High prices and low availability are plaguing the electrical supply chain!

Have you found that the steady supply and reasonable prices in the electrical supply chain that you were used to before the COVID-19 outbreak hasn’t returned as quickly as you hoped or some experts predicted?

Global events have created more obstacles in the electrical supply chain, but there are ways around them.

Just months ago, the supply chain problems and price hikes caused by the COVID-19 pandemic seemed to be easing, but these problems persist due to recent events.

We examine the impact of such events, forecasts for component pricing, and how electrical companies can meet the challenges.

Supply chain issues explained

Earlier this year, before Russia invaded Ukraine and COVID-19 resurfaced in China, it seemed like we were finally recovering from supply chain disruptions and price hikes. But already high commodity and energy prices have skyrocketed again, and transportation issues related to Ukraine have further disrupted the electrical parts and accessories supply chain.

Additionally, extended lead times still plague the supply chain. To add to the misery, rising fuel costs drove prices up.

Meanwhile, market demand for electrical parts and accessories surged in a recovery after the COVID-19 bullwhip effect. Such a historically rapid recovery, fueled by massive stimulus injections and Federal Reserve intervention, came as a complete surprise.

The sudden surge in demand hit companies that had scaled back production and lost workers due to COVID-19. To date, consumer demand remains strong.

The electronics markets with their global dependencies were hit hard. Electrical contractors have felt the effects, which are expected to continue into 2022. As a contractor, you need innovative strategies to overcome the resulting supply chain challenges.

What to expect for the electrical supply chain

As the war in Ukraine inflicts further damage on an already weak global supply chain, expect high prices, product shortages and project delays into 2022.

Add a resurgence of Covid-19 in China near key ports to further strain shipping and supply chains as we once knew them are a thing of the past. There is a tough new normal business that is still developing.

causes

Both Ukraine and Russia are major aluminum producers. Both countries are also copper producers. But global demand has slowed after a huge surge over the past two years. In addition to copper and aluminum, both countries are well-known steel producers.

The war in Ukraine shook global energy markets just as the US energy industry was caught flat-footed by rising demand for production cuts due to COVID-19. US sanctions on Russian oil imports and the threat of sanctions from the European Union pushed oil prices even higher, to well over $100 a barrel.

effects

The Russian invasion caused price volatility by creating fear in the markets. Aluminum hit record highs in March and copper appears to have stabilized, albeit at elevated levels. Copper prices have increased by 8.97% compared to the previous year.

Global deliveries are ramping up despite the Ukraine conflict.

US steel prices have skyrocketed by an average of 28.3% in April 2022 compared to March 2022. Based on West Texas Intermediate crude, oil prices are down 3.2% since April 2022 and U.S. diesel fuel prices are up 71.47% year-on-year. Finally, gasoline prices rose 50.55% year-on-year. Natural gas prices have doubled this year and could hit 25% or more this summer.

The rise in global energy prices is particularly painful because it drives up transport and production costs.

What to expect for selected components

Because the world is in such a volatile state, accurate forecasts are difficult. The markets are currently fueled by fear. Therefore, it is necessary to make some assumptions.

For the purposes of this article, these key assumptions are:

  • The Federal Reserve continues to manage rate hikes carefully and effectively, and the US economy avoids a recession and the ensuing decline in demand and industrial production
  • The war in Ukraine is not escalating dramatically

Even under these assumptions, sourcing all electrical components remains a challenge. However, price increases for some parts should flatten out before the end of 2022.

Availability is difficult to predict and there may be unexpected spot shortages. Nonetheless, the following outlooks are broken down by product type, followed by some suggestions for future sourcing.

1. Panels and switches — Galvanized steel is a key component typically used to manufacture control panels. Given the recent 28% rise in steel prices, we can expect significantly higher prices at least until 2022.

2. Circuit breaker — Circuit breakers use steel or aluminum and copper. Given the recent softening of copper prices, minor price increases above current levels are expected for the remainder of 2022.

3. Switchgear — These are large and bulky items. Continued supply disruptions will increase lead times and rising fuel prices will lead to price increases in the short term.

4. Wire and Cable — Copper and aluminum are the key components. Their prices are stabilizing after a huge surge, but can be expected to remain at the current high levels.

overall view

Just as world markets seemed to emerge from a perfect storm of COVID-19, collapsing logistics networks, a sudden surge in demand, production shortages and rising prices, the Russian invasion of Ukraine plunged global markets into a darker storm. The market for electrical supplies, with its dependence on global supplier networks, felt new shocks.

Electrical contractors are now faced with high demand for projects, increasing costs and longer lead times. Margins are under pressure. Therefore, to survive, it is crucial to understand history and know market trends for the future.

Read on for some recommendations on how to do this.

Overcoming problems in the supply chain

Overall, the power supply disruptions will continue until at least the end of 2022 and the procurement of electrical components will be challenging. Customer demand remains higher than normal despite these issues. As a contractor, here are some tips to help you overcome these challenges:

Contact Raiven today for more information on managing your power costs in today’s turbulent markets.

Electrical supply chain article and permission for publication here provided by Jeff Golden. Originally written for Supply Chain Game Changer and published on July 20th, 2022.

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