A short insight into the current supply chain situation affecting the M&E industryDownload the white paper
A message from our Head of Purchasing – Nigel Rogers:
In reviewing the last 12 months from a supply chain perspective, it is a big understatement to say there has been nothing to compare with it in all the 29 years I have been involved in purchasing at MIDFIX. During my time I have seen recessions, a financial crisis, steeply rising and falling commodity prices, fluctuating shipping costs, anti-dumping duties and more recently a prolonged Brexit, but nothing that compares with the all-encompassing disruption of the last year.
In January 2020 we began to hear of a mystery illness in China and by the end of the month Chinese factories were being closed and our main concern was running out of stock and we were doing everything we could to get the product shipped and buying as much product as we could get our hands-on.
A month later it was a complete reversal, the disease was arriving on our shores and within weeks we were expecting to be similarly closed down and drawing up business contingency plans. For the purchasing team, this meant either cancelling or deferring as many orders as possible for products that we were unlikely to be needing anytime soon and which we may not have been open to receive anyway.
The UK government decided that construction should remain open although under considerable pressure to close it down which created a large degree of uncertainty. During late March, April, and May it was a mixed situation with some sites closed and others remaining open but with restrictions on the number of trades and contractors on site and the introduction of distancing and other restrictive measures. As a result, demand was severely reduced during April and May, that is apart from the insatiable requirement for PPE which kept us busy trying to get hold of masks, gloves, goggles, etc. and placing orders at exorbitant prices for PPE that more than often did not materialise!
However, business began to recover during June as more sites reopened and got up to speed and was amazingly and unexpectedly back to normal levels by July. At this point it became necessary to cautiously turn our supplies back on and we then began to see the almost unbelievable impact of Covid on every single element of the supply chain. Whether it be raw materials, production, packaging, finance, shipping, you name it, everything was affected. This was like a new world as far as supply went and we had no idea it would still be playing out today.
If we take steel as just one example, steelmakers had laid-off staff, mothballed plants, and switched production to more profitable steels thereby creating shortages in the steels required for some ordinary products like ours. On top of this the EU introduced an emergency anti-dumping duty of 25% on a wide range of steel types from countries including China, Brazil, and India, the rationale was to prevent these countries dumping cheap steel into Europe during the pandemic and further decimating the European steel industry; the result was a large reduction in imported steel plus the inability and possibly the unwillingness, of European steel manufacturers to make up the shortfall. The inevitable happened whenever there is continued short supply and strong demand, the prices began an inexorable climb that has still not levelled out when I write this in March 2021.
At this point there are still severe shortages of steel strip material and nobody can say when this will change or prices will peak – prices today for things like channel and cable containment are around 50% more than they were in September last year and there are further significant rises coming in Q2 all of which is entirely related to incoming steel costs. Without being cynical, when a producer is protected by tariffs, can make less product with considerably more profit and at the same time retain their workforce at government expense on furlough schemes, what is the incentive to change anything?
Another notable disruption was the production issues and delays from many manufacturers for all manner of reasons. A workforce shortage was common, in some countries the workers had returned home during the lockdown and were unable to travel back. Material shortages were a big factor, in some situations state borders were closed and material could not be moved between states. Another effect of the shortages was that material suppliers were asking for up-front payments from the manufacturers which was impacting them financially and restricting output.
And then we come to another big one, shipping. Shipping is a whole world of its own and not easy for the uninitiated such as myself to comprehend. However, one thing that becomes very painfully obvious is that in the age of the global economy, without shipping there is no economy and whatever the shipping industry decides or otherwise has a far-reaching impact on almost everything we buy. At the outset of Covid demand for shipping dropped significantly and ship owners reduced sailings and mothballed vessels. When demand switched back on again more prematurely than expected, there was a shortage of vessels, container prices shot up and weeks were added to shipping times. Again, shipping companies were very reticent to change this newfound profitability and there was no urgency to bring ships back into service. Another complexity compounding the situation was the availability of containers – take a country like the UK and a lot of other countries too that import far more than they export. Of all those containers that arrive here full, a significant proportion have to be shipped back to their destinations empty. This is not a profitable business for the shipping companies and when there is a shortage of ships and shipping prices are high there is not much appetite for sending back the empties.
Another shipping-related problem that has been much publicised is the issues at UK container ports. With the massive demand to restock following the lockdown it meant a few months of containers arriving in a short space of time, all of which overwhelmed some ill-prepared ports and added further to the delays we were seeing. In result some shippers have even refused to dock at UK ports and containers landed in Europe and trans-shipped, while other ships are commonly diverted to alternative UK ports which are not always ideal for handling this kind of freight.
As of today, the outcome of all this is around an additional 4 weeks on top of normal shipping times and costs of at least an extra £1000 per container. Typically for our type of products, a container will have a value of between £13,000 to £23,000, so just this additional shipping cost alone averages an increase of around 7% to the cost of the goods. Considering that every product in our sector has to be imported either as a finished product or in raw material form, there is nothing that is untouched by this added cost.
The overall effect of longer manufacturing times and delays with shipping means that on average overseas shipments will now arrive between 8-12 weeks later than before the pandemic and most orders we had planned for delivery in December are now just arriving in late February and March.
I could continue about the issues with cardboard shortages, packaging costs, Brexit with the added costs, complexities, and delivery times from Europe and multiple lesser stories about almost everything we touch. However, this will be no different to what everyone else in this industry is working with and indeed, comparatively very little to the pandemic related pressures that many are faced with in all walks of life, but hopefully it gives some little insight to our customers of why prices all across the board are continually rising and why there is seemingly no end in sight to this unwelcome scenario.
It will also explain why it has not been unusual over the last 6 months for contractors to experience shortages and delays on even common products. I am therefore pleased to be able to say that this has never been the case at MIDFIX and with our policy of investing in strong stocks, having good relationships with our suppliers, and continuous hard work by the purchasing team (with not a little ingenuity here and there!) we have maintained our exemplary order fulfilment rate of 99% throughout.
On another positive note, throughout the pandemic, MIDFIX has continued to make investments that have considerably advanced our technical support for the M&E sector. These have included further development of our unique Design and Engineering facility, a dedicated Technical Team and the MIDFIX Academy providing industry training in key fields such as the installation of anchors.
No doubt we are all looking forward to the time when we stop hearing of material shortages, price increases and all the other negatives we hear every day. Meanwhile, at MIDFIX we continue to work hard to be that dependable supplier with the products, service and technical support that our customers need and to make their lives just that little bit easier in what are exceptionally challenging times.
If you wish to contact our purchasing team to discuss further then please do so;