessories, air purification and DIY tools as well as work from home-related products. Alongside this, consumer and end-user oriented channels have fared better than traditional routes, and dealers with a strong online presence have done best. However, as restrictions ease and workers return to the office, we have recently seen a resurgence in workplace products. At a more macro level, demand has recovered faster than global supply chains have been able to keep up with and this has led to pressures in terms of cost inflation, availability of raw materials and finished goods, as well as containers and, closer to home, even carrier availability. Our industry is also experiencing these macro challenges.
This is an especially challenging problem in the UK and Ireland as we also grapple with the impacts of Brexit. The well-documented shortage of HGV drivers, which is currently circa 100k vacancies, is putting added pressure on our transport teams to keep our service levels consistent – making it difficult to get goods in and out of our warehouse. For example, we have seen an approximately eight-to-ten-fold increase in the price of containers and a sharp decrease in the availability for third-party carriers. In some cases, this means we’re asking our customers to give us more flexibility in booking slots to ensure we can meet their needs in good time, in order to accommodate the challenges of carrier availability.
We can expect to see trends like e-commerce, and challenges such as those presented by Brexit, to stick around for the foreseeable future. Dealers need to think about how to serve the ‘Business to employee’ (B2E) segment, where their customers’ employees are distributed between an office and remote locations. Demand will probably continue to be split between the work from home product that the pandemic popularised, and products that help staff return to the office safely, comfortably and efficiently. There may be some setbacks in the supply chain, but resellers should rest assured that ACCO and our fellow manufacturers are doing what we can to minimise disruption and keep deliveries flowing. If you are experiencing issues with availability on individual products, talk to your wholesaler or vendors about alternative products; often there are lots of other options out there to satisfy your customer.
Iain Bullock, MD, Renz (UK) Limited
Material and import prices have been increasing dramatically during the course of this year and, unfortunately, we are significantly affected by this. Prices on the raw material markets continued to spiral upwards at the beginning of the third quarter in July, and have now spread across all products and supply chains.
We cannot bear these increased costs alone and are working hard to keep the availability of goods high. However, we are only able to do this by bearing enormous increases in price and importation costs. Combined with continuing – and, in some cases, worsening – supply bottlenecks, availability and, therefore, delivery times will deteriorate further in the third quarter. This dynamic, which is out of our control and is not being contained, is placing a massive burden on supply chains across the entire economy.
The shortage of steel supply in the market is also of concern to us. We have been able to cover ourselves sufficiently with wire supply for the next few months through significant quantity reservations in order to guarantee availability; however, these quantities are linked to the corresponding monthly steel price developments and may lead to further increases.
It certainly is a big issue for all importers into the UK. Up until this point we have been able to absorb approximately 50% of the increases we have faced both from raw material and importation because of the pound having strengthened by four points since April – but we are simply unable to keep absorbing all these costs.
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