Delivery delays and non-deliveries, exploding raw material, labour, energy and above all transport costs: The supply chain cogs that are normally so well-oiled seemed to have gone completely off the rails at the moment. What does that mean for the promotional products industry? The eppi editors Till Barth and Dr. Mischa Delbrouck spoke with the experts Jan Breuer (mbw), Mirco Häßlich (WER), Marcel Spiess (cadolino®) und Lorne Spranz (Spranz GmbH) about the consequences of the supply chain problems for the haptic advertising market.
Earlier this March, the cargo ship, Ever Given, got shipwrecked in the Suez Canal. Eight months later the global supply chains are still haywire. What is going on?
Jan Breuer: The world is still in a state of turmoil. The pandemic initially laid the foundation and then various other things happened on top, which are now still making it difficult for us to procure goods. Companies that have a well-filled warehouse at the moment are at a clear advantage. And no end is in sight to the difficulties.
The situation is also so unique because there are so many simultaneous factors that are having an effect on the supply chains: A shortage of raw materials, lacking specialised workers, increased energy, freight and labour costs. Which fronts are the importers currently battling on?
Jan Breuer: I’d say on all of them, don’t you think Lorne?
Lorne Spranz: There isn’t a front we are not battling on. Whether it is the transport aspect or the delivery bottlenecks primarily in China, which are also being triggered off by the power shortages. There are factories that in some cases are only being supplied with electricity on one, two or three out of six production days a week and can thus only produce on these days. This halves the capacities or reduces them by two thirds. At the same time, the Christmas business is just taking off, after the time-out caused by the pandemic this has led to a higher volume of incoming orders. Trying to deal with all of this is extremely difficult especially since the problems don’t stop once the goods are loaded onto the ship. For example, the port in Hamburg has a backlog of two and a half weeks. The customs authorities are partly still doing shorttime work, which taking the masses of goods that are rolling in at the moment into account, is totally incomprehensible. Antwerpen and other sea ports have holding queues: Many ships are anchored offshore there or are not even allowed to enter the harbour. It is a catastrophe. In addition to this there is a shortage of trucks and drivers. To make matters worse, neither we nor our teams from Germany have been able to make on-site visits for almost two years. That is pretty complex and a most demanding situation.
Jan Breuer: To come back to these production shortages from six days down to three or two: When the Chinese government says we are going to make the sky blue, they make the sky blue. And then they stop the production.
Is there a political strategy behind this as well?
Jan Breuer: Probably always. Whereby the Chinese also have a demand, which results in having an interest in exporting goods and making turnovers.
An acute problem alongside the transport situation is the lack of raw materials. Which product groups are particularly affected?
Lorne Spranz: Definitely the electronics and steel sectors. Electronic parts, particularly the low-priced chips are extremely scarce. This is having a huge effect on the delivery times. And steel – anodised products, coated metal products, etc. It is a very wide spectrum, it ranges through to textiles. The price for silicon has also increased by 100% over the past three weeks. That can definitely be described as being significant. It seems like every day when you open your laptop; new messages are coming in that worry you.
Are customers, who are familiar with the problems, submitting different enquiries and are they opting for other product groups?
Mirco Häßlich: I haven’t actually experienced a customer, who has completely abandoned an idea he had yet. They always expect us to find a corresponding partner, who can deliver something that is similar to what they originally wanted. Luckily, we have a good selection here. One notices that the suppliers have different stock levels. Whereby I certainly wouldn’t say it is anyone’s fault for not wanting to take such risks after their warehouses were still relatively full from the previous year. But those, who have actually pursued the strategy of maintaining high levels of stocks certainly bet on the right card.
Lorne Spranz: It is our job to make sure we have goods whatever the situation. We discuss the problems, but at the end of the day we also have the task of solving them. Of course, there are electronic items, and of course we also stock some ourselves. We also have steel products on stock. To a large extent we manage to advise the customers accordingly and make deliveries possible – under very difficult conditions, but we succeed in doing so.
Jan Breuer: Having purchased goods in the period where orders were low is now proving to be a significant advantage. Assuming of course one has the corresponding liquidity to stock the goods here in the warehouse and also distribute them from the warehouse. We are noticing that the demand for stock goods has increased and that custommade designs are tending to take a back seat at the moment due to the long delivery times.
Marcel Spiess: It is not the first crisis we are coping with. One of the strengths of the European promotional products distributors is that we have to react somehow and, in the end, do actually manage to carry out the order. Our core competence is finding solutions and satisfying our customers. Otherwise, we simply wouldn’t be necessary. That is going to be the case in the future too: Companies that can deliver, that can convince and offer alternatives, will continue to exist on the market.
Searching for alternative logistic solutions is becoming a pressing issue. Are there any?
Jan Breuer: Of course, we too have looked for alternatives. But in the case of rail freight for instance, we are also struggling with delays at the moment. Due to various factors like building work on the tracks in Belarus or Poland, the goods that we have sent by rail are not arriving any faster that those shipped by sea.
Marcel Spiess: We relied on rail deliveries from an early stage onwards, but problems keep on occurring here too. Of course, Europe is a current theme, but we are dependent on China – which is our own fault. There is nothing one can do. Certain products can be flown in. That is possible, but it is also very expensive. It is important to keep the customer informed in detail so that they understand the problems that are causing the delays.
Lorne Spranz: The trains are of course crammed full, because everyone has come up with the idea of using rail deliveries instead. I just read the other day that two Cathay pilots, who flew to Frankfurt this month, have had to spend 21 days in quarantine in a hotel. These are decisions that hugely influence the situation once again, because the pilots can’t fly off again two days after their arrival. But we need the freight volume per air freight.
Marcel Spiess: We have the following example: Swiss Air flies the Swiss athletes to the Olympic Games in Beijing. Funnily enough, the athletes aren’t allowed to take their sports equipment with them, because the freight volume of Swiss Air is fully booked until October next year and there is no space for additional luggage. The athletes can then possibly only travel with their swimming trunks and a handbag.
The costs are rising rapidly. Are the prices having to be adjusted accordingly?
Jan Breuer: On the procurement side the prices have increased due to the raw material situation, the freight situation and the due to the present situation in China. Many of the Chinese producers are now additionally increasing their prices significantly because they are having to pay their employees more to keep them due to the lack of skilled workers. Since we are having to deal with so many different problems, there is going to be no way around price increases especially at the beginning of the new year. Nobody can bear this brunt without increasing the prices.
Lorne Spranz: Let’s take the transport costs for instance: If the 40-foot container cost 5,000 Dollars up until now and we are now having to pay 15,000 or 20,000 Dollars, everyone can work out that this will lead to a huge increase of between 20% and 30%, in some cases even 50% on the unit price. Steel became 20% to 30% dearer after the Golden Week, the prices for Silicon and anodised aluminium even rose by 50%. This wasn’t foreseeable. One is left stood there in amazement. The result is price increases that are unavoidable.
Is the overall situation putting a strain on the relation between the suppliers and distributors or is it in fact even strengthening the partnerships?
Mirco Häßlich: In our experiences the relationships between the suppliers and distributors are going well. We are all endeavouring to make sure the Christmas business runs as smoothly as possible. Of course, that is strenuous in terms of the customers. It has actually happened to us a few times that we have offered products, that the customer has perhaps even decided faster than in the past, but the goods had already been sold before they got back to us. It is difficult to explain such situations to the customer. But, in general, I get the feeling that the cooperation with our long-standing partners is working very well.
Jan Breuer: None of us are explicitly responsible for all of the problems. They are whole chains of problems – one simply has to talk about it. In most cases, the customers show understanding and we find good solutions too. Here and there, it does happen that it costs us a bit more, because there is simply no more budget available. But even in such cases we find solutions. Spranz: That is what a partnership is about, that one finds solutions jointly. Together problems can be solved.
Mirco Häßlich: The situation is difficult for the team internally: we simply have more work when an item is sold out because one has to look for two or three alternatives for the customer and the availability of the new items has to be checked as well. That is a real challenge particularly at the moment in the midst of the year-end business, when we are all so busy. One can count oneself lucky that the employees are showing the corresponding commitment.
Has the competition among the distributors changed?
Marcel Spiess: I have the feeling that those who are the quickest are the winners: Companies that receive the order quicker can block and order the goods. It is definitely annoying, if you get an order but can’t carry it out because someone else has already ordered the goods. But at the end of the day, the situation is the same for all of us and we are all sitting in the same boat.
The supply chain problems are affecting many promotional products users in their own businesses too. What impact is this having on the readiness to advertise?
Jan Breuer: In our industry we are always dependent on hope and confidence. Promoting companies that want to progress will look to see if they can generate more orders using gifts or advertisements than without. I can only speak for ourselves, but since August, September and October in particular we have recorded significant growth compared to 2019. That is why I assume that the situation is starting to look up, but once again that also depends on what happens now, what decisions the politicians make, whether there is another lockdown or not.
Marcel Spiess: We are discussing the theme today, but the situation may perhaps be totally different again tomorrow. Our business volume has increased significantly since August too. The first seven months were a catastrophe, now we can hardly cope with the orders. But we don’t know whether the trend will continue in January, February and March.
Lorne Spranz: Even the imminent Christmas business can’t be assessed accurately in the light of the exponential increase in the infection rates. If the Christmas markets are cancelled and all of the events postponed it will of course affect our business as well.
Marcel Spiess: The delivery bottlenecks themselves are really becoming a transnational threat to the economy. We had positive forecasts for 2021, sensational forecasts for 2022, both of which have been revised downwards. The fact remains: We have to continue to be flexible. Our strengths will also be required in 2022.
Is the situation leading to people rethinking the supply chains more in the direction of producing in Europe?
Jan Breuer: I think all the companies that source goods from China, haven’t just started looking at the alternatives since the pandemic broke out, but indeed many years before that. But for our products there are no real alternatives to China. Even if you find factories in Europe that can sew the items together, the materials frequently still come from the Far East.
Lorne Spranz: That also applies for the majority of our collection: Electronic items, steel, drinking vessels… These products are not manufactured in Europe anymore. There are no raw materials or any suppliers here either. If one wants to have a board soldered together, one has to dispose of the necessary components. The items made in Germany are extremely high-quality. Your hair would fall out at the prices charged for them. So, it is very difficult.
Jan Breuer: The politics of the past years hasn’t actually made it easier. For example, we are located in a mixed area, where only certain emissions are allowed to be released. It would be really difficult to set up a printing shop or an actual product line here nowadays. We have definitely missed the boat here and there over the past years. Which is why China is now the world’s main stage for production. We have created alternatives, for example produce wool felt key fobs and folders in Germany, actually here in the region around Flensburg, we have other marginal products made in Bavaria. So, it is possible, but what we can produce here in Europe accounts for less than 10% of our overall volume. In our special field, where the work is very time-intensive and a lot of manual work is required, this is not possible. We are already noticing that in China some of the plush producers are no longer interested in sewing small key fobs, because they prefer to make larger parts that are easier to sew and that require less effort and which they get more money for.
Are there also customers, who say themselves they would prefer to have European goods?
Marcel Spiess: Yes, definitely. But that is precisely the question, whether the products are easy to obtain. We won’t be able to catch up for what we omitted doing over the last 30 to 40 years within three or four months. That is utopian.
Mirco Häßlich: It is however the same topic that cropped up a few years ago when the theme sustainability started taking off, which was initially dismissed again relatively fast. Everyone wanted to purchase sustainable items, but nobody wanted to pay for sustainability. Now the situation is that “made in Europe” products are desired in many cases, but once they see the difference in price, many people ultimately opt for the alternative from Asia. However, in the cases where good prices can be offered, a lot of items won’t be sourced from Asia in future.
Marcel Spiess: We are always dependent on China. Unfortunately. We won’t get around having to do some catching up.
Mirco Häßlich: That is of course also a question of the political strategy in China. If the Chinese government notices that we are trying to switch the production of goods back to Europe, it will make sure that the raw materials we need are so expensive for us that it makes no sense to do that. One shouldn’t be too naïve on this point. If they have the possibility to prevent production being relocated back to Europe, they will presumably pull out all the stops.
Jan Breuer: It is also always about supply and demand. Let’s take the current freight situation for example – the container prices of 1,800 Dollars have risen up to 18,000 Dollars – that didn’t have to happen. The shipping companies are presently reaping in the profits and laughing their heads off. They have made more money in a few months than ever before.
Lorne Spranz: There are five major freight companies for containers and they are all in agreement. That is such a consensus – crazy! One could also call it artificial shortages.
Jan Breuer: Yes, but when certain things have calmed down again or alternatives arise the prices will go back down again, I am pretty sure. But at the moment one can’t say when that will be.
How long will the situation last still? The Chinese New Year begins on February 1 – which is always an occasion in itself that leads to interruptions in the productions.
Jan Breuer: What happens after the Chinese New Year, is always a gamble for us all. There is often a lack of skilled workers all of a sudden, who don’t return, because the migrant workers decide to stay in their regions or are perhaps hired by other factories that pay a bit better, from the mobile communications sector for instance.
Lorne Spranz: Basically, it is impossible to make any forecasts, because nobody knows which new regulations there are going to be: Will zero COVID be tightened further, will the power shortage situation worsen? It is always possible to find ways out, but predictions? I wouldn’t know where to start.
How will the supply chain problems change the promotional products market? Is the era of the “Alibaba importers” coming to an end?
Lorne Spranz: The “Alibaba importers” exist because of the postal agreement, which keeps the transport costs for these people from China down to a level that we can only dream of. Transport costs of 5 Dollars from China to Germany are simply surreal, if one thinks that one TNT package costs around 50 Dollars. They are not checked at customers; the competitive conditions are unfair. I would definitely welcome some changes here. In this way, totally unchecked goods with highly questionable quality standards enter the country, simply because it is impossible to check millions of packages every day. We on the other hand have certificates, audits, inspections – it would be great if all this could be regulated. I would give it my full support.
Jan Breuer: At the end of the day, the consumer plays a big role here too. It is down to the people themselves if they don’t request test reports or certificates and accept the goods as they come. I know from Amazon that for instance they request conformity declarations from the manufacturers for the goods that are offered on the Amazon marketplace. I don’t think anything of the sort happens at Alibaba.
Lorne Spranz: The consumer is used to the fact that the goods they are offered are safe. They don’t question it much; they don’t have the expertise to do so either. And a supplier from China, who presents certificates, but which aren’t checked on-site and who doesn’t have any QC teams on-site – what can one say about such certificates? And at Alibaba? The key to their success lies in the cheap transport costs, because sending a package from there costs the same as sending one from round the corner. That is somehow stupid. It distorts the picture.
Marcel Spiess: One of Lorne’s Christmas wishes is that this area comes under regulation. But I am totally behind him there. We are leaving the date open, when this wish can be fulfilled, but when the same conditions apply to everyone and everyone has to comply with the same testing criteria – that really would be desirable, also here in Switzerland. Otherwise, not just since the crisis, the trend is moving in the direction of smaller order volumes, which really offer added value in terms of quality. This is interesting in Switzerland since the products are even allowed to cost a bit more here.
Mirco Häßlich: The trend towards sustainability will intensify, whereby one must also say that in the meantime the suppliers are always finding a reason why each of their items is sustainable. Otherwise, overall, everything will relatively quickly return to the status it was at beforehand, as soon as all the surrounding issues have gone back to normal. The only question that remains is: How long will that take? And I currently can see no end in sight at all. I think we can all count ourselves lucky if the problems have been widely overcome by the yearend business of 2022. If anyone would present me with a guarantee for that, I’d sign it straight away.
Jan Breuer: I would of course like it to happen before that, but it is a bit like looking into a crystal ball. I think it is really important to keep high levels of stocks and successively expand one’s individualising and customising options in order to offer good alternatives to custom-made products so that the customers are also happy with individually designed stock items.
What can one learn from the current dilemma for one’s own company?
Lorne Spranz: Many companies on the market are capable of learning and adapt to fit in with the respective situation. And those are also the companies that basically work successfully. There are also those who keep their heads down and wait for the crisis to come to an end, but in fact it doesn’t, it remains, it simply meanders and takes on new forms. It is our job to face the challenges and overcome them. We too are betting on well-filled warehouses. Of course, we haven’t taken half of Koblenz into consideration, so there are also products that are sold out. We are relying on German production, on speed, on German customisation. We have to accept the conditions that prevail and tackle them in a partnership-like manner.
Jan Breuer: One can certainly note that nothing stays the way it is. But this brings back to mind a nice sentence I once read somewhere: “Crisis is a productive state. One just has to take away the aftertaste of catastrophe.” At the start of the Corona pandemic, we did everything in our power to keep things going, we worked really hard, harder than before it seemed. And that is paying off now. But none of us knows what the future will bring. We have to be flexible enough to be able to react to what happens and somehow or other this industry manages to do just that, because the suppliers and distributors pull together. That is indeed a positive signal from our industry. For example, I don’t think any other industry was able to procure disinfectants and masks as quickly as the promotional products industry.
Marcel Spiess: I agree: Stay flexible, react fast. Don’t read every newspaper, don’t read every medium that is attesting the latest crisis. Instead: Just keep on the ball.
Mirco Häßlich: Flexibility and activity are precisely the two points that are crucial. These are the strengths of our industry – and we have to stick to it.
Photo: © WA Media
