Towards the back end of 2020 and all the way through 2021, the cost of global shipping costs went through the roof. Whether it was from China to Europe, the US to Europe or China to the US, container costs spiralled out of control.
The lifting of COVID restrictions around the world released consumer spending like a dam that had been filling up for months. As a result, demand for pretty much everything went nuts. Including demand for home improvement products like windows and doors.
As a result, suppliers in our sector, generally in the world of doors and hardware, began to put in temporary shipping surcharges to cover the additional costs of getting products to this country. For context, suppliers agree on prices weeks and months in advance on shipping. But in this particular circumstance, with demand out of control and only so many ships in the world to get things from A to B, that went out of the window.
However, we were told by various suppliers that these surcharges would be temporary and that they would be reversed as and when things settled. Well, as you can see via the chart below, prices have very much settled back near where they were before the pandemic. So will the fenestration sector begin to see these surcharges fade away?
Will surcharges be dropped?
The context, which I laid out above, is important to remember. Transport conditions were uncontrolled and the world was experiencing something it had not encountered before. Due to this, there was a lot of goodwill and patience within our supply chain towards suppliers. That’s not to say there were some vocal opinions on these surcharges to cover the extra shipping rates, but I would say in general our industry accepted what was happening and got on with the job at hand.
We are in a very different market now. Things are slowing down, perhaps more quickly than most are ready to admit. Inflation has caused prices to consumers to rise faster than they have in decades. Profit margins are being squeezed. Any relief on the cost side of things is going to be very welcome, and news of shipping costs back down to pre-pandemic levels is going to sound like very good news to all of us up and down the supply chain.
So, as promised, will these surcharges be reversed. Will we see companies who put them in place reverse them as was indicated? In my view, no, we won’t. In my heart of hearts I never truly trust that surcharges that are meant as temporary ever come down. There are a couple of reasons for that I believe. First, if a company sees its customers as becoming comfortable with those higher prices, there likely isn’t much motivation to reduce them. Second, if other costs are rising too, it’s easier to justify keeping the surcharge in place to pay for other costs within the business.
That second point is what I believe we will see. Those shipping surcharges that were once meant to be temporary are now likely to remain in place. The reason that will be explained is that other rising costs, such as labour, gas, electricity, raw materials and so on mean that those price increases will have to remain in place. Given the amount of time that these freight surcharges have been baked into the price of our composite door products and hardware products, I find it unlikely that they’ll ever now be removed. They will be blurred into the general cost of the product from here on in.
Every little helps
The problem with stating in public that something is temporary is that people will hold you to account for that. So when door suppliers, for example, came out and said that these freight shipping surcharges wouldn’t last forever, the industry would remember. So as knowledge of vastly lower shipping costs spreads through the sector, there will be growing pressure to see those charges removed.
In other parts of the industry, we are seeing flexibility in additional surcharges. The energy surcharge in the glass sector we have seen both rise and fall in recent months, with Pilkington announcing it would drop to 0.08p per kg. It had been a lot higher than that in recent months. The resin surcharge from VEKA has been gradually coming down too, which is good to see. So the industry is proving that it can be flexible.
For me, it’s important that we work towards a scenario in which all surcharges that were put in place due to the extreme circumstances of the pandemic years are gradually rolled back. In a retracting market, a recession we’re already in and a public that is cutting back on spending, every little helps. Any help to bring retail prices down for homeowners would be welcome both by customers and installers alike.
In more good news on the inflation front, wholesale gas prices have come way down in recent months. So much so that the predicted energy price caps are now falling, rather than rising. This is going to bring some welcome relief to homeowners and businesses alike who were perhaps thinking that it would be a very long time before we saw some stability return in that part of the market. But if it means fabricators can worry less about energy costs, at least some of those savings could be passed down the supply chain.
Not every surcharge will be able to be rolled back. Labour prices won’t come back down. The lack of skilled workers and high demand across all sorts of sectors, not just fenestration, has seen wages rise in a bid to attract the right people. Some raw material costs may never come back down to pre-pandemic levels. But surcharges that were intended to be temporary, and can now be rolled back, should be done.
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