If you missed the first post in this three-part series, be sure to go back and give that a read.
Many people ask us why fasteners are so hard to come by all of a sudden. Like everything else, fasteners are in short supply. I keep hearing everyone say this is a new problem, but that’s not true. This same problem happened in 1973 during the OPEC oil embargo, the 1980 recession, and again during the Great Recession (2007-2009). Is this one worse? It depends on your perspective and your industry. For the fastener industry it’s certainly worse than all of them.
As the result of the pandemic – the world’s most convenient scapegoat – many companies around the world reduced inventory levels drastically, including Hardware Everywhere (we accept responsibility for our part), because nobody knew what to expect. When demand picked back up, everyone was caught short: supplies and distributors alike. Worse, many of the factories that closed due to the pandemic, never re-opened. Suddenly the supply side was much smaller.
The problem is a complicated and it’s not just the supply chain in the sense of planes, boats, trains, and trucks. Let’s talk raw materials: fasteners are made from many materials; stainless fasteners are made from nickel. Two of largest suppliers of nickel in the world are China and Russia. Certainly, you can see the inherent problem that presents for fastener manufacturing. Once a fastener factory locates the raw material, they must transport it. Whether they transport by plane, boat, train, or truck, they’re using gasoline of some sort. Fuel is over double what it was a year ago.
Eventually the factory gets its wire, and it starts to make screws (or whatever product they make). Sometimes the government in China shuts down a factory for a period of weeks or months. (This may be done for reasons of air quality, availability of electricity, or Covid restrictions.) The result of all this is that the lead-time for orders grows longer and longer (presently lead times are anywhere from 6 to 18 months – not weeks, months – in late 2021 we were quoted January 2024 delivery for one name-branded product). The factories are paying more for supplies, labor, and inland transport. That’s a simple fact.
When the product is finished, it must be shipped to the distributor. So, they go to the seaport. Fasteners don’t usually go by air. Why? Right now, the air freight for 100 pounds of fasteners from China to the United States is $1984. At the port, they sit, sometimes for months. Maybe the port has been closed by the government or maybe there isn’t any space. When the pandemic hit, many of the ocean container ships were drydocked or even scrapped. Ergo, there’s less ships and therefore less space for containers. A container that used to cost about $2,000 to ship to the United States just three years ago from Asia can cost as much as $20,000. If your product is a flat-screen TV, that it might conceivably add $50 to the $500 price, and the consumer might not notice so much.
How can you add $50 to a box of screws that only costs $35? You can’t. A ¼-20 steel low-carbon steel hex nut that used to sell for around $9 per 1,000 pieces can be as much as $35 per 1,000 pieces. I will freely admit that’s absurd. That’s fine if your customers want to pay the price, and you plan to bring them in and book the container space. If you’re a factory and you can only make 50,000 screws per day, do you want to make the small cheap ones out of steel or the big stainless ones that are very expensive. Thus, you have worse shortages of little screws (cheap products) than big screws (expensive products).
Your product is finally ready to go. At the last minute, Amazon or Wal-Mart offers the shipping company an extra $5,000 to take their container instead of yours because they don’t want to wait. Don’t you need your product as much as they do? Sure, but they can afford to pay the “bribe” and the fastener industry can’t. Life isn’t fair and neither is the fastener industry in the Supply Chain Crisis Era. Where is your freight? Still on the dock.
Container space is more precious than solid gold. That’s no exaggeration. Take a typical one-ounce solid gold coin. Until recently, about 1-1/2 of those coins would be enough to pay for an ocean container. In 2021? You needed almost five coins to pay for a container. Or put another way, you know those fancy gold bars (a bar is 400 ounces or 27.4 pounds and is worth about ¾ of a million dollars each) you see in the movies? It used to be one of those would be enough to pay for almost 400 ocean containers, now you might get 90 if you’re lucky.
Our fasteners always came to the port listed on the bill of lading. Now they come to the wrong ports, requiring even more handling (and thus costs) and motor or rail transshipments. All of that adds cost. A pallet of screws weights as much as 2,500 pounds. The port of Savannah (for instance) is 500 miles from the Port of Miami – why not take a look and see what that unexpected cost adds to the screws if they disembark there unexpectedly? If there are 50,000 screws on that pallet, and it costs about $500. That adds $10 per thousand to the cost of the screws. That’s a significant percentage and that’s unanticipated, after the fact. Again, the cost of the screws goes up.
A True Story
This is a true story that happened to us in December 2021 to give you real-life perspective. We had material in Shanghai scheduled to go on a ship, but it kept “missing” the ship. I told my broker to get the cargo out of China somehow. After some finagling, our broker said they’d route it via Cairo (Egypt), and it would only take “two or three extra weeks and only cost maybe $500 more.” That ship arrived in Cairo in January 2022 and was due in New York in February. It got to New York in late April of 2022 and Hardware Everywhere did not receive the container until May. Nearly six months in transit. The customer for the material was understandably disgruntled, but it’s clearly not our fault. We still have material in Shanghai that can’t get out. And one of our shipments bound for the United States went to Busan, Korea and we haven’t seen it since. You may not think it’s a big deal, but we have to pay for those shipments when they leave the port of origin. So that money is out of our pocket. That cost of money also increases the price of the screws. Money isn’t free.