Why are prices still so high even though the COVID pandemic related restrictions are gone? We have been fielding inquiries on this topic in various forms lately and feel that it’s time to shed some light on the issue. It’s complicated!
It is easy to forget how industries are interconnected and how global events and market shifts impact the accessibility of items we expect to be available when we want them – especially here in the states. Both global and localized components are at play here. Factors like weather, conflict & unrest, trade wars & foreign relations, domestic policies, accidents & natural disasters, pandemics and fraud are just a few of these components. These can all impact the ability to and the cost of taking a product from scratch ( a farmer’s field, a raw materials mining site, a recycling & processing center etc) – to the manufacturer(s) and eventually to your door.
While the pandemic has had an impact on every step in the process of production and getting products to customers, there were (and continue to be) many other elements as well. Truth is, for as far as our world has come in the way of technology and the good it has made possible, it has not diminished how connected and dependent we all are to changes in our world.
Prices are influenced by fluctuation of the markets, which respond to any number of factors. These include (but are not limited to) impending unrest around the world, changes of leadership and projections of raw materials. Any product that relies on a crop is dependent on the weather & workforce that provides for suitable crop planting, growth, harvest, processing, manufacturing and distribution of goods. Stressors at any part of that process can cause prices to rise. It also results in additional time/materials to get those raw materials harvested. In some cases, prices may be increased in attempt to slow down the consumption of or the hoarding of those materials.
Once raw materials are acquired, cost is still dependent on a motivated workforce (of which there’s a serious shortage), reliable manufacturing facilities, those who maintain them, and transport logistics both domestic and abroad.
Shortages (and cost increases) in lumber and steel will impact how quickly some of these logistics shortages are resolved. While there are old plants not on operation, it’s not for the lack of trying. The cost of bringing those plants up with current safety and efficiency regulations is cost-prohibitive. The shortage in aluminum continues to constrain beverage packaging, prompting an increased use of glass.
Freight carriers and logistics companies continue to have a shortage of qualified operators and drivers. You can get more insight on that challenge here. Recently, some LTL carriers have begun to apply pallet limits on BOL.
There is a shortage of pallets required to ship orders via freight, and on which most products are stored and moved on. Lumber shortages have hampered the ability of pallet producers to keep up with the sudden demand.
Because of the disruption in logistics and transport, there have been shortages in freight containers (required to move product across the ocean or the nation by rail). Really, the problem is an imbalance of where the containers are located. When Covid-19 forced national lock-downs, cargo ships full of imports headed to the US, containers were dropped in ports along our coastline. They then chose to, or could not wait around to pick up the equal amount of either empty containers. Containers piled up, congesting ports all the more. This rush also put unexpected strain on receivers and distributors. They must have qualified lift operators on-hand, as the time frame in which goods must be removed from containers is immediately upon arrival. The increased traffic continues to cause backups at ports, adding to the delay of products.
The shipping vessel lodged in the Suez Canal halted the movement of goods. This caused delays and a jump in the cost of cargo ship rentals. International foreign polices and logistics challenges have resulted in diminished recycling relationships -aluminum, glass recycling in particular.
Many of these components may not have resulted in quite as dramatic price increases on their own. The impact was magnified even more with companies implementing cost-cutting practice limit their inventory in recent decades.
Wax price increases – Weather events caused damage on many acres of soybean crops and several states are currently in drought conditions. This diminishes the crop yield and will likely increase the farmers cost prior to harvest. The result will ultimately drive an increase in the price. We have been watching the soy futures…as they change, so do our costs and so must our prices. (See this recent Agri Census article)
Fragrance oil price increases – All of the above has impacted raw material pricing. That steel shortage caused a significant increase in the cost of steel drums fragrance oils are shipped.
Glass shortages and price increases – The demand spiked (more significantly than ever) at the beginning of the pandemic and through-out that summer. Why? As pandemic related production and logistics issues in sourcing aluminum, “tin” cans increased, food and beverage packaging plants began switching to glass to fill in the gap. Glass jars were suddenly being used in many more purposes than expected. Although there was also an increase in home-based canning and preserving, the biggest hit to the glass supply was in the commercial side of things.
Shipping cost increases – UPS Ground recently changed their “over-weight” threshold to 50lbs. Our wax company (as most others) packs 50lb of wax in a bag & box. The additional weight of the simple packaging puts a case of wax at 53lbs; “over-weight”. Our wax manufacturers are willing to sell 45lb cases, but at a significantly higher price. The cost of running an additional line to package it gets passed along.