We are currently undertaking our 33rd wave of deep-dive interviews with our cross section of business owners throughout Australia. As is always the case, the stories and insights are fabulous … but one interview I conducted on Friday (Oct 22nd) has really captured my attention. It’s been on my mind all weekend and I think it is worthy of passing on a few of the themes that emerged as they are simply not getting sufficient attention from Australian commentators.
The story comes from an importer/distributor of swimwear – ie bathers, goggles, caps etc. The business imports many hundreds of thousands of units per year, although some of them are shipped directly from the Chinese manufacturers to the European distributors. The guy running the business is the founder, and he’s been running it for 20-odd years. He’s a seasoned campaigner, he’s no fool … and, importantly, he has long-term established relationships with his Chinese manufacturers.
He started by painting a picture on his supply lines …
"There’s huge supply issues and logistics issues coming out of China … The factories are being rationed in terms of the power that they receive – some of our factories are down to 2 days a week of production, so they have no certainty over when they can actually get to our orders. We have a critical path which is set a year in advance and that’s what we base all of our planning off – so Christmas 2022 is all calculated and worked out – but it’s all been thrown up in the air now … We’ve been told already there’s going to be major changes for order deadlines which has a huge knock-on effect on us."
He elaborated further …
"It’s a government control and they’re not allowed to operate more than 2-3 days a week and it depends on which region they’re in. Reading in the news I guess it’s really related to prioritising household energy over commercial. So coming into winter there’s a shortage of electricity in their grid and they’re prioritising heating of homes compared to the production coming out of factories. There’s obviously been a lot of closure of coal-fired power plants in China, there was obviously the banning of Australian coal, so all of these are having an impact, but all the communication we get from the factory is ‘we’ve been ordered by the government that we can only operate on this day and that day and we have no timeframe as when this is going to end’. So it could run all through the China winter until March of next year."
But it’s not simply about rationing power that is a challenge … there is an unprecedented squeeze on some of his raw materials …
“There’s a shortage of raw materials – one of the big ones at the moment is a shortage of silicone and we make silicone swimming caps and goggles – so last week there was a four-fold increase in our cost price from the manufacturer and they basically aren’t even quoting any more – the price is moving so quickly that they won’t even quote. So we have to submit our Purchase Order and then we will be given a price for the product. So how do you sell a product when you can’t even work out your cost price for it?”
The impact on him providing stock to his retailers in a timely fashion is enormous – bearing in mind he is selling swimwear …
“We didn’t deliver a container into Europe in June – it arrived at the end of August, at the end of summer! We completely missed summer, all of our retailers cancelled their orders and we had a container that was full of new swimwear that was no longer new because the collection was basically 2 months old. So now we’re bringing that stock back to Australia.”
One topic that IS getting covered by many commentators is shipping/transit costs, but the numbers are staggering …
“You’re just chasing your tail at the moment, and you’re paying extraordinary prices. Like a container to the UK at the moment – we were getting it at around 1,500 pounds for the container, now it’s over 12,000 pounds.”
As I discussed in an earlier newsletter, I have been very concerned about the cost pressures in Australian business and I think that price rises will be far more significant than many predict. What did he have to say about this? …
“We went to our distributors and key retailers overnight and it was a very direct email and it basically said ‘this is the new price’ – most of them were double and some of them were triple what they were paying – and ‘if you don’t want it then don’t order’. We’d never normally be as blunt as that. But there’s no choice. You run the figures on what you were selling your product for and it’s all in the red, everything would have been at a loss. There’s absolutely no room to absorb the price increases that we’re seeing now.”
Personally he is holding up okay, probably as well as he could. At least pools have opened up again in Melbourne and he can get out for a decent swim! But it’s tough …
“Honestly, it’s hard. I’ve really had some pretty tough times, it’s just a constant stress and it’s consuming me 24/7 at the moment, I just can’t get away from it.”
Conclusion
I think he has raised some fascinating issues here. Maybe in our delight at emerging from lockdown fog we are overlooking some of the other pressures that SMEs are under. Don’t get me wrong, he is as thrilled as anybody that we are exiting lockdown … but it’s a little bit like whack-a-mole for some business owners.
