The Knock On Effect
When crude oil is on the increase the spin off effects everyone as things just become more expensive. There is nowhere to hide as it hits every industry.
Everything is becoming more and more expensive and we notice it far more when the monthly pay cheque isn't covering what it used to. I have noticed it whilst doing grocery shopping and things that were a normal buy are turning into more of a treat today.
I have noticed it with my business as we buy raw materials from SASOL which manufactures chemicals and are by products from crude oil. With the oil prices more than doubling in the last year it means everything has to go up. Transport and logistics is a factor obviously, but when the raw materials are sky rocketing they do affect everything. The packaging prices are up by around 48% this year alone and it is down to the oil price rising month on month.
Over the last 5 years we used to adjust our prices maybe twice per year swallowing a few of them along the way. WE used to tell our customers in swings in round abouts as this month it is up and next month it could be down so at the end of the year it would sometimes more or less even out.
We are back at 2018 prices for raw material, but the consumer goods we buy are not at 2018 prices and have moved on considerably. The packaging prices we had in 2018 were more expensive than they were today which is kind of weird when you put it into context. The market has changed in my industry just within the last 5 years.
In the middle of 2019 our industry became so cut throat as the raw material prices dropped quite severely but outside of the industry you wouldn't know this as what items come down in price? Very few things ever drop in value as we only see increases as a consumer. In the manufacturing industry prices are up and down regularly and me being in packaging it is something you become used to and have to be current on pricing almost daily.
Packaging dropped by as much as 40% in 2019 due to the oil prices plummeting and orders that were huge in value the year before looked as though they were missing some zero's but the profit was still the same percentage. In our industry we do change according to the markets as we have to stay competitive and so knowing where we are is important all the time trying to stay ahead of the game.
This year has been a crazy year as this month is the 8th month in a row the prices have risen and yes we have been informed there is another next month again. Obviously holding the same price as last month has long disappeared from how business was done before as it is impossible to do these days. In the past an increase could be 2.5% but lately we have had a 15% and a 9% increase which are massive and what one may expect as a yearly increase if that. This month we have had a 7% increase and next month is expected to be around 10% taking the overall price swing above 60% for the year.
Unfortunately these price increases filter down to the man in the street and why the grocery bill at the end of the month keeps on going up. If we add the 10% to the overall packaging then manufacturers will be adding a hefty chunk to cover those increases and they will always come out on top earning slightly more.
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