How Are Supply Chain Issues Affecting Laboratory Consumable Prices In 2022?

Every part of the supply chain involved in the provision of lab consumables has been and continues to be affected by the global pandemic, Brexit and more recently geopolitical chaos, resulting in higher costs and a slower production cycle.

There are many reasons the prices are rising and it’s a complex situation. This post looks at the intricate network involved in the supply of lab consumables in order to explain why the supply chain has led to price rises in essential supplies.

Supply and Demand is Pushing Prices Higher

It's a fundamental economic principle that when the demand for goods or a service exceeds supply, prices rise (1). Currently the demand for lab supplies is high and supplies are limited for various reasons.

High Demand

The requirement for consumables in some areas of the world have almost returned to normal post Coronavirus demands, however demands in China are at a high level as they continue to test the population to limit the spread. Also bubbles of demand are occurring as some sectors such as academia return to normal working practices.

Supply is Low

The production and transportation of lab consumables is potentially lower than pre-covid due to recent Chinese lockdowns, Storm Uri causing blackouts in a major production hub as well as transportation issues caused by the conflict in the Ukraine, lack of HGV drivers and port backlogs.

Price Increases are Occurring at Every Stage of the Supply Chain

The supply pipette tips to plates and seals depends on an intricate balance of the supply of raw materials, manufacturing, packaging, storage, distribution and transportation companies as well as retailers.

Just when the UK thought that shortages of lab consumables and prices were normalising the conflict in the Ukraine, Russian sanctions and new covid related lockdowns are affecting every step in the chain.

Cost of Raw Materials

Plastic converters in Europe, North America and Asia experienced record high prices in the cost of raw materials last year. In less than 6 months the price doubled and for certain products the increase was even higher. This was one of the most extreme price increases ever seen in plastics (3).

Additionally production in Texas, one of the world largest industrial hubs for the production of polymers and derivatives was stopped for several weeks last year due to winter storm related black outs.

Whilst product availability has improved in recent months, logistics is now severely affected by factors detailed below.

For these reasons, procurement of polymers and additives continues to be difficult, especially for some grades, and prices remain at very high levels.

Production of Consumables

Labour shortages worldwide and plant shutdowns in China due to the zero-Covid approach are causing operational disruption in the production of numerous goods. Even if manufacturing is at a normal rate delays in packaging or sterilisation may also be disrupted.

China’s approach is likely to continue throughout the rest of 2022 as restrictions are unlikely to be lifted before the politically important 20th party congress in late 2022 (4). Thus decreased production is likely to continue for some time.

As well as the shortfall in production tipping the balance in supply and demand, like everything else on the list oil prices are adding to the production costs.

Transportation

During the pandemic, global consumer prices are estimated to have risen by 1.5% due to container freight rates. The cost of shipping consumables from Asia, Europe and North America is now being affected by the war in Europe (fuel prices and rerouting freight routes around areas of conflict and Russia) and China’s zero-Covid policy (5).

Rerouting Freight

In recent years there has been an increase in good being shipped by rail from China which had reduced transport associated fuels costs as well as the demand for shipping containers.

However, the silk railway travels through Poland, Kazakhstan, Belarus and Russia. Sanctions being imposed on Putin and Russia mean that rail volumes may be down by 80% on pre-war figures (6). However, reduced production due to the Chinese lockdowns may also be impacting rail freight volumes.

The bulk of rail freight is returning back to containerships and the demand for container shipping is mounting, pushing prices higher. This is obviously compounding the already high price of shipping caused by rising fuel prices.

Port Congestion causes Global Logistic Backlogs and Increases Demand

There are an increasing number of vessels waiting to dock outside Shanghai’s port due to the Covid lockdown creating difficulties with inland connections and closed factories in the region.

This creates a backlog in production and a wave of export through the port at a later date. However, it currently takes at least 100 days to get goods from Chinese factories to the UK. All this means that shipping rates will remain high whilst there is are issues at the biggest global port.

The Chinese port backlogs are having also having a knock on effect on other ports such as LA and others.

Fuel Prices

The cost of oil and fuel is rising worldwide due to Russian sanctions. Bulk diesel prices, which constitute about 30% of the cost to operate a vehicle, have risen by 35.7% to average 129.03 pence per litre in the UK (2). Similar price raises are being seen worldwide effecting the cost of transporting goods by road, sea, air and rail.

What’s Causing the Supply Chain Issues

In addition to the supply chain issues caused by Chinese lockdowns, Russian sanctions causing increases in the cost of fuel, and delays and demand for shipping containers there are several other factors affecting the costs involved in the logistics of moving lab consumables around.

Post-Brexit Border Controls And Regulatory Regimes

Thankfully, the Brexit deal included tariff-free trade in goods, so whilst there isn’t any extra red tape required to import lab consumables there are increased custom checks and port congestion that is delaying the transport from European manufacturing plants such as Germany and France.

Lack of HGV Drivers

Covid-19 and Brexit have led to a severe shortage of Heavy Goods Vehicle drivers in the UK. However, there is a lack of drivers worldwide including North America, the European Union and Asia.

There are issues recruiting and retaining drivers worldwide as they want better pay and to be at home each night. Covid-19 caused a backlog in training and testing for truck drivers as well as expedited the retirement of older drivers.

The lack of drivers to transport cargo makes managing supply chains very difficult, leading to an increased demand for available transport, again supply and demand driving the transportation costs higher.

The Upshot

Whilst companies at every stage in the supply chain are trying to absorb many of the mounting costs to ensure they retain market share and not hamper competitiveness, more and more are being left with no choice to pass on the increases.

As supply chain issues are likely to persist through 2022 due to geopolitical chaos, China’s zero Covid policy, delays and protracted supply shortages (7) it’s unlikely to get better any time soon.

Keeping Lab Consumables at a Competitive Price

Despite the mounting costs, Sterilab aim to maintain prices that are competitive and affordable for our customers.

We are meeting the challenge by ensuring good communication channels are maintained with you our valued customer as well as with our direct suppliers and upstream supply chain so that supply and demand can be balanced. Additionally our new state of the art distribution warehouse allowed us to triple our UK storage capacity.

References

InsightsPierre FrizelleMay 23, 2022