Market Insight, October 2022
Choosing the right European supplier has become vital for your next production success.
We are currently experiencing an increasing amount of our customers being unprepared and surprised by the current market conditions. In response, we have created this little newsletter series focusing on market insights from our perspective. We will call it ‘Gunnar T. Strøm Market Insights'. We aim to help you navigate recent market changes, so you can make the right decisions before it might be too late. We hope you will find it informative, and please share your feedback with us.
The current market situation for producing products of wood is certainly not easy to navigate at the moment. To help you out, we have identified the following four challenges you need to be aware of and consider before deciding on your next project.
1. The aftermath of COVID-19 & lack of qualified labour.
COVID-19 is unfortunately still haunting the backlog of orders, and deliveries are still not fully complete for many customers. We expect this to be over soonish. However, winter is coming, and so might COVID-19. Be aware that this might disrupt production facilities with a predominance of handcrafted labour. Furthermore, the lack of qualified labour has unfortunately also increased during COVID-19. Many workers have left the wood industry in favour of better-paid jobs elsewhere. This creates situations where it is difficult for the suppliers to find the right qualifications for their specialised needs.
Our recommendations: We recommend preparing your purchase orders well in advance and anticipating possible delays in the end. This requires better forecasting from your end. We also recommend that you tread carefully when choosing your supplier for your project and ensure that they can do what you are demanding before placing your order. Furthermore, ensure that your project gets priority handling by the supplier; this will save you time and money.
2. Inflation & Energy prices
As you most likely know, COVID-19 created a situation of higher demand for consumer products and a lower supply due to the lockdowns of production facilities; in other words, insufficient staffing to supply the high demand created higher prices. This situation, combined with the war in Ukraine, which created high energy prices, has unfortunately increased production prices even further. This is not specific to the wood manufacturing sector, but still something you must be aware of. Furthermore, winter is coming. The big question is, how harsh will it be and do we have enough energy in Europe to keep production going while keeping our houses warm?
Our recommendations: Expect the best, but prepare for the worst. We, unfortunately, expect the price increases to continue, thus making it almost impossible to forecast any real cost scenarios. Therefore, we recommend placing your orders earlier than you usually expect.
3. Lack of transport options
Europe has long been short on truck drivers, but the pandemic has pushed that shortage to crisis levels. As a result, supply chains across the continent are stretched thin by delayed shipments and reduced overland transport capacity. And the knock-on effects from the heavy goods vehicle driver shortage have awakened governments, firms, and the public to the vital role these workers play in the economy. New European regulations, which cover drivers’ pay across the Eurozone and place limits on their deliveries within other countries, are limiting capacity and making deliveries more expensive. Furthermore, high fuel prices also make deliveries increasingly more costly.
Our recommendations: Consider the shipping aspect when choosing where to produce your product. Can you afford to save money on placing an order with high transportation costs? And again, expect simple things you didn’t even consider before the pandemic to take an abnormally long time in corporate delays in your forecasting.
4. Recession
The big question is, are we heading towards a recession? No one knows how this current situation will play out, but we will undoubtedly experience an economic slowdown, and we are currently preparing for the consequences of the commodity supercycle.
You are probably questioning whether this is the right time to start new projects. But we believe that now, and six months ahead is the best time. The suppliers are not getting enough orders, so you will be able to get a better price and service, which means that you will be able to introduce competitive products once the recession is over.
Our recommendations: Make a risk analysis of your suppliers. Are they geared to handle a slowdown in the economy and high inflation? What will happen if they go down? We recommend that you have a backup production facility ready in case your current supply ceases to operate.
Conclusion
All of these circumstances have forced the suppliers in the European market to tighten the requirements of new incoming projects. As a result, they are less willing to take risks and are only focused on projects that have the most significant probability of becoming a success for both parties. Furthermore, the project needs to fit their current production setup, which makes it even more difficult for you to find the right production partner.
We won’t sugarcoat anything; this situation is not easy for anyone. We know many of these circumstances have a direct threat to your business. But we are here to help you.
We already have an extensive supplier network, where we are prioritised because of our ability to build a project that fits the production facility’s setup. Our suppliers find us easy to work with because they don’t have to use extensive resources when starting a new project.
Our goal is to be your Plug’n’play solution. We will handle the production side from A to Z. We will guide you in choosing the right wood type to hit your desired target price. We will prepare your project and make it as desirable as possible for the supplier. We reduce the risk both for you and for the supplier.
