Will Consumers Be Seeing Higher Prices as the Result of the Tightened Supply Chain?
Key Points:
- Consumers are going to see many more price increases by other producers as long as supply chain issues continue.
- Companies are trying to to figure out if these issues are temporary or if they’re the new normal.
- The biggest problem in the supply chain process is tension between companies hesitant to adapt to new labor pressures and a lack of labor willing to operate under pre-pandemic standards, which has caused issues getting product to where it needs to be.
Commentary:
According to Mark Zandi, Chief Economist at Moody’s Analytics, households earning the US median annual income of about $70,000 have been forced, due to the current inflation rate, to spend an extra $175 a month on food, fuel and housing. The cost of raw goods, combined with higher labor costs and shipping costs, is leading to higher prices across the board, and consumer goods company Proctor & Gamble recently announced it will raise prices on several beauty, oral care and grooming goods in response. MarketScale spoke with Aaron Alpeter, the founder of Izba, a company who builds supply chains for start-ups, as well as Amiee Becker Senior Vice President of Global Brand Development at Daymon, which offers private brand development services, to understand if similar price hikes are on the horizon and to get deeper on what’s causing these supply chain issues.
Abridged Thoughts:
So this price increase is really nothing surprising. Over the past 18 months, virtually every industry and every company has seen prices increase in some way, shape or form. This could be in transportation, particularly around ocean, which has never been higher than it is now. There’s a shortage of skilled unskilled labor, so you look at some of the bonuses that companies like Amazon or other warehousing companies are throwing at people to try to get them to come and do fairly straightforward tasks. There’s just a huge demand shift that’s happened. So that’s creating supply imbalances. So who would have thought that three years ago that we would have wanted to have as many N95 masks as we do now? And that’s even lower than it was 18 months ago. So it’s highly volatile in that sense. – Aaron Alpeter
The biggest problem that we see in the supply chain process right now is labor. Across both manufacturing as well as transportation there is just not enough labor to maintain the flow of goods. Many producers are now operating at below 100 percent efficiency. Ports are operating understaff particularly within skilled areas, trucking companies can’t find enough drivers to meet the demand and in distribution centers we don’t have adequate staffing to not only select the orders but to load trucks for delivery. According to the most recent Bureau of Labor Statistics, the quit rate in the transportation sector was second highest in the nation only to leisure and hospitality. – Aimee Becker
