By Dan Karas
If you’re a business owner, you know: It hasn’t been easy navigating all the twists, turns and upside-down loops over the past 21 months. The global supply chain, which once ran like a finely calibrated machine, lost a few key gears in its system during the pandemic – and as the world hits the gas pedal on consumer demand, shipping and production just aren’t ready to keep up. Instead of a smooth cruise back to “normal,” we’re moving in fits and spurts, halted by shortages and price hikes.
To understand why, we have to look back at early 2020, when the globe’s manufacturing powerhouses – including China, South Korea and Taiwan – were hit hard by the first wave of the pandemic. In response to the sudden change, shipping companies cut back hard on their schedules. The assumption was that, as the virus spread, people would be spending less money on the things they used to buy.
A lot of shipping containers were redirected to the wrong ports or not returned to where they needed to be. They piled up in empty ports, even as factories were producing more and more goods with no way to deliver them to overseas markets.
Demand rose for limited transportation capacity, and the cost of shipping skyrocketed. A shipping container that cost $4,000 before the pandemic can now easily fetch $25,000 – and it takes much longer to acquire one. Orders that used to have a lead time of three-to-five days are now looking at three-to-five weeks, if not more.
Of course, this impacts everyone. Almost all companies rely on global trade somewhere in the supply chain – not just those that import finished products. New cars are impacted due to a shortage of computer chips, for instance, while medical devices, cream cheese, candy canes, and countless other products suffer their own delays.
While the holiday season is the immediate concern for many businesses, there are no signs that these problems will ease up come January: The forecast for 2022 is “more of the same.” It’s possible that we’ll have a little more slack by the third or fourth quarter at the earliest, but those hoping for a quick turnaround will be disappointed.
Still, the outlook isn’t wholly bleak. Plenty of companies are surviving – and thriving – despite the rough market. While part of that comes down to luck and good timing, there are also some ways any business can position itself to weather the situation:
· Bulk up your inventory when you can. If you’ve been working with a “lean inventory,” it’s time to switch tactics. When essential products are available, buy as much as you can, as cheaply as you can. If your company is already operating on a narrow profit
margin, or was hit hard by the pandemic, you may need to seek out financing to invest in more capacity.
· Review your pricing structure. Inflation isn’t transitory: It’s here to stay. That means it’s time to review your budget, reassess your expenses and be prepared to tighten your business’s belt a few notches for the foreseeable future. And, while it can be hard to risk alienating customers, you may need to raise prices if your production costs have gone up.
· Be honest with your customers. Everyone understands that the market is tough right now. If you explain the reason for delays, shortages, or price changes, most people will appreciate your transparency. Sincere, personalized communication can go a long way toward easing frustration – and may even win you a few loyal customers.
While there’s no tried-and-true solution to shortages, flexibility and planning are key. The better you understand your company’s supply chain – and the options available on the market – the faster and more effectively you can pivot when problems arise.
Dan Karas is EVP of Allied Affiliated Funding, Axiom Bank’s factoring and asset-based lending division. He can be reached at DKaras@AxiomBanking.com
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