Those of you in the IGU and fabrication part of our industry will know very well right now that there is a rather serious glass crisis hitting the sector right now. Some companies are reporting huge glass price increases of anywhere from 10-25% and it’s happening right now.
So, what is the cause of this current crisis and what might happen next?
A perfect storm of our own making
I have been speaking to a couple of sources who are directly connected to this part of the sector and the explanations and reasoning behind the supply problems are stark.
In short, it’s a perfect storm of issues that on the most part are down to the fault of the industry itself. Firstly though, part of the problem can be traced to Europe. Germany and France are going through a strong construction period, the two key drivers of the Eurozone economy. At the same time, two float lines have bee closed in Europe. When you close a float line, it stays closed. So to close two is a big deal. So why would you close float lines when there is obvious demand for construction products like glass? It creates a shortage of product. It has led some to claim that this shortage has been artificially made in order to justify some quite swingeing price increases.
The problem is the UK makes very little glass for domestic consumption. And even by today’s standard it is very little. Operations such as Pilkington in the 80’s and 90’s have since been dramatically scaled back. I was told earlier today that Pilks at one time had over 90 plants in which they made their product in the UK, that now stands in the low single figures. So, due to a severe lack of UK glass-making ability, we have to import a lot of our glass from Europe. When there is a supply shortage from the continent, created deliberately or otherwise, this becomes a rather acute problem.
We cannot point the finger solely at Europe however. For years, decades even, the IGU sector, along with the rest of UK fenestration, has deliberately undercut itself in order to bring prices down as low as possible. I was told by a friend of mine earlier today that he’s actually paying less for a particular type of product today than in the early 80’s. That is utterly ludicrous. But, that is the effect of an industry that has kept prices so artificially low for so long. So when big price increases like this come along, it means that the IGU suppliers who have sold on price and price only have absolutely no room to manoeuvre and no profit margins to maintain. It is perfectly reasonable to think that either supply chain problems or price increases could close some companies in the coming weeks and months.
Europe aside, our industry only has itself to blame for keeping such a long cap on low prices for so long. When you get a big earthquake like this, it means we’re all woefully unprepared for the fallout.
That is a very brief overview of the market place according to the sources I have spoken to today. The outlook however is gloomier still.
Systems houses to make commercial decisions
The UK isn’t a very profitable market place for the biggest glass makers right now. GDP growth is slow, Sterling isn’t performing well enough and construction growth is far better in key markets such as Germany. The upshot of all of that is the major players are now choosing to focus their supply of glass products to European and other growth markets and not the UK. In short, they’re making a commercial decision and actively focusing on other countries.
This is where the supply of any remaining glass materials becomes very important. I have been told that the biggest systems houses are choosing their more loyal IGU customers when it comes to supplying them with glass products. They’re choosing the better payers and those who source only from one supplier and not those who change allegiances on a regular basis because of price. Again, they’re making a commercial decision. If they’re going to supply to the UK, they want to deal with those who are most reliable and have the better relationships with.
I will be approaching the major glass systems companies in the coming days for comment on this developing crisis.
If you’re an IGU fabricator who dual-sources, or perhaps doesn’t have the best payment record, this won’t come as good news. Glass seems to be becoming a very valuable commodity right now, and it looks as though those in charge are now deciding who gets to have it. It does put into focus the value of loyalty and strong bilateral B2B relationships.
The knock-on effects could be very serious for some. No glass means no IGUs which means installers don’t get their glass to go into window and door frames. Installers will be forced to look elsewhere for their supply, adding to the problems for IGU suppliers who may already be struggling for regular supply or spiralling costs. I don’t think I can underestimate the seriousness of this. A 12% rise is bad enough. Some are reporting 25%, and most of that has to be passed down the rest of the supply chain. I could close the doors of some companies who haven’t invested in their business properly or maintained a decent profit margin.
This crisis has been months in the making so I am told. Many suppliers have apparently had a lot of warning about the upcoming supply and price issues. I have written before about cost increases in the glass sector, but this is by far the most acute pinch-point so far, and the most serious. I am told that it’s only going to get worse in the weeks and months to come.
As is often the case with scenarios like this, panic can spread and speculation can add fuel to the fire. IGU suppliers will at this point I am sure be seeking to shore up their supply of glass products and to ascertain how much and when price increases are going to hit them. IGU makers can complain all day long, but as is the case for privately run companies, if the biggest decide to close a float line or two and focus on other markets, there is very little they can say or do to reverse that. If you want to change that you would need to look at getting rid of the capitalism business model.
What this also does is shine a light on the state of glass manufacturing in the UK. A source told me today that the UK market will manage. It may import glass from a little further away, from countries which we don’t always import all that much from. But for me this is the issue. As a country that is separated by a big stretch of water, we need to become far more self-reliant and rapidly increase the production of major construction materials like glass. That way we can protect ourselves from problems that originate from abroad. We did make a lot of glass here in the UK, perhaps it’s time to look at ourselves again.
That’s a very long term change. In the short and medium term this looks like it’s going to be the new norm. The closure of float lines are very permanent, so this is a supply shortage, artificial or otherwise, that is going to remain. That means we’re going to have to get used to paying a lot more for our glass. For some, that will be the end of their companies. There will be some IGU makers out there which will simply be unable to handle the increases and supply chain problems.
But, in a way I don’t have much sympathy. If you don’t invest in your business or maintain a good profit margin when the times are good, then that’s just bad business management. Perhaps this is a re-balancing of material cost that we have needed for a very long time. Should an IGU maker being paying less for a product now than nearly four decades ago? I would say not.
Either way, the disruption has started and is starting to make itself known. Like a hurricane, we’re feeling the outer bands of the storm. I would guess that we’re going to see much worse before it gets any better.
If you’re in the IGU sector or work for a glass systems company, your feedback on this post would be welcome. Please feel free to leave a comment below, or contact me on [email protected] if you would like your views and thoughts published within this post.
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