Target Components updates us on Prices, Brexit, Freight & Ports Issues

-Press Release From Target Components -

Prices, Brexit, Freight & Ports: Market Update February 2021

Introduction We’re in unprecedented times and we’re seeing the impact of the pandemic in all areas, including the availability and pricing of goods.

We’re regularly asked our opinion about what’s happening with pricing and availability on products. One typical question is whether it’s a good time to stock up on products if prices are on the up.

In the absence of our crystal ball, we can’t advise on what will happen in the future. But what we can do is share information we’re hearing from factories and manufacturers that – hopefully – gives some insight into what’s happening in the market at the moment. Problems at ports/shipping containers at both sides of world This has been the larger problem at the end of 2020 and into 2021. There are huge shortages of empty containers in China, mainly caused by unusual ordering patterns globally in 2020 due to rolling lockdowns across different parts of the world at different times. We’ve seen severe delays in getting goods collected from factories due to lack of available containers as well as significant cost increases, with container prices typically quadrupling and even up to six times normal rates in late 2020 and early 2021.

Added to this are significant delays at UK ports once containers arrive. This pre-dates Brexit and relates to congestion at ports, which we’re told is largely due to a combination of covid restrictions and impacts on staffing and the volume of empty containers at UK ports (we’ve heard stories of many thousands of empty containers sat UK ports, e.g. 66,000 empty containers at Felixstowe).

Whilst further adding to delays, UK port congestion has had only a limited impact on pricing, with the introduction of some new charges applied on container traffic (covid related, and congestion related charges). By far the biggest impact on cost is on the pure cost of the container increasing.

We are just starting to see this stabilise and signs that pricing may be about to come back down slowly. Unfortunately, we have no real insight into if and when pricing will return to pre-covid levels.

On the basis that most products are impacted by container costs to some degree, we expect the impact on pricing to be wide-ranging. The impact on individual product pricing obviously depends partly on the type of product and how many fit into a container. Bear in mind also that there is a lag – it’s typically three months plus between booking a container and it landing, and this lag can be stretched further by things like existing inventory in the market etc..

Our take on this is that market pricing generally is likely to rise in the near term before stabilising, though we can’t predict with any certainty when that will happen. We will of course take all possible steps to mitigate the impact on pricing and keep you informed of any significant developments. Airfreight A further impact of covid is the reduction in commercial flights worldwide, with the impact that there is less belly cargo and a significant reduction in airfreight capacity. Consequently airfreight costs have risen significantly, compounding the container cost price increases.

For obvious reasons, this is not expected to return to ‘normal’ until we emerge from the effects of the pandemic and commercial flights resume at pre-covid levels. Product specific cost price increases Cost increases in certain product areas such as monitors/IC chips etc..

There are cost rises in a number of specific product areas caused mainly by two things; the initial lockdown in Wuhan (and its impact on production, particularly Wuhan’s semi-conductor factories), and the spike in demand for laptops and PCs to facilitate homeworking as the rest of the world went into lockdown.

Cuts in production in the early part of 2020 to a degree were absorbed by existing inventory but have started to take effect as inventory depleted, demand spiked for laptops and PCs, and production shifted to satisfying that demand spike. Main areas affected include;

  • Laptops – impact of increased demand

  • Monitors / replacement laptop screens – knock on effect of laptop demand, i.e. screen production shifted to accommodate laptop demand. To give some context, factory prices for some monitor lines have increased over 25% in the last couple of months alone.

  • Motherboards – availability issues due to shortage of capacitor components.

  • SSD – shortage of SSD controllers.

  • Graphics cards – a combination of the demand spike and launch of RTX 3000. Production of older models has reduced or stopped, as normal, but the difference being there was less inventory of older models in the market due to higher demand for systems pre-launch.

We consider all of these to be temporary, but for obvious reasons we can’t predict how temporary or whether availability and pricing will get worse before it stabilises. This may vary between products. For example, we have not yet seen the full impact of monitor price rises on the UK market. This is likely to filter through over the next couple of months. Similarly, we’d expect a lag of three months or more between factory prices falling and UK market pricing. Post Brexit impact on deliveries/cost of goods We saw Some short term congestion at ports and border crossings in the new year as shipping companies got used to new procedures from EU to UK. Some new (low level) charges have been introduced for shipments into the UK from EU but nothing that will affect cost pricing significantly.

We hear less and less about this now, both in the news and from our freight partners, so as expected it’s now settling down. There is no effect on China to UK deliveries as a result of Brexit - our trading terms with China are the same as the EU has with China. Impact on deliveries to Ireland / EU The Brexit transition is still impacting deliveries to Ireland (and the rest of the EU). Most of the issues are related to additional data requirements, paperwork, and Customs checks and the ability of carriers – and the infrastructure more generally – to cope. The situation has improved – and will continue to as things settle down – but unfortunately it’s still a fluid situation. As one of our freight partners put it “it’s changing daily”.

If you do encounter any issues with deliveries, please contact us so we can help to resolve. Content Supplied by Target Components. https://www.targetcomponents.co.uk/news.asp?strID=320