Breaking News – Inflation is here!
Well OK – maybe higher pricing isn’t Breaking News for anyone who has been paying bills the last few months. Inflation presents itself every day to those of us who spend hard-earned money for ever more expensive goods and services. The questions are: 1) Does anyone believe this is temporary? And 2) how should businesses respond to weather this inflationary cycle?
Regardless of geographic location, pressure for price increases (typically more than singular price increases) have occurred in the following commodities and necessities:
- Any of the energy costs
- Home prices (new and existing)
- Rental fees
- New & Used cars
- Anything made with metal
- Anything made with plastic
- Insurance (take your pick of any Insurance) premiums
- Restaurant menus
- Wages (for business owners)
While there is some disagreement as to relative impact of each cause on the upward price direction, some of the root culprits include:
- Increased demand for goods and services following COVID
- Production shortfalls due to insufficient raw material supplies / worker shortages
- Increased wages due to supply & demand of available workers
- Freight cost increases both domestic and overseas – partially due to demand increases, acute driver shortages, increase gas/diesel costs, and lack of available truck equipment & overseas containers
- Federal Reserve’s current Monetary policy of printing more & more dollars
- COVID related subsidies for unemployment, housing, etc. – and resultant worker shortage for business’s trying to hire
- Impingement of energy production (e.g., removal of energy production from fracking, reductions of oil, gas, & shale exploration opportunities, Keystone Pipeline cancellation & so on)
- Growing focus on Green Energy to the detriment of less expensive, abundant current fossil fuel energy sources
- Lower Mortgage rates creating greater demand for housing – combined with fewer available houses – raises housing prices & rent
Unfortunately for workers , it appears that the increase in wages is not keeping up with inflation and more costly living expenses.
The Blast & Paint industry is similarly impacted by all the above. In the prior 5 months the major Paint Producers have raised pricing multiple times – including (in no particular order) PPG, Akzo Nobel (International & Devoe), Carboline, Sherwin Williams, Gulf Coast Paints, etc. The total price increase ranges from 10 to 20% for the paint and coatings supply chain. In fact one major national paint manufacturer has had 4 price increases in the last 5 months – 3 were increases with the last increase at 14% – and one was a 6.5% Surcharge (remember how fuel Surcharges have gone away?? – not).
In addition to the above causes, the paint industry was impacted by:
- Raw material producers along the gulf coast were severely affected by the deep freeze that took place in Texas and Louisiana in the 2nd & 3rd week of February 2021. The producers are still trying to ramp back up to meet the new, increased demand.
- Overseas shipment costs have increased 100 to 300% compared to before 2021 shipments. Raw material supply has been stymied by lack of available containers, overcapacity and lengthy delays is scheduled shipping.
- Increased worldwide demand for paint raw materials, in addition to reduced domestic production, have created an allocation process – causing lengthy delays and even cancellation of orders.
- Domestic freight cost increases also contributes to higher costs for delivered paints and coatings. Again, lack of truck drivers, truck equipment and over-capacity being the main cost increase impetus.
It is not surprising given the confluence of all the issues listed have resulted in delays, backorders and partial shipments. In fact, delayed orders shipping from multiple locations for single orders is very prevalent and troubling right now in our paint business.
The Blast Abrasive supply channel has been affected as well – perhaps not as dramatically as paint – but with surprising cost increases – due to the following:
- The largest cost component of Abrasives other than the media itself is freight cost – which represents a significant percentage of the overall cost of Abrasives. As previously mentioned, overseas freight costs (shortage of containers and elevated shipment demand) have increased dramatically – 100 to 300% higher in overseas freight cost alone since the January 2021. In addition, domestic truck freight costs are more expensive today by a range of 40 to 100% compared to the beginning of 2021. Lack of drivers and insufficient equipment supply together have ramped up domestic freight costs.
- Some of the Abrasive suppliers have raised pricing due to higher labor costs, equipment costs, maintenance costs and energy cost increases.
It is not unusual for orders to be delayed for several days (if you’re lucky) to weeks for paint and abrasives – along with the indignity of paying higher prices for the same goods & services.
As one anecdotal example, we’ve had clear 2-component aliphatic urethanes on order since May – still without a promised production and/or shipping date.
Given that the Fed is printing new money and the money supply has increased substantially this year, it is my belief that much of the inflation increases are here to stay – and would not be surprised if more increases are on the way, unless overall demand is lowered – or if production increases.
Chronic worker shortages, raw material supply issues, and elevated freight costs appear to be very stubborn, difficult issues to remedy.
In my opinion, until Supply catches up with Demand – and the Fed slows down new money injection into the economy – we will continue to be subjected to higher costs of goods & services.
Given the current inflationary trend, there is little that a business can do to affect changing the inflationary trend. However, businesses are able to focus on the following adjustments to improve their business climate:
- For producers of goods – strive to keep additional inventory – whether raw materials or finished goods. For example, we now stock over 2 months worth of products for our customers – rather than one month supply before this inflationary cycle. This will minimize order stockouts for customers.
- Anticipate material requirements sooner to avoid issues with delayed freight shipments.
- Suggest to your customers to order as early as practical as well – and make sure to order a little extra if possible – to avoid material shortages.
- Keep track of your real costs amid fluctuating price increases – and match price increases to your customers as needed.
While not a perfect solution, we can only modify our business practices to work toward satisfying our customers’ needs in this difficult environment.
I invite your thoughts.
The Coatings Resource Inc
TCR Blast Abrasives