Canadian Music Trade - August-September 22 - Page 26

for retail in Europe . Their product , the ex-works price , [ meaning the value of all the materials and other costs related to its production ,] I think they paid something like $ 75 , which for a small ceiling speaker , that ’ s quite a bit , but it had some wireless and stuff in it . But the chip alone , I think , was $ 25 , when normally it would be three dollars .”
So , another bit of advice Lindberg has shared with his audio clients is to open up their minds to microchips that are classified for other uses , but are essentially the same product .
“ A lot of times engineers will be locked into their ways where it ’ s like , ‘ Okay , this is the part , this is the suffix , this is exactly what we need .’ But there ’ s often the same chip that has been verified for use in oil fields or some kind of industrial application . It ’ s the exact same part , functionally , it ’ s got the same footprint to mount on your board , but it ’ s just been through a durability test that makes it go from , say , minus-40 to 60 degrees Celsius . Some of the engineers just won ’ t know that because they ’ re they ’ ve never worked in the manufacturing or purchasing side of things and they say , ‘ No , we can ’ t use that part .’ And then purchasing people are usually not technical , so those things fly over . But some advice I ’ ve been giving to people trying to source stuff is to open your mind on the suffixes . That you could use a marine-grade chip in an amplifier or whatever it might be .”
Now , let ’ s move onto the second major issue , which is of course shipping delays coupled with the huge increased cost of transportation . These issues , when added to the rising cost of certain parts and materials , is definitely being seen in prices . And while Lindberg was able to offer some intriguing advice for dealing with the unavailability of materials and parts , particularly microchips , unfortunately there just isn ’ t much a manufacturer or distributor can do about shipping delays and increased transportation costs , which has meant both absorbing some for the cost increase and inevitably passing some of it on .
“ Cost of freight has gone way , way , way up . So , the cost of a container of goods from China to , let ’ s say , Vancouver or Toronto , has gone from around $ 4,000 to $ 25,000 . Where it makes a big difference is if , say , 10 % of the cost of something before was freight , and now its freight has gone up six times , well now freight is 60 % of the cost [ of that product ]. It ’ s not like you can absorb that . Say , it ’ s a mic stand and it was $ 20 and there ’ s two dollars of freight in it before , but now there ’ s $ 12 of freight . So , the cost went up from $ 20 to $ 32 . That ’ s really significant . It ’ s not like you can absorb it , because margins in our businesses are not super high ,” explains Long .
Carman at Exertis JAM agrees , noting that increased shipping costs are having the biggest impact on the cheapest items .
“ For example , say you ’ re selling an inexpensive accessory like a guitar bag and that is coming from China via container . The price of that container at its peak was up almost tenfold compared to what we used to pay prior to COVID ,” says Carman . “ On those lower-value items like an accessory bag , obviously , the cost of the freight could be equal to the cost of all of the goods in that container . So , clearly , there was no choice but to raise the price significantly on those lower-end items . On a higher-end items , for example a recording interface or an amplifier , these are high-value small items . So , in a container you can easily fit a half-million-dollars ’ worth of these things . So , if the container goes from $ 3,000 to $ 25,000 , it ’ s not as impactful . So , I would suggest that it ’ s really the lower-priced items that have been most affected by the increase in transport costs .”
Comparing it to the rising cost of materials , Carman says both manufacturers and distributors will absorb some of the inflationary costs for a while , but there is a breaking point where they must pass it on .
“ That same accessory bag , I don ’ t think the cost of the materials there has gone up very much . But certainly , the cost of metal and capacitors and especially computer chips have gone up significantly . So , I would say in all the brands that we distribute , almost everything has gone up in cost . There ’ s some that have managed to stay the same . There ’ s some where the manufacturer has tried to absorb some of the cost increase . Certainly , us as the distributor , we try to absorb cost fluctuations all the time . That ’ s one of the value-added services , if you will , that we provide as a distributor . For example , if we ’ re selling to dealers in Canadian dollars but we ’ re buying in USD , we ’ re not changing our price every day to reflect the latest currency ; we buffer that out . And it ’ s only when it gets beyond a certain threshold that we have to react . So , I would say it ’ s the same thing with all these increased costs of transport and components — we tried to absorb the costs in the beginning , but we can ’ t go on doing it forever ,” says Carman . “ So , we ’ re now in deep enough and far enough into this inflationary environment that we ’ ve had no choice but to pass on most of the increases . Now , sometimes we ’ ll still try to absorb a little bit , but it ’ s definitely been a squeeze on our margins , as well . You know , if something has a price point of $ 199 and now the increase is going to take that to $ 209 , is that something that we really want to happen ? So , we ’ ll still try to absorb , but it ’ s obviously been very , very difficult in this environment . So , I would say , a small percentage of the items have seen no increase , but typically , we ’ re looking at anywhere from 5 % to 25 %, I would say , in price increases over the last couple of years , depending on the category . That is not insignificant .”
As mentioned , paired with the increased cost of shipping has been major delays . “ Logistics has been a huge issue , because these ports are closing , so the boats just aren ’ t moving ,” notes Lindberg . As example , he points of the port in Long Beach , CA , which at one point in early 2022 had 109 ships sitting idle at sea waiting to unload . “ And I ’ m sure
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