2021: Year of the Bubble

As lockdowns are eased, vaccines are distributed and industry looks to crack on, a rapid resurgence in investment and construction has begun. “Hurrah” I hear you say. And yes, this is great news, but the mini boom is creating a number of tricky challenges for furniture and construction supply chains.

The big push

Projects are being rushed ahead as investors look to pump cash into real estate and (most) companies want to get back to the office. The return to the office means many businesses have to make changes to their workplace interiors to accommodate new Covid requirements. And fast.

Architects, Designers and D&B teams are faced with extremely short deadlines to replan office layouts in accordance with new working patterns. A surge of furniture orders finds many dealers and manufacturers hugely under-resourced to cope with demand, following a year of staff cutbacks and furlough schemes. In addition mental health strains and exhaustion felt by workers adds further pressure to the situation.

living in denial

Commercial clients are focused on their own logistical reopening challenges and do not want to hear that their completion date is as likely to happen as Liverpool winning the premier league this season. Project managers want concrete commitments that in many cases cannot be provided. Manufacturers, dealers and construction industry professionals alike have two choices: be transparent with clients re: lead times and potentially lose orders, or confirm the client’s requested delivery date is green for go – and then let them down later. Tough call when turnover is desperately needed, but honesty will always be the long term winner here. Manufacturers with complete control over their supply chains stand to gain; assuming they can work fast enough to keep up, that is.

Production capacity

As this pressure bubble heads down the production pipeline, this surge of orders are passed on to the factory floors for production. Many factories are having to cope with reduced staff numbers, shifts and social distancing. The UK looks set to come out of this stage sooner than it’s European counterparts and this may boost UK trade as a reliable project partner. Factories across the board will have to offer double shifts and weekend work in order to cope with demand – and competition will be fierce.

An office chair may consist of 5 or 6 key components from different suppliers around the globe. A delay for just one element (eg. gas lift or metal base) means an incomplete order, pushing the client delivery date back. Component shortages and raw material delivery delays mean many manufacturers are having to extend storage capacity to cope with partly fulfilled orders and component stockpiling. This in turn squeezes finance, which I’ll come back to.

If you thought the politics surrounding international vaccine distribution were sketchy, just wait until a chair component supplier has to let down a leading furniture manufacturer on delivery, whilst fulfilling a competitor’s order.

container drainer

As the pandemic spread across the globe in early 2020, consumer markets saw huge shifts in consumer patterns and global trade. Asian markets rebounded fairly quickly from COVID having learnt their lessons from SARS, whilst European and US orders and production levels tanked. In response, huge volumes of shipping containers were sent to Asia to meet demand. As business rebounds in the western world, shipping routes reopen and global cargo volumes sharply increase, the scarcity of containers in the right locations is creating a logistical nightmare. Ports are backed up. And to make things worse, during the pandemic slowdown, a number of international shipping companies sent vessels off for refurbishment. Vessels that are now badly needed. Seemed like a good idea at the time, aye Captain.

According to one furniture supplier FS spoke to last week, some German manufacturers are paying to ship old empty containers to China, to have them returned with pre-ordered furniture components that they otherwise cannot source. A bit like having to send empty boxes to the supermarket if you expect your online order to be fulfilled, deferring your delivery date by a few weeks or months.

All this going on and I haven’t even mentioned the impact of Brexit on international shipping between the UK and EU.

Financial headaches

The financial management of this web of issues will also be tricky. Delayed raw materials means delayed deliveries to clients and, in turn, delayed payment of goods. Many manufacturers have made down payments on raw materials that are stuck in congested ports. Some suppliers have stockpiled certain goods and materials, tying up huge sums of cash in the process. This may or may not turn out to be a shrewd investment. Due to delays on construction sites due to other trades experiencing the same issues, furniture suppliers may find the construction programme delayed and themselves liable to store goods offsite at their cost, whilst invoices remain unpaid.

In addition, the speed of individual country vaccine rollouts, economic performance, inflation and political factors are all affecting international exchange rates. The longer the period between the date of a furniture order and the delivery and invoicing of said order, the bigger the risk of catching a cold. UK businesses could stand to gain due to the steady strengthening of the GBP reducing cost of imported goods.

At Furniture Strategist we’re still hugely optimistic. And the industry is definitely turning a corner. But it’s a long and winding road ahead, with speedbumps, faulty traffic lights and strategically placed sleeping policemen. Sorry to burst your bubble.