“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way–in short, the period was so far like the present period that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” Charles Dickens; – Opening phrase of “ Tales of Two Cities. Published in London 1859.
The Covid period turned economies upside down and IMF has estimated that the pandemic cost the global economy in the region of USD 12, 5 Trillion.
Trillions of costs and losses to be recovered we must assume.
On a microeconomic level, the pandemic hit viciously on our labor force and absence from their daily tasks led to a huge vacuum in the supply of our products and services to soaring markets.
Businesses and operations were not fed with the ingredients, components and material required and with domino effect, vertically and horizontally, our traditional supply chains defaulted with the consequence that individual companies quickly found themselves in loss positions.
But Covid also triggered the sales boom at the retail end and the pressure to accommodate our markets was frantic.
The human nature, as well as the true spirit of well managed companies, are organisms with a strong desire to survive. New plans are quickly put into action; – we change, we adapt, we adopt, we adjust and do what is needed to survive. In the worst of times we also had the best of times.
We were fighting the horrors of the pandemic, and, at the same time, fighting to meet demand. Our frustrations also became our motivation to get back on track – in partnership with our sources of supply, and deliver to the buoyant markets in front of us.
Sources of supply to our industry are now more or less operating at capacity and with some exceptions, they are in a position to accommodate us with the capacities we need.
Some Long –Covid effects are closely observed by all builders; – including, but not limited to inboard engines, and labor (Poland, for instance, depending on a significant portion of Ukrainian labor and general shortage of skilled labor).
Components like resin, steel, glass, upholstery, semi-conductors, outboard engines are back on a track.
I took the liberty to use the opening phrase from Tales of Two Cities by Charles Dickens as my metaphor for the two very different world we have been through; – the pre – and post Covid- years. Why? Simply because I just love this phrase, but also because I find it well suited to describe the parallel worlds we experiencing today.
And this is my reflection.
In the 3- year period before the Covid, world-rich prices rose by 6 %.
In the 3- year period after the Covid, world-rich prices have risen by 20 %
Retail prices in several boat segments have risen more than 20 %. Some above 35 %.
With global Covid losses of USD 12, 5 Trillion followed by global energy shortages and inflation out of control, we see that industries and large corporations are increasing their prices and margins far beyond inflation levels. Companies and services that survived the pandemic with some serious dents and losses in their business, have discovered a window of opportunities which they admittedly take advantage of. Their operational margins are soaring while the operational margins of their customers are defaulting. From our traditional sources of our supply we have to accept new terms of business and significantly higher prices which in my book are far beyond cost & loss coverage levels.
As governments and Central Banks announce measures to get inflation to below 4 % , we see our industry raising prices to new levels. I recognize that this is not happening across the board, however, in the wake of the fundamentally growing inflation, corporations, organized industries, and coops are grabbing the opportunity to increase prices and profits far beyond cost coverage and contribute to the spiral of inflation. Greedflation.
Economists, bankers, politicians, and the international business community are to some extent divided in their views of what they define as “Greedflation” or “Egg-flation”. The latter from the time dominant egg producers in the US actually used the pandemic as the opportunity to extract super- profit and prices went up by 300 %.
So if they can do it; – I can do it!
Our industry and the individual companies operating within must be profitable We also know that some dominant players in our markets are not.
We should also recognize that we are in an industry which offer products and services for pleasure and comfort. A huge market and growing, however, very sensitive compared to life’s necessities. We should bear in mind that in times of inflation and the cost of living is severely hitting your wallet, people, for obvious and less obvious reasons, change their purchasing habits.
My concern is that an “over-pricing” of the products and services we offer, vertically and horizontally in aggregate will drive the cost of boating to a level that triggers changes the purchasing habits.
Disclaimer: Global Marine Business Advisors is a registered legal entity and is a network of independent marine industry advisors. In all articles the opinions expressed are those of the author and does not necessarily reflect those of GMBA.