A Real Sticky Situation – Costs Skyrocket On Increased Freight and Raw Material Shortages
Written by Electro Tape – May 24, 2021
Updated September 20, 2021
In May of 2021, the COVID-19 pandemic looked to be under control. Little did we know how impactful the word ‘Delta’ would become to us in the coming months. The good news is that we were correct that businesses reopened and the economy was heating back up. That led to some unexpected consequences. Whether we like it or not, US companies in a vast majority of industries rely on foreign materials and goods, making international manufacturing and logistics a vital aspect of our economy.
The extraordinary series of events caused by the pandemic have created an extreme shipping container shortage. Factories overseas closed for extended periods of time during lock downs then rushed to get as many containers shipped out as possible following reopening. Add to that the reduction of labor, fewer ships operating and significant changes in consumer spending as e-commerce dramatically increased as people shopped online from home. And to make matters worse, the containers that have arrived from Asia have had real problems making their way back. In essence, most of the world’s containers are in the wrong places at the wrong times resulting in demand far exceeding the availability of containers. This equals an imbalance that will take some time to even out.
The lack of available containers, demand for them being greater than supply and available containers not being in the right places at the right times, has caused an extraordinary increase on rates. We are now seeing rates upwards of $25,500 for a 40’ container, a 515% increase at minimum over the span of a year and a half. Such increases are not sustainable and have already led to the consumer paying more for goods, as there is only so much our US companies can absorb.
|COST PRIOR TO PANDEMIC||COST AS OF JUNE 2021||COST AS OF SEPT 2021
|20 ft container||$2,400||$9,000+||$18,000+||650%|
|40 ft container||$4,150||$13,000+||$25,500+||515%|
Not only are logistics issues causing a dramatic uptick in prices, the lack of raw materials here in the US and overseas is causing headaches for manufacturers and suppliers alike. COVID-19 is not entirely to blame however. The freeze that triggered blackouts in areas of Texas this past winter led to plant shutdowns that affected manufacturers globally. Throw in the latest crisis to hit the Gulf Coast region and the destruction caused by Hurricane Ida, the category 4 hurricane which made landfall on August 29th. In its path were numerous oil and gas facilities as well as petrochemical plants. Halts in production, logistics and possible damage to these facilities has disrupted these manufacturing processes yet again.
The most common compounds used to make computer equipment, automobile parts, and in our case, tape, are in rare supply and prices are beginning to reflect that reality. Prices for polypropylene (primary compound found in carton sealing tape, duct tape, strapping tape, etc.) and polyvinyl chloride (commonly known as PVC, the primary compound in electrical tape), have reached levels never seen before. Unfortunately, this situation will lead to price increases across nearly every industry that rely on these compounds.
The incredible increase in container shipping costs are the largest contributor to Electro Tape’s price increase announcement. The increase in container shipping rates had risen steadily from Q3 of 2020 through Q3 of 2021. We hoped that this was just temporary and we as a company were ready to absorb these additional costs if so. However, the freight cost increase has continued to rise and experts are predicting this to continue through Q2 of 2022. We pledge to you, our distributor partners that if and when container shipping costs retreat back to normal rates, we will adjust prices accordingly.