Manufacturers facing into perfect storm of rising energy costs and wage growth
Supply chain disruption such as the Suez blockage by the Ever Given super container ship back in March are pushing prices up dramatically.
It is astonishing that two surveys across the manufacturing industry - one here in Ireland and the other in the US - both published earlier in the month with COP26 still creating headlines, show that chief executives do not stay up late at night worrying about climate change, carbon taxes or green energy.
These matters hardly featured in the survey of the top challenges facing CEOs of manufacturing businesses.
The Irish study was carried out by employers’ group Ibec across a broad range of manufacturing companies operating in pharma, chemicals, medtech, food and drink, electronics, and other sectors, both indigenous and multinational.
It identified the top three major challenges for manufacturing in the next six months as cost of energy number one, then transport and logistics costs, followed by wage growth and retaining a quality workforce as the third.
The US manufacturers survey showed closely related pain points, rating retention of staff as the number one challenge, with global supply chain shortages next and energy and commodity prices as the third most challenging.
At the heart of today’s manufacturing challenge is rampant fuel pricing and materials shortages.
This has been driven by supply chain disruption such as the Suez blockage by the Ever Given super container ship back in March, pushing prices up dramatically.
It’s hard for manufacturers to plan for growth in the face of unrelenting price spikes. The US Federal Reserve’s global price index for all commodities stands at highest level in seven years. Oil prices are at their highest level since 2014, bringing Irish hauliers to block Dublin main streets. Irish Ferries owner Irish Continental Group last week reported that improved performance was offset by a rise in costs, primarily fuel which increased by 60% versus 2020. Many companies are reporting likewise.
Like so many other challenges, this one is not expected to resolve itself any time soon.
Wage growth is the next big worry for Irish industry. Closely related to this is the rising difficulty in recruiting staff in many industries, particularly in the construction and pharmaceutical sectors. What was once a concern is now a crisis.
Indeed.com, the recruitment agency, reported 2,258 manufacturing job vacancies and 3,147 construction vacancies earlier in November. Job vacancy rates, according to the CSO, are at the top end of the scale.
But, a more sinister trend is also emerging, where employees are quitting their jobs in large numbers. What is now being coined as the “great resignation” trend is altering the global work landscape.
On top of the struggle to attract younger workers—those with STEM skills and a general interest in mechanical and technical careers, in particular —manufacturers now have to deal with changing generational perceptions of work in general. Many CEOs are turning to robotics and artificial intelligence to solve the problem.
But today’s crisis is no hiccup. Jammed ports and supply bottlenecks have been the rule rather than the exception for a year.
Surveys show that suppliers’ delivery times in the EU and the US have hit record lengths due to surging demand. Consumer spending on durable goods is up more than 20% in the past year, and widespread supply constraints, including component and labour shortages, exacerbate the issue.
In fact, shipping prices from China are up 400% since last year, and wait times for ocean freight are up 45%. While some analysts believe that as Covid recedes, capacity constraints and labour shortages will also diminish, many say the crunch could last for another 12 months, if not longer.
- John Whelan is a leading expert on global trade
