Raw material and energy costs: the perfect storm

Sooner or later the problems come to the surface and the markets present you with the bill:

– The decision, at the European and world level, to move almost all production to China starting 30 years ago it has allowed the country of the red dragon to become the world’s factory and to become a deflator, not shying away from dumping in various circumstances. The moral of the story is that we have become completely dependent not only on production but also logistically from Asian manufacturer

– In the healthcare sector, where I work, for years the large purchasing groups in Europe for medical equipment, both public and private, have put enormous pressure on prices to keep them from rising. In fact, every year they asked for a discount. And now? A series of events has disrupted the system:

– Covid has accelerated the deteriorating trend in the international supply chain

– the Asian supply chain can no longer fulfill its role as an efficient deflator (because there are no more shipping containers, transport costs more and big producers face the outcome of the “one child policy” China implemented in the 80s)

– the new global equilibrium (Trump’s “America come first”, Brexit and now unfortunately also the war in Ukraine) is responsible for the explosion of a variety of costs such as for energy and raw materials

– the Medical Device Regulation, approved by Europe, has forced companies to invest more, significantly in quality and regulatory affairs impacting production costs

– and on top of this, the recent rush – not for gold – to bring back part of the production in western countries clashes with the long time needed to rebuild manufacturing plants, technical expertise, qualified workers non available in the market

It’s the perfect storm. After 30 years of gains, we are paying the price of an extremely dangerous inflationary spiral.

A spontaneous thought arises: if in these last 30 years Europe, instead of focusing on the lowest cost (sacrificing quality), instead of delocalizing production as well as European values (transferring wealth elsewhere), had looked beyond the horizon and thought about how these choices would have turned the whole market upside down, perhaps the western economy would not find itself overwhelmed by a perfect storm.