Supply Chain Update May 17th, 2021
The following statement is a letter sent out by the FD management team to our valued customers providing them with the most up to date knowledge on the supply chain issues and a brief explanation as to how we got to this point. In collaboration with some of our industrial suppliers we are keeping our customers and other members of the fastener community up to date with the state of the supply chain. The action to each business is subjective to their specific needs at the time, our goal is to merely provide updates and suggestions to help our customers how we think may seem fit. If you have any other questions please feel free to reach out to our team at Sales@FastenersDirect.com
It is difficult to know where to start, but we can clearly say that we are in the middle of an economic cycle that no one has seen before. As businesspeople, we have all seen cycles, but the wave we are currently in has an amplitude, a speed, and width previously unseen by anyone alive today.
April 2020 was one of the slowest and most difficult time in our industry. April 2021 was one of the hottest and most difficult time in our industry. The two are intricately related, as one action caused the other’s reaction. The amplitude of this current wave was caused by the start of COVID 19. Back in April 2020, the industry as a whole experienced a significant dip in activity. However we’ve learned that the demand was suppressed, it did not disappear. As the economy re-emerged, that pent up demand came crashing down. Not just in fasteners, but across the entire US economy. Previous cycles may have been more localized. Maybe industrial was weak, but construction was strong, or vice versa. This current cycle affects the entire width of the economy. Stimulus packages flooded the consumers with cash, boosting consumer spending. Interest rates continue to stay low, boosting construction, business investments, and the market in general. All this, on the back of a supply chain and inventories that contracted for most of 2020.
So where does that leave us going forward with our main cost drivers?
Steel costs have increased significantly since Jan 2020. There are a lot of different steel grades, but as a rough snapshot if we benchmark Jan 2020 as 100:
• Jan 2020 = 100
• Apr 2020 = 80
• Aug 2020 = 100
• Jan 2021 = 120
• Mar 2021 = 125
• May 2021 = 150
There have been many drivers for this, both market driven and government driven. All the economies are recovering, not just the US. All governments are talking about fiscal stimulus investments to jump start their economies. Fiscal stimulus usually means infrastructure projects, for which the vast majority includes steel. In the short term, we don’t see much relief from steel prices.
Ocean freight is still a frenzy. After many ocean carriers reduced capacity in 2020, the capacity now can’t keep up. Anyone importing containers will have seen a multiple cost factor increase in ocean freight from 300% to 500% of previous costs. Fasteners are being forced to compete on ocean freight against clothing and electronics which sell for substantially higher dollars per LB. As a company, we believe that the cost of having no inventory is substantially higher than the cost of having it. So we continue to work every day to get in as many ocean containers shipped as possible. But this is at a substantial cost above normal to BBI. Going forward, we hope for some relief in the summer months. However, we do have concerns after the summer once Christmas shipping starts.
Hopefully, ocean carriers will have built up their shipping volume, our ports will have built up their manpower to handle the increase in container traffic, and there will be enough truckers on the road by then. The US Dollar continues to stay depreciated against the global currencies. However, this has not changed much since the start of 2020. The USD continues to be 5-10% depreciated against the Taiwan Dollar and the Chinese RMB against where the USD traditionally trades. We expect it to stay in this band for the foreseeable future.
Finally, another cost driver is now emerging – US employment. We are at an inflection point where job openings are at an all-time high but unemployment remains stubbornly high. One has to give. More people need to return to the workforce. We are hopeful that with the start of summer, the availability of vaccinations, the plethora of job
openings available, and the expiration of enhanced unemployment benefits, that more people will decide to re-enter the workforce. In this economy, anyone able-bodied who wants to work can find a job. It’s time to get back to work.
With so many factors converging at the same time, it is difficult to know what to do. What we urge all distributors NOT to do is to speculate on this market. Previous cycles were easier to predict, again, because the cycles were more localized and you can more easily see a cause and effect. This cycle, affecting the entire economy, is very difficult to predict, because no one has a good idea of the effect of how all the different overlaying supply chains have on a job site or end product.
For example, a jobsite will stop due to the weakest link in its supply chains. Will it be plaster, or drywall boards, or lumber, or fasteners? I don’t think anyone has a good clue.
Speculating and buying an overabundance of fasteners may not help you secure more business. Likewise for electronics, the weakest link may be computer chips and not
the fasteners needed to hold the components together. With so many overlaying supply chains affecting the same product, it is almost impossible to predict, and therefore we urge everyone to not speculate on inventory.
At Fasteners Direct, we believe it is our job to be as much of a shock absorber as possible against all these cost factors. However, everyone is feeling the strain. We continue to have to raise our pricing to compensate for all these cost factors.
We appreciate your support and patience as we work through 2021. We all knew this would be a strong year, but this is more than any of us had bargained for.
Fasteners Direct Management