Can you elaborate on the amount of increase in your inputs, and how much of that you can pass along to your customers? Are your competitors passing along these costs?
I’ll give you a small example to illustrate: one of the items we produce are shower curtains. Our grommet supplier on the E. coast had cost increases in freight and brass. Grommets went from 3.5c each to 5c each (so almost double). We order these by the hundred thousand. This was a massive increase for us to absorb. My buyers (I supply huge janitorial companies who then sell these items to gyms, universities, prisons etc.) would balk at another $1.00 on their product costs, so instead of re-ordering from my regular supplier I sourced them offshore, and paid $2.5c for them. This is business, no?
I don’t see how my competitors wouldn’t be passing these costs along. If they are not, then they won’t stay in business long. I expect a few of them to go out of business in the next year to 18 months, because in general manufacturers are slow to adapt, and they don’t use technology to help their businesses. Their demise usually increases my sales as their buyers are forced to find another supplier (probably me), but often they just end up going directly to China if they can, as that helps their margins by cutting out someone like me.
As for freight, I routinely get 30% surcharges from UPS or my big carriers. About 18 months ago, we made a costing decision to just work off 40-60% margins instead of 30-50 because we had to account for freight increases. It was killing us.
I have to say, my business has not suffered yet. People are still buying, and when they object to prices, I can reasonable tell them about oil costs affecting everything, and of course they know what they’re paying at the pump, so they get it, but my phones are not ringing like they were, and I’m still trying to figure out if it’s because people are on summer vacation, or there is a general slowdown happening. My web hits are the same as they were which leads me to believe it’s the summer doldrums, but I’m not certain. Manufacturing, like construction, generally feels it first.
I’m not so sure if China is a victim here as well. Yes, i’m not sure either, but I do know my costs of products I produce in China have been affected. (Victim is not really the right word in my opinion. Every market is affected by oil costs, except maybe oil-producing countries, but even they have to buy finished goods, and the costs of those are UP.)
