German core industry – cost increases weigh on the mood
According to the FHR member companies, the current business situation is characterised by capacity utilisation at a mostly constant high level as well as continued good employment. Due to supply bottlenecks at customers, however, there are isolated fluctuations in capacity utilisation that cannot be calculated. At the same time, unsatisfactory economic effects are reported across the board due to the extreme increase in total costs. Contrary to expectations, the supply chains have still not stabilised sufficiently in the second year of the pandemic.
Supply situation varies greatlyThe supply situation for the various raw and auxiliary materials varies greatly in some cases. For the most important raw material, core board, more than half of the companies participating in the survey rate the supply as just "sufficient" or even "very poor". About one third call the situation "satisfactory". According to the member companies, the cost increase for core board alone in 2021 was on average around 80%, at the peak for some qualities even over 100%.
The situation was described as similarly drastic for adhesives and packaging materials. Here, too, more than half, and in the case of packaging even two-thirds of the participants describe the supply as at most "sufficient" or even "very poor". Here, too, the surcharges were considerable. The costs for adhesives rose by almost 80% and for packaging material by almost 100%. The additional costs for pallets, whose prices had already multiplied in 2021, had a significant share here. The assessment of partially used inks and plastics is somewhat more relaxed. About half of the participants in the industry survey report a "good" to "satisfactory" supply situation. Nevertheless, cost increases of about 20% and 58% respectively were also recorded in this area.
The companies are reacting to the fragile supply chains in particular with increased inventories and securing quotas from suppliers. With additional shifts and sometimes very short-term production planning, they are trying to maintain delivery capability and punctuality for customers.
Rising electricity and gas pricesJust at the end of 2021, another factor for the negative economic development arose in addition to the existing shortages. The prices for electricity and gas rose massively, with significant short to medium-term effects on the cost situation of the entire supply chain. Depending on the procurement type, energy prices increased between 25 and 500% for member companies in 2021. However, for companies with slightly longer-term contracts, the cost increase will be felt in 2022 at the latest.
The logistics for the raw materials as well as the finished products have already been a major challenge since the beginning of the pandemic. In addition to constantly changing specifications for cross-border transport within Europe, the shortage of drivers is increasingly causing problems. The consequences are a shortage of freight space and rising costs.
In 2021 alone, freight costs rose by an average of more than 15% despite the fact that some companies have their own fleets. All participants in the industry survey report that deadlines for the availability of freight space have lengthened.
Bleak outlookThe outlook for 2022 is also very gloomy. For all raw and auxiliary materials, with the exception of pallets, more than half of the core manufacturers expect slight to strong further cost increases. For freight and energy, almost 90% of the companies agree with this assessment. The effects of the expected wage demands due to high inflation will also contribute to the gloomy economic assessment.
It is therefore not surprising that the member companies of the FH Council rate their business prospects for 2022 against the background of the current situation on a point scale from one (very good) to five (very bad) only with 2.7.
The further development of the pandemic will have a major influence on the profitability of production in the coming months. There is a great deal of uncertainty at various levels, starting with personnel (quarantine measures, infections), the consumption behaviour of the population, but also at the international level with regard to logistics chains. Maintaining the ability to deliver while at the same time protecting the employees is a top priority for all member companies of the FHR.