Supply chain issues have been well documented in the media due to the direct and visual impact it’s having in our supermarkets. What some people may not be aware of though is the complexity of the issue and that the current global supply chain woes are going to result in price hikes, especially in the beauty industry. Aussie consumers will soon be seeing an increase in the price of beauty products in 2022 due to the incredibly complex process of moving raw materials and the unprecedented amount of stress currently on freight forwarders.
Australia is highly dependent on overseas suppliers of raw materials and packaging when it comes to beauty products and the global pandemic has created the perfect storm for supply chain issues – shipping container shortages, price hikes on shipping containers, the Suez Canal accident, staff shortages, transport delays, factory shutdowns and backlogs of orders are all the components which is resulting in the current situation. Rohan Widdison, CEO of New Laboratories, which is a boutique cosmetic contract manufacturer based in Melbourne, says he estimates prices of beauty products will increase 10% – 30% in the next three to six months due to the current global supply chain issues.
In 2020 shipping containers became in short supply in China after the world first went into lockdown after China’s economy reopened faster than Europe and the US. Whilst the short supply became apparent in 2020, the globe hasn’t recovered as the stock of empty containers are in Europe or the US instead of China. This stock imbalance in China has led to a supply and demand scenario for brands trying to import from China which of course leads to price hikes. US shipping company Freightos is currently reporting Asia to the US West Coast container freight rates are 250% higher than this time last year. Then add to that staff shortages due to international border closures and Covid-19 infection rates and rather quickly we not only have product shortages but we also have shortages of people to process the imported products when they arrive which then leads to further delays. Whilst a lot of the focus has been on ocean freight, air-cargo companies faced the same shutdowns and delays as freight forwarders during the pandemic.
With the global supply chain being incredibly complex, the closing of factories caused a buildup of orders and when factories were finally able to resume operation. Manufacturers had to ramp up production to meet increased demands which also put pressure on the supply chain.
The industry is also experiencing problems with raw materials sourcing and getting access to staple ingredients. Even if brands do get a spot on a ship, they’re running into holdups at the port with offloading due to staff shortages. This has created a volatile environment for freight forwarding, with some companies moving to the far more expensive air cargo option.
Currently, every beauty product has some level of impact due to global supply chain issues – even the most basic emulsifiers and oils. One specific example is the supply of dihydroxyacetone (DHA) which is used in the manufacturing of sunless tanning products, it’s either unavailable or in short supply until April-May 2022. Unfortunately for us as contract manufacturers, if one ingredient in a formulation isn’t available, or a significant packaging component is out of stock, it affects the whole production run. All elements of the supply chain need to be available at the same time to be able to deliver our clients products on time.
Whilst brands will look for ways to either reduce costs or fulfill orders by substituting ingredients and sourcing more items domestically, these options have their limitations as we need to keep the integrity of formulations in tact. Many product materials and ingredients come from specific parts of the world where there are no other options. Many ingredients are sourced from a particular region for a reason.
Many of the big brands are currently absorbing a lot of the costs as their products are in stores at contracted retail prices, however many smaller brands can’t afford to absorb these extra costs so they’re passed on to the consumer. Eventually the big brands will need to pass on the costs to consumers though and that’s the price increases consumers will see in three to six months. Whilst there will be some pricing corrections we don’t believe there will be a full reversal which will elevate pricing long term.