As an advocate, and in the spirit of Stronger Together, we have spent the last few weeks speaking with dozens of domestic manufacturers and import vendor partners on your behalf to understand what is happening in the marketplace.
We would like to offer insight into those conversations and the current logistics and freight issues challenging our industry.
Although we typically associate the words “demand” and “growth” as positive signs for our future, both foreign and domestic manufacturers are dealing with excess demand which they cannot satisfy, which is not a positive sign in the near term.
Manufacturers cannot keep up with the sudden influx of orders due to the foodservice industry re-opening. There was no set timeline for the “great re-opening”; which led to many manufacturers being unable to ramp up capacity fast enough to fulfill the current demand.
This was compounded by many factors such as labor shortages, materials price increases, and logistics issues – thus creating an almost perfect storm.
- Raw Material: NAFEM recently surveyed their members and over 60% of manufacturers reported significant metal supply issues. The price of metal and other domestic raw materials has increased more than 30% in some cases. Some manufacturers are also reporting metal prices adjusting every 48 hours.
- Labor: 46% of NAFEM members reported having a difficult time hiring and maintaining their labor force to keep up with the increase in new orders. Most manufacturers have not been able to bring back their entire labor force from pre-Covid furloughs and layoffs. Combine that with the dramatic increase in volume, and almost all manufacturers we spoke with have more open positions than applicants.
- Freight: During Covid, all container ship operators limited the number of ships moving cargo, and they remain limited despite demand surges as discussed above. This has created a shortage of available containers and has driven pricing for shipping a container across the ocean up significantly in recent months. Standard pricing has increased around 50% and there are “surge” pricing charges being added to that already increased price. This is further compounded by the backlog in ports to get container ships unloaded, as well as the lack of available truck chassis to move product from rail depots to the products’ final destination.
All these factors have led to increased costs and significant timing delays to receive product. Recent customs data shows imports surging past 2020 levels in the first three months of this year, with no signs of slowing down. Industry experts believe that freight costs will continue to rise into the later part of 2021.
WHAT NOW?
While we do not have a crystal ball, here is our current thinking. We expect lead times to continue to increase in the coming months and we expect most, if not all, manufacturers to take significant price increases in the very near future. Many have already announced 8-9% price increases for June or July (please refer to weekly announcements and our website) and we expect to see many more shortly. We will continue to communicate as we receive new notices from our manufacturer partners.
Additionally, many manufacturers are experiencing severe inventory shortages and starting to ration product. We will continue to monitor this situation and work with our partners to make sure that our group has available inventory, if possible. Please know that we expect inventory availability to get steadily worse over the coming months and you may encounter situations where you are unable to find available inventory at ANY price.
Based on our discussions with many manufacturers in the industry, our research on the issues at hand, and our discussions with parties outside our industry, we believe that these issues will remain for the duration of 2021 and likely into 2022.
ACT TODAY
While there is no cure-all for these issues, there are a few things that can likely improve your position for 2021. Take inventory now. Forecast your inventory and project needs for the next 3-6 months and place purchase orders now. This will get your order “in line” so that you can take delivery of product in the coming months versus getting in line when you want the product and waiting 6-12 weeks. Those dealers with inventory will win in 2021! Again, based on our research, we do not believe that these issues will be going away anytime soon.
WHAT’S NEXT?
Let’s work together to get ahead of the challenge.
- Act today: Get your orders in now for manufacturers who have longer lead times.
- Alternate vendors: We can help you identify and source “like” items from alternate vendors where available.
- Group buys: In the coming weeks and months we will put together aggregate buys for members of the group, take advantage of these opportunities.
