Covid is receding, (at least in some countries), but problems remain…
Manufacturers across many industries are currently facing unprecedented shortages of parts and materials. RACOM is investing significant effort and resources to ensure that the disruption to supply chains is not felt by our customers. However, pressure on the input side is escalating.
Experts argue about what to blame for the current situation of shortages. For electronic components, one cause may be last year’s automotive shutdown, when automotive suppliers responded by cutting back their production in the spring of 2020. To everyone’s amazement, the world economy is recovering faster than expected. Manufacturers are not able to restart their production fast enough and the result is a shortage of chips, semiconductors, plastics, metals and all other components used in electronics. Unfortunately, the situation is not much better in other sectors.
Covid has also had a significant impact on logistics. Empty shipping containers are elsewhere than they should be, and the average cost of shipping a container from China to Europe has risen from USD 1,500 in 2020 to almost USD 10,000 today. The week-long blockage of the Suez Canal delayed 400 ships and the situation is expected to be returning to normal after several months. Incidentally, one of the containers on the Ever Given ship contained transistors for RACOM, which we received a few weeks later.
The situation in air freight is no better. Due to the collapse of tourism, over 90% of the civilian flights carrying 2/3 of the air shipments have been cancelled. Consequently, air freight prices for material are rising to astronomical heights and delivery dates are getting put back.
No one knows for sure why there is no market supply of aluminium, iron, copper and other raw materials. But the fact is, unfortunately, that if you happen to obtain these materials, they cost almost twice as much. One reason for this may be that copper, for example, is mined chiefly in South America, where the Covid situation is not improving, hundreds of thousands of people are sick or in quarantine and mines are operating in limited mode.
Adding to the volatility is the fact that, due to shortages, buyers are demanding parts from several suppliers at the same time, creating the perception that demand is many times greater than supply, thus making prices spiral up further.
When you add to the above logical causes the desire of some parts manufacturers to profit from the situation, you end up with only being able to rely on what you have in your own warehouse. Most of our suppliers have told us practically overnight that they are increasing the price of parts by 10-50%, delivery times have often gone from the contracted 8 weeks to anything from six months to a year, with no guarantees!
All of us at RACOM are doing everything we can to ensure that we do not pass on these problems to our customers. We are increasing our stock of parts and materials, despite increased costs, to maintain our standard delivery times. However, if the situation does not calm down soon, we may also be compelled to raise our current prices. Any price increase will not be for the purpose of greater profits. Yet we must cover rising costs while maintaining the quality and certainty of supply our customers are used to.
We do not want to ring any alarm bells, but we consider it fair to inform you of the situation. For the time being, we have enough material in our warehouse to be able to continue production without interruption.
However, if you want to be sure that we will deliver your products under the same conditions as before, we recommend that you do not delay placing your order.
We are confident that the faltering world economy will soon stabilize, the current problems will pass, and we will truly be back to normal by 2022.