Written by Justin Roberts from Agriland
Over the last couple of years, machinery manufacturers have faced many challenges, including steep increases in material prices and component shortages, but the storm appears set to continue.
It might have been hoped that the situation is now easing and the supply chain is returning to some form of normality, Unfortunately, that appears to be far from the case.
Recently, the Federal Statistical Office of Germany released some rather alarming figures on wholesale inflation, the price of raw materials rather than retail inflation, which is what we see in the shops.
They are not good news. Overall the average increase for all items over the past year was 22.6%, with a massive 6.9% rise last month.
Yet averages can paint over all sorts of nasty surprises and this headline figure is no exception.
We are only too painfully aware that fuel prices have gone through the roof, the statistical office puts a handle on it at 70.2% over the last 12 months.
Solid fuel, which is mainly coal, is not far behind at 61.9%. It increased by 18.3% in March alone.
These are sobering numbers and the Statistical Office drily notes that these are the steepest increases since they began collecting the figures in this form 60 years ago.
However, it is not just energy costs that will be causing some sleepless nights. Metal and metal ores have risen 55.8% within the last year, which will naturally have a direct effect on machinery prices.
Metals have risen in cost by nearly 56% in Germany over the last year
Once again, the steepest increases have occurred in March, although there is a reluctance to lay the blame immediately at the door of events in Ukraine, despite Europe imposing sanctions on Russia.
This may appear counterintuitive, but the U.S has quietly lifted sanctions on agricultural goods including fertiliser, from Russia, and yet its wholesale inflation hit 11.2% in March.
If inflation and material shortages are causing one set of headaches, then we need not look to the U.S for any sort of relief, for it has a burgeoning collection of other problems, specifically with labour relations.
John Deere settled with the UAW union in November of last year and all now appears to be peace, light and harmony. However, a storm is brewing elsewhere with CNHi facing the prospect of strike action.
John Deere weathered its own storm last year but trouble is brewing elsewhere in the industry
In a situation similar to the one that faced John Deere last autumn, the employment contracts with the company's factory floor staff expire on April 30. Once again, it is the UAW union that is involved in renegotiating them.
A recent vote authorised the calling of strike action by the union if they considered it necessary.
The measure was voted through by 97% of the members who face an inflation figure of 8.5%, a number which knocks a big hole in the value of their salaries.
If that were not enough of a storm, another group of workers in the U.S are getting restless and their contracts are also set to expire in the near future,
These are the west coast dockworkers who number 20,000 in all, and they run the terminals which handle 44% of U.S container traffic.
Facing the prospect of rampant inflation and noting the increased profitability of the major shipping lines, which are enjoying rates 10 times greater than pre-Covid-19 levels, the International Longshore and Warehouse Union (ILWU) is unlikely to be modest in its demands or restrained in its actions.
Labour problems aside, there is still a shortage of containers with ships queuing to get into ports for unloading.
Off the Californian coast, vessels are being assigned to drift zones as the area of shallow water in which they may anchor is insufficient.
The increasing size of the ships also brings problems as it takes longer to shuffle their loads around when in port. All these factors are forecast to increase delays in the supply chain throughout 2022.
The deteriorating economic outlook is already having on influence on trade in Europe. The CEMA Business Climate Index dropped from 30 to 20 points in March, which is still positive, but the optimism is fading.
Likewise, in the U.S, tractor sales in March were 5% below industry forecasts with shrinking waiting lists.
This appears to be due to a combination of increased production levels and higher prices deterring customers.
The supply of machinery has improved, but that may be short-lived
In Ireland, tractor sales in March were 18% down on last year and dealers are now talking of a steady year, rather than increased sales as supplies returned to normal, a situation they were expecting in the latter part of 2021.
All in all, it does look as if 2022 is not going to be the year of runaway sales as the world returned to normal trading patterns after all.
The gathering clouds portend a year of further challenges for the machinery industry and the economy as a whole.
The post Machinery: 2022 – the year of the perfect storm appeared first on Agriland.co.uk.
Continue reading on the Agriland Website...
Over the last couple of years, machinery manufacturers have faced many challenges, including steep increases in material prices and component shortages, but the storm appears set to continue.
It might have been hoped that the situation is now easing and the supply chain is returning to some form of normality, Unfortunately, that appears to be far from the case.
Grim figures from Germany
Recently, the Federal Statistical Office of Germany released some rather alarming figures on wholesale inflation, the price of raw materials rather than retail inflation, which is what we see in the shops.
They are not good news. Overall the average increase for all items over the past year was 22.6%, with a massive 6.9% rise last month.
Yet averages can paint over all sorts of nasty surprises and this headline figure is no exception.
We are only too painfully aware that fuel prices have gone through the roof, the statistical office puts a handle on it at 70.2% over the last 12 months.
Solid fuel, which is mainly coal, is not far behind at 61.9%. It increased by 18.3% in March alone.
The worst post-war inflation
These are sobering numbers and the Statistical Office drily notes that these are the steepest increases since they began collecting the figures in this form 60 years ago.
However, it is not just energy costs that will be causing some sleepless nights. Metal and metal ores have risen 55.8% within the last year, which will naturally have a direct effect on machinery prices.
Metals have risen in cost by nearly 56% in Germany over the last year
Once again, the steepest increases have occurred in March, although there is a reluctance to lay the blame immediately at the door of events in Ukraine, despite Europe imposing sanctions on Russia.
This may appear counterintuitive, but the U.S has quietly lifted sanctions on agricultural goods including fertiliser, from Russia, and yet its wholesale inflation hit 11.2% in March.
Further problems across the pond
If inflation and material shortages are causing one set of headaches, then we need not look to the U.S for any sort of relief, for it has a burgeoning collection of other problems, specifically with labour relations.
John Deere settled with the UAW union in November of last year and all now appears to be peace, light and harmony. However, a storm is brewing elsewhere with CNHi facing the prospect of strike action.
John Deere weathered its own storm last year but trouble is brewing elsewhere in the industry
In a situation similar to the one that faced John Deere last autumn, the employment contracts with the company's factory floor staff expire on April 30. Once again, it is the UAW union that is involved in renegotiating them.
A recent vote authorised the calling of strike action by the union if they considered it necessary.
The measure was voted through by 97% of the members who face an inflation figure of 8.5%, a number which knocks a big hole in the value of their salaries.
Dockers' discontent
If that were not enough of a storm, another group of workers in the U.S are getting restless and their contracts are also set to expire in the near future,
These are the west coast dockworkers who number 20,000 in all, and they run the terminals which handle 44% of U.S container traffic.
Facing the prospect of rampant inflation and noting the increased profitability of the major shipping lines, which are enjoying rates 10 times greater than pre-Covid-19 levels, the International Longshore and Warehouse Union (ILWU) is unlikely to be modest in its demands or restrained in its actions.
Labour problems aside, there is still a shortage of containers with ships queuing to get into ports for unloading.
Off the Californian coast, vessels are being assigned to drift zones as the area of shallow water in which they may anchor is insufficient.
The increasing size of the ships also brings problems as it takes longer to shuffle their loads around when in port. All these factors are forecast to increase delays in the supply chain throughout 2022.
The storm begins to bite
The deteriorating economic outlook is already having on influence on trade in Europe. The CEMA Business Climate Index dropped from 30 to 20 points in March, which is still positive, but the optimism is fading.
Likewise, in the U.S, tractor sales in March were 5% below industry forecasts with shrinking waiting lists.
This appears to be due to a combination of increased production levels and higher prices deterring customers.
The supply of machinery has improved, but that may be short-lived
In Ireland, tractor sales in March were 18% down on last year and dealers are now talking of a steady year, rather than increased sales as supplies returned to normal, a situation they were expecting in the latter part of 2021.
All in all, it does look as if 2022 is not going to be the year of runaway sales as the world returned to normal trading patterns after all.
The gathering clouds portend a year of further challenges for the machinery industry and the economy as a whole.
The post Machinery: 2022 – the year of the perfect storm appeared first on Agriland.co.uk.
Continue reading on the Agriland Website...