H.Essers’ view on rising energy and commodity prices
As discussed earlier in this newsletter by Transport COO Christopher Van den Daele, our sector is once again facing a challenging period. While the global economy may be picking up, it is certainly not going smoothly. The impact of the Covid-19 pandemic on supply chains is far from over. Raw material shortages and the war in Ukraine are causing great macroeconomic instability in the market, resulting in a huge increase in energy prices. Transport COO Christopher van den Daele and Warehousing COO Carlo Theunissen are happy to elaborate on this issue and explain how our company is dealing with it.
‘The huge increase in energy prices that we are now seeing also translates into other costs,’ says Christopher. ‘Just one example: road and rail transport has become more expensive due to direct energy consumption and the related price increases, such as the raw materials needed to make new containers, trailers, etc. Some energy prices rose by as much as 70% and material costs by as much as 25%. This applies to everything, including our warehouses,’ he concludes.
‘Our warehouses are also seeing a huge rise in both gas and electricity costs, despite these having been relatively stable in the past,’ adds Carlo. ‘This means we have to agree on new pricing systems with our clients. The labour market is still extremely tight and sharp price hikes are being applied in all aspects of construction, rolling stock, packaging materials and so on.’
The impact is unprecedented. ‘In Romania, for example, more than 5,000 of 180,000 tractors were deregistered during the first quarter,’ says Christopher. ‘In the same period, more than 200 transport companies went bankrupt in Belgium. Although these are often smaller businesses, the figures are nevertheless alarming. Moreover, the loss of these players puts further pressure on the current staffing shortage. Add to that the implementation of the mobility pack. This impact of the Return Home Vehicle and the adjusted remuneration model for Eastern European capacity is causing both direct and indirect price increases.’
‘Doing nothing and waiting is pointless,’ says Christopher. ‘After all, no one can say for sure how prices will evolve in the coming period. So we are forced to change gears and go along with the increases. Although the diesel clauses in our contracts anticipated an increase, the clause now appears to be obsolete. And we’re being forced to sit down with our clients to reassess the impact on transport tariffs and adjusted energy clauses,’ he concludes.
‘It is absolutely necessary to discuss rising direct costs with our customers to keep our operations financially healthy,’ adds Carlo. ‘We are still incurring many additional costs in order to achieve our growth in the current labour market. Just think of the recruitment efforts and training required for this,’ he continues.
‘At the same time, as an asset-based company, we continue to invest in our own fleet and warehouses to give our customers the capacity guarantee they need and we are constantly thinking of ways to consolidate loads and optimise synchromodal routes to reduce the impact on our customers. In addition, we are focusing even more on renewable energy to make sure we will be even better prepared to deal with these market fluctuations in the future.’