Market Update: A Shift in the Business Practices of Our Wire Supply
We hope that you and all our customers have been able to avoid major staffing issues due to Covid-19 thus far. Fortunately, Tennessee Spring has successfully avoided any known Covid-19 cases among our staff.
However, our industry has certainly been impacted by the pandemic and we have some important information to share with you regarding raw material shortages, supply chain disruptions, and pricing. It’s our hope that we can work together to mitigate these business challenges and return to pre-pandemic business practices as quickly as possible.
What is happening now?
We are seeing not only dramatic increases in lead times from our wire suppliers, but also increased raw material prices.
Raw material that we could rely on to be in stock and ready to ship now has a four to eight weeks lead time. While our supplier network has allowed us to meet customer deadlines thus far, the nation-wide shortage of wire due to Covid-19 will push our lead times out for spring orders in the near future.
The reason for the increase in our raw material lead time is the shortfalls in rod supply and wire supply resulting from the Covid-19. The rod mills supply our wire suppliers, and both of which have been faced with unprecedented staff absences due to sick employees. This is a top down issue in our supply.
Price increases are a direct result of diminished rod supply due to Covid as well as exploding international scrap prices. Our wire suppliers have been given another increase from their rod suppliers at the time of this writing, and will pass that large increase down to us in February. We have experienced five increases since September for a total of 36%, and the last two increases were a massive 13% each.
As you may recall, a progressively worsening situation has been the consolidation of global rod mill ownership, which results in all rod mills acting as one. Every price increase is passed down collectively from every rod mill at once. The reasons given for increases vary – tariffs, scrap prices, demand, etc., but the rod mills are always in step with one another. Now, the rod mills are announcing rod price increases the day before they go into effect, forcing wire drawers to follow suit and price wire as it ships rather than when it is ordered. This has never happened in our industry before.
According to our suppliers, these rod and wire shortages can result in allocation and price segregation. Allocation means that available rod, and consequently wire, will be divided up among purchasers according to pre-decided quantities rather than as it is ordered. Allocation results in a wire shortage for us if that quantity runs beyond what we were allotted. Price segregation means that certain sizes of our wire will have an additional price increase outside of the other sizes. This increase typically affects the upper and lower ends of the wire size spectrum, so larger or smaller spring prices will be affected by price segregation.
How will these changes affect you, our customer?
You may see increases in our production timeline for your springs. In some rare cases, shortfalls in our wire supply could push your ship dates out by several weeks.
Spring price increases will also become necessary, as our wire prices have grown by 36% over the past five months.
What is Tennessee Spring doing to avoid shortfalls?
We are reaching out to our entire network of raw material suppliers in order to get you the springs you need when you need them.
We order raw material as soon as we receive a forecast or purchase order from you so that the wire is on its way to us at the earliest date possible.
If we have a blanket order with you, we will attempt to stockpile raw material as well as your specific spring to avoid shortfalls.
What can we do together to mitigate spring supply shortfalls?
Together, we can plan further in advance than we have for past years. Please order as early as possible, and if you cannot commit to a Purchase Order at the moment, let us know a forecast of your spring needs for as far in the future as you can estimate.
Early orders will allow us to place our raw material orders ahead of time, keeping your lead times reasonable and avoiding upcoming cost increases.
What does the rest of the year look like?
Our prediction is that the Covid vaccine should reduce the staffing shortages to pre-Covid levels, but the wire prices will be much slower to revert back to mid-2020 levels, if they revert back at all.
If rod mills and wire drawers continue to pass down cost increases as the product is shipped rather than when it is confirmed, Tennessee Spring may be forced to follow suit and price springs as they are shipped.
What does the near future look like?
Wire suppliers have predicted that prices will continue to escalate. There has recently been another rod price increase announced that will be reflected in our wire cost in mid-February.
Key Take-Aways
Rod suppliers, and consequently our wire suppliers, have increased prices, increased lead times, and supply shortages due to absences from Covid-19.
Supply shortages can result in allocation and price segregation in our wire supply.
Most importantly, the business conditions have been shifted unilaterally by our suppliers so that our raw material is priced at the time of shipment rather than at the time of order confirmation.
Together, we can mitigate these factors by planning ahead and ordering earlier.
Thank you for taking the time to read our updates on how Covid-19 has affected our industry. Please call David at 615-374-9500 ext. 32 for any questions or concerns regarding your spring supply.
