2021-10-20

How Pandemic Related Raw Material Increases Are Impacting Amazon Sellers and Price Inflation

How Pandemic Related Raw Material Price Increases, Production Delays, Labor Shortages, and Ocean Freight Increase Impact Selling Prices on Consumer Goods?

 

It is an undeniable fact that Pandemics have remained challenging for companies dealing with Consumer Goods in infinite ways. Significantly, an increase in raw material prices, delays in production, labor shortfall, increase in Ocean Freight, and Supply Chain disruptions have sprouted up to the next level. All these factors have smacked the selling prices coast-to-coast. The studies depicted by Institute for Supply Management Research shows that 76% of business entities have reduced their revenue targets by an average of 23%. 

 

Household Cleaning and the Food Sector have been seen in demand in this Pandemic and thus navigated a significant proportion of challenges of coping with their Supply Chain. A sudden drop in sales remarkably decreased foot traffic in the market and stores. The Pandemic has forced the Consumer Goods Industry to step into the digital era and start online marketing.

 

Moreover, unprecedented pressure more often high and sometimes down on Selling Price and Demand have already been observed. In various sectors, including Shipping, Groceries, Medical Supplies, and other consumer goods, a steep rise in demand has exerted upward pressure on the prices.

 

The Consumer Goods Sector is required to sustain the value of survival in the crisis and safeguarding the livelihoods of their employees. Also, companies need to become flexible and otherwise creative enough to support their consumers in this catastrophe while weathering the crisis together.

 

Directing unparalleled variability in the demand 

 

The Consumer Goods Sector has faced an infinite variety of challenges at present. The situation has reached the level that no single strategy or solution is suitable.

 

Drop-in Demand- Impact on Companies

 

Several sectors involving Airlines, Hotels, and Food Services are directly affected by the social distancing norms. With the decrease in demand, these sectors are facing excessive capacity and elevated price sensitivity. Most of these companies receive discounts as their competitors attract the crew by entertaining them at a low cost. Where raw material prices are shooting up, maintaining a drop-in-demand scenario while engaging the customers with discounts has made the entire schema quite convoluted. However, entertaining the bargain-hunting consumers at some loss can be a way to long-run success.

 

Explosive Increase in Demand-Impact on Companies

 

Consumer Goods Sector, involved in providing the necessary items and services including Medical Supplies, Shipping, Cleaning, Food Items, et al., are tremendously rushing to extend the capacity and sell prices. With an enormous demand from toilet paper to canned food to headsets, companies have shot up the selling prices to compensate for shipping and raw material costs. While this echoes like an atypical opportunity to deliver outsized profits, insight into price gouging can prove to be quite detrimental, causing legal reverberations. Many complaints concerning price-gauging of Consumer Goods from the consumer side have been filed daily against the suppliers that depicts how much impact the Pandemic and depending factors have set on the selling price.

 

Shortage of Labor Imparts a Direct Impact on Selling Price

 

The Consumer Goods Sector is constantly getting affected by the bottlenecks for inputs, most importantly labor. Consumer Goods Sector is more dependent on labor, whether it concerns Production, Supply Chain or Marketing et al. That said, supply of fruits and vegetables, cereals as well as entire Food Industry is labor-intensive. Curbing the people mobility in the Pandemic has reduced the availability of labor required for raw material transportation and packing to the production and harvesting, amongst others. Deprived of labor, the Consumer Goods Sector faces loss in production and supply chain and thus, fails to compensate the demand and profit. To draw the profit and company expenditure, they are increasing the selling price. 

 

Inching Up Raw Material Prices Impacts Selling Price 

 

Over the last couple of years, a steep elevation in raw material pricing has hardly hit the selling price chart. A vertical jump in the raw material prices meant for Consumer Goods Production has further compounded the problem. Strict lockdown guidelines resulted in disruptions and also the bottlenecks of the supply chain. Those areas where a little liberation in lockdown has been seen are steadily inching the prices of raw materials upwards as they have a monopoly of getting them supplied. This hike in raw material pricing has severely dented the potentiality of the Consumer Goods Sector. It, in turn, is increasing the selling prices to remunerate their raw material expenses.

 

Rise in Global Shipping Costs and Ocean Freight Impact on Selling Price

 

COVID-19 repercussions have led to the rise in shipping costs and a piercing competition for Ocean Freight capacity. Ocean Freight rates are continually spiking day by day and are expected to reach a new height by the end of this year. Also, Ocean Freight rates will remain above the normal pre-pandemic levels in the coming years too.

 

Challenges arising from the start of the Pandemic have involved imbalances in Consumer Goods' production and the Supply Chain Sector. Shipping companies are thereby cutting the major routes capacity as well as shortages of empty containers. As the recovery progresses, global demand is also getting recovered, most notably in the arena closely associated with international trade in consumer goods.

 

Competition about Ocean Freight capacity has been intensified enormously with the opening up of economies and reformulation of inventories across the several Supply Chain links, which further impacts the selling price. The Goods Consumer Companies are spiking the selling prices due to increased competition in Ocean Freight in the current scenario.  

 

The Next Step

 

As the COVID-19 crisis-related factors involving increased raw material price, delays in the production, shortage of labor, and elevated Ocean Freight have spurred the continuum of the increase in selling prices, Consumer Good Sector should plan for the recovery factor. It must continue while utilizing the downtime to formulate the capabilities and to improvise the pricing processes. An unfaltering linchpin on the value can assist companies in avoiding enormous cost-cutting exercises, which can resultantly do more harm in the long span.

By Adam E. Wilkens