March 21, 2022
To: SIGMA Customers
Re: Supply Chain and Costing Update
Although inflationary pressures and supply chain disruptions have been a part of our industry for nearly a year now, the recent geopolitical events in Ukraine have exacerbated an already challenging situation. In addition, though much less visible, SIGMA and other globally sourced producers are in the midst of negotiating new freight rates for the 12 months beginning May 1st. Both the war in Ukraine and the future freight rates look to greatly influence our business in the short term and into 2023. Consequently, we want to share some of the details of these influencers to best prepare you for the realities ahead.
Ocean Freight
The severe container imbalance originating from the Covid-19 shutdowns in 2020 remains attenuated by the continued high demand for globally sourced products. The insufficient container capacity in active operation has caused many freight carriers to move away from annual contracts for the 2022/23 year and, alternatively, offer freight rates for shorter periods of 4 – 6 weeks. While it is true that the headline-grabbing spot rates paid for containers at the height of the shortage have dropped, the reality is that SIGMA anticipates its average freight rates to increase significantly as a result of the change in the carriers’ pricing methods.
On a positive note, SIGMA has experienced improved container availability – particularly out of China. Container availability in India is more challenged but, largely, space is allocated monthly to handle the majority of SIGMA’s production. While the news on container availability is encouraging, SIGMA’s limited inventories coupled with the high industry demand ensures that supply chain will be constrained through 2022.
Raw Material Costs
For much of this calendar year, raw material costs in both India and China have been relatively stable at the elevated levels set in 2021. However, the Russian invasion of Ukraine created a severe disruption and surge in costs of raw materials as both Russia and Ukraine are major exporters of steel and iron. For various economic and geographic reasons, these raw material increases are more significant in India. Within SIGMA’s production in India, the inflationary pressures are greater on its line of Municipal & Construction Castings as those products are manufactured almost exclusively with import pig iron. Though MJ and Flange fittings produced in India utilize some domestic steel, the sizeable disruptive impact of the war on raw material prices and availability in Europe and Western Asia will impact the cost of these goods too.
Conclusion
All said, product remains in limited supply and cost pressures continue to be inflationary. For cast iron valve boxes, meter boxes, manhole frames & covers and the like, we anticipate significant increases. In fact, we may be forced to adopt monthly pricing adjustments based on raw material volatility. Also, we cannot guarantee that we can protect and honor backorders; however, no firm position is set. For Fittings and MJ Accessories, we are aggregating the increased costs from our blended sources and will set pricing and policy accordingly. For Pipe Restraint, freight rates, at this time, seem to be a greater influencer on cost increases. Therefore, price adjustments, if any, will be later this calendar year.
After a demanding 2021, we realize this news is not welcome. However, it’s the realities of today’s environment. As such, we want to keep you, our customer, as informed as possible.
We at SIGMA are happy to further discuss the details of this letter with you. Please reach out if you care to further discuss.
As always, we appreciate your support and business particularly in this challenging time.
Sincerely,
Greg Fox | Vice President of Sales
SIGMA Corporation
256.496.3388