With fuel prices coming down due to the decrease in oil prices our packaging business is stuck in the middle. Plastic is a by product from fuel production so the raw materials are directly impacted when prices rise and we have seen a 68% increase over the last two months. Now with the raw material prices expected to tumble we cannot really purchase raw materials this week knowing these prices could be cut by around 25% next week.
The conundrum of not knowing exactly what is the next move and we will be having a marketing strategy later this week. The not knowing is more about what our competitors do as who knows if they will drop their prices and now this becomes the new normal price.
When you go to the shops we always see the prices rising and we never get to experience prices dropping even though they should. This is how the manufacturers and retailers adjust the profitability of their businesses and see this more as an opportunistic time to do so.
On the one hand I am hoping from a moral view point they all adjust their prices down and from a business view point I hope they do not. In the past they have never reduced their prices but this was very different having a 68% increase in raw material which has seen the plastic packaging products rise anywhere between 70 and 80%.
Holding back not buying raw material for the next week is the logical option and the one we have decide to run with. The risk of buying new product is that the other manufacturers drop their prices and you are left with stock that is costing far more. We have enough stock to make it through to the 1st July which is 10 days away and have advised our customers to hold back from ordering their normal monthly orders.
Being a supplier you have to advise your clients in the best way possible so they can feel the financial benefits of your advice. This week I have a meeting with a new customer and will advise them in the best way possible. This meeting has been on hold for the last 3 weeks and this is actually great timing this week as I can help this customer far more with the information I know have. The crazy part about all of this is our prices are still below what they were purchasing before the 70% increase so if they need stock then they will still be saving even if there is no drop in the raw material prices.
Having so much turmoil in the market place must be seen as an opportunity even though there is so much uncertainty. Thankfully I am good with figures and when discussing pricing I can adjust accordingly with the information I have been provided with by the client. Knowing the profit margins instantly allows me to negotiate and leave with an order leaving nothing to chance.
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Gas prices are still pretty much the same here in Seattle area, I think there is a delay between prices of oil and retail gas prices here... Especially on the way down.