The alignment of the planets is now
In his long professional career, a salesperson will go through different cycles and experience various economic environments. Sometimes, the conjuncture plays in their favour; other times, it won’t, making their work much harder (the business is slow, volumes are not up to par… And then, back to good times again.
But every 20 to 30 years, something “strange” happens: a change resulting from the gradual piling up of several events that had not occurred for a very long time, as if by miracle. This is called the historical alignment of the planets for the sales force. And this could be the new cycle coming.
A sustained global activity
First of all, current global activity remains robust despite some concerns in the United States and the confirmed recovery in China. Volumes stay high, and demand remains strong in almost all areas of activity.
A shortage of sensitive raw materials and components
Shortages of materials, consumer goods or technical goods are gradually taking hold. Several electronic components have been missing from the telephone, automobile and household appliance markets for several years. The lack of raw materials does not simplify things, and the phenomenon may last longer than customers would like. Most of these rare materials are now in the hands of Chinese companies. Furthermore, the digitalization phenomenon acceleration and the carbon footprint reduction are only accentuating the demand for electronic components worldwide.
A period of conflict in Europe
Still in the context of global shortages, the Russian-Ukrainian conflict, in place for several months already, generates a crucial lack of resources such as sunflower oil, wheat and several other kinds of cereal. Those two countries account for some of these commodities to up to 50% of the world’s production! There is a real risk of seeing those resources missing progressively in many places worldwide. Furthermore, there is also a lot of speculation or overstocking, which amplifies the difficulties.
A rise in energy prices
This conflict has another consequence, a surge in the price of Russian oil and gas, whose access is now limited. The cost of energy-intensive finished products such as fertilizers, roof tiles, foundry parts and metal products is skyrocketing.
New consumer trends
The two years of health crisis have profoundly changed consumer habits in France and the world. New trends that used to exist only episodically have become much more frequent, such as e-commerce and distance selling, which have increased and have favoured an acceleration of the need for last-mile logistics. Multi-channel sales have become almost systematic.
Three strong trends emerge from this historic post-Covid period: the consumption of local and organic products, particular attention paid to the reduction of plastics in favour of eco-packaging and, of course, the use of digital technology.
At the same time, many consumers, in the broadest sense of the word, want to treat themselves and “make up for” the long periods during which it was difficult to consume by going to the stores in their neighbourhood. Everything is allowed to forget these bad moments of the past for some categories while others at the same time have to face losses of purchasing power.
A sharp rise in the shipping cost
Another phenomenon is the transport of goods: the shortage of 40-foot (dry) maritime containers and container ships worldwide. These logistical means were scattered worldwide during the economic recovery and notably lacking in Asian ports. When shipping lines and leasing companies sought to rebuild their fleets, this is when we saw a sharp rise in prices. An example: 40-foot containers usually priced at USD 2,000-2,500 (during a period of stability between supply and demand) reached USD 6,500 in the spring of 2022. These rates were as high as USD 10,000 at the peak. Reefer containers have risen from USD 13,000 to USD 21,000.
This increase alone could represent more than five times the long-distance transportation costs of a company sourcing in Asia. Let’s keep in mind that if the transport part of a product represents 20% of its cost price, these logistic increases could have increased its cost price up to 80%! In addition to the high demand for sea containers, the increase in the cost of inputs, particularly that of the “Corten” steel explicitly used for manufacturing containers, has pushed up the final bill. It can take up to six months from order to delivery of a tank container, compared with two months a short time ago. China, which manufactures more than 96% of dry containers, 100% of temperature-controlled refrigerated containers and more than 90% of tank containers, has a non-negligible monopoly and makes the rest of the world dependent on it.
A future increase in the cost of labour and workforce
A few days ago, the central bank confirmed that it would end its monetary policy to support the economy. The financial institution will stop net asset purchases and plans to raise its key rates “by 25 basis points” at its next meeting before another increase in September. According to its president, Christine Lagarde, rate hikes will follow in the coming months, depending on the inflation outlook. Thus, prices of manufactured goods could rise sharply due to increased labour costs.
In summary, these different global phenomena are progressively piling up day after day during the exceptional post-health crisis period we are currently experiencing.
For customers and, in particular, the purchasing departments of companies in charge of commercial negotiations, purchasing has become increasingly complex; and the primary historical, economic and therefore vital reference points no longer hold in the commercial negotiation process. Everything has been put upside down: the cost structure, the preparation of budgets based on previous years, etc.
For purchasing professionals, it is now increasingly difficult to compare current prices and offers against price points based on history and pricing habits.
As a result, negotiations are no longer based on a historical reference but an absolute market price position almost entirely independent of any historical reference.
Internet tools to help negotiate prices in a period of significant fluctuation
More and more decision-makers refer daily to market price indices easily accessible on specialized professional websites for a small investment to limit or even justify the market increase requests from the sales force.
There is the COMMOPRICES portal (https://commoprices.com/en), capable of tracing the history of commodity prices. It includes 1,600 raw materials (food, metals, plastics, chemicals, energy, forest products, elastomers, fertilizers etc.).
Currently and more than ever, the law of supply and demand is in full swing. Customers are ready to contract quickly as long as the supplier commits to a capacity or availability.
A new marketing approach based on scarcity ?
We start observing a strategy used by some companies to boost their profit. They use their sales force or networks to spread rumours of shortages around some high-end items. This technique observed with electronic components, for example, allows them to improve their profit margins. Most financial results for 2021 demonstrate that despite the substantial 10 to 15 percent decline in their sales, profits have never been so high for some of these companies.
Planets aligned !
So, with all these different phenomena piling up, it is clear that the planets are currently all aligned so that the sales force can benefit from an unprecedented situation! So don’t be shaky and show courage. Go to see your customers!
Keep in mind before going to visit your client
Beware … The day when the historical alignment of these planets begins to cease, the time will come to justify oneself to one’s clients, when one will have to be solid and consistent enough to be accountable.
It will then be necessary to justify the fluctuations of certain prices in the most coherent way possible.
The moment will then come when the customer, the buyer, and the purchasing manager will ask you for an appointment to apply lower rates based on the price revision formulas put forward at the right time.
As you take the train, the road, the plane or your phone to get through the hikes inherent in the market conditions of the moment, be sure to keep this last element in mind. Halifax Consulting will always be there to support you during these difficult times.
It’s up to you now!
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