As product supply chains shrink, wars and economic sanctions are disrupting the way global prices and almost everyone buys, according to Pricefx pricing experts.
CHICAGO — (BUSINESS WIRE) — The global economy, especially Europe, is feeling the effects of shortages caused by the conflict between Russia and Ukraine. The key chemicals that make their way into the global product supply chain come from both countries. As a global leader in cloud-based pricing software, Pricefx encourages companies to consider advanced pricing strategies to maintain strong customer relationships, cope with rising cost pressures, and maintain profit margins during times of extreme volatility.
Chemical and food shortages are affecting everyday items such as tires, catalytic converters and breakfast cereals. Here are some specific examples of the chemical shortages the world is currently facing:
Carbon black is used in batteries, wires and cables, toners and printing inks, rubber products and especially car tires. This improves tire strength, performance and ultimately tire durability and safety. About 30% of European carbon black comes from Russia and Belarus or Ukraine. These sources are now largely closed. Alternative sources in India are sold out, and buying from China costs twice as much as from Russia, given the increased shipping costs.
Consumers may experience higher tire prices due to increased costs, as well as difficulty buying certain types of tires due to lack of supply. Tire manufacturers must review their supply chains and contracts to understand their exposure to risk, the value of supply confidence, and how much they are willing to pay for this valuable attribute.
These three products are used in various industries but are critical to the automotive industry. All three metals are used to make catalytic converters, which help reduce emissions of toxic substances from gas-powered vehicles. About 40% of the world’s palladium comes from Russia. Prices rose to new record highs as sanctions and boycotts expanded. The cost of recycling or reselling catalytic converters has increased so much that individual cars, trucks and buses are now being targeted by organized crime groups.
Businesses need to understand gray market pricing, where goods are legally or illegally shipped in one country and sold in another. This practice allows companies to benefit from a kind of cost and price arbitrage that negatively impacts manufacturers.
Producers need to have systems in place to identify and eliminate gray market prices due to large discrepancies between regional prices, further exacerbated by shortages and price spikes. It is also important to consider price ladders to maintain proper relationships between new and remanufactured or similar product hierarchies. These relationships, if not kept up to date, can lead to a reduction in profits if the relationship is not maintained properly.
Crops all over the world require fertilizer. Ammonia in fertilizers is usually formed by combining nitrogen from air and hydrogen from natural gas. About 40% of European natural gas and 25% of nitrogen, potassium and phosphates come from Russia, almost half of the ammonium nitrate produced in the world comes from Russia. To make matters worse, China has restricted exports, including fertilizers, to support domestic demand. Farmers are considering rotating crops that require less fertilizer, but grain shortages are increasing the cost of staple foods.
Russia and Ukraine together account for about 25 percent of world wheat production. Ukraine is a major producer of sunflower oil, grains and the fifth largest grain producer in the world. The combined impact of fertilizer, grain and seed oil production is of great importance to the global economy.
Consumers expect food prices to rise due to rapidly rising costs. Food manufacturers often use a “downsize and expand” approach to counter rising costs by reducing the amount of product in a package. This is typical for breakfast cereal, where a 700 gram package is now a 650 gram box.
“Following the start of the global pandemic in 2020, businesses have learned they need to brace for supply chain shortfalls, but could be caught off guard by unexpected disruptions caused by the Russia-Ukraine war,” said Garth Hoff, chemical pricing expert at Pricefx. “These Black Swan events are happening more and more often and are impacting consumers in ways they didn’t expect, like the size of their cereal boxes. Examine your data, change your pricing algorithms, and find ways to survive and thrive in an already challenging environment.” in 2022.”
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