Short 🧵on how to navigate the explosion in the price of international container shipping.
The thread starts with what I learned from my mentor who survived and thrived through the inflationary 1970s and then goes into my plan as an e-commerce seller in 2021.
The thread starts with what I learned from my mentor who survived and thrived through the inflationary 1970s and then goes into my plan as an e-commerce seller in 2021.
--Mentor--
1. Avoid long payment terms from your customers. By the time you get paid, the money will be worth less.
2. The best way to tame inflation is to raise interest rates, so get ready for interest rates to rise.
1. Avoid long payment terms from your customers. By the time you get paid, the money will be worth less.
2. The best way to tame inflation is to raise interest rates, so get ready for interest rates to rise.
3. Inflation is not spread evenly. Some things get in short supply, while others remain unchanged.
4. Carry a little bit more inventory of staples (your consistent best sellers) than is necessary to get ahead of price increases.
4. Carry a little bit more inventory of staples (your consistent best sellers) than is necessary to get ahead of price increases.
5. If you have the stock and operations to support it, raise prices. The game changes in inflationary periods. Don't try to maintain your prices like normally would.
6. Getting terms from your suppliers is helpful. By the time you need to pay them, that money is worth less.
6. Getting terms from your suppliers is helpful. By the time you need to pay them, that money is worth less.
7. Companies which can supply goods throughout the inflationary period are valued more than normal, giving them pricing power (particularly true for companies who do B2B business).
8. Paradoxically, having cash on your balance sheet during inflation can be a good thing because you can finance your inventory purchases while your competition, possibly on adjustable rate debt, cannot.
9. Inflation happens gradually and it takes a long time to slow down, so get ready for a long fight.
1 through 9 above was from my mentor. Here are my thoughts specific to the situation we are in today.
--Me--
A. Future container prices are unknown and could even continue to rise (more stimulus or government shutdowns for example).
--Me--
A. Future container prices are unknown and could even continue to rise (more stimulus or government shutdowns for example).
B. If you, in 1973, decided not to buy raw materials because prices had gotten too high, you'd have to wait until 1983 (a decade!) for those raw material prices to stabilize.
C. Cautiously purchase large products. Buy less than you're forecasted to need.
C. Cautiously purchase large products. Buy less than you're forecasted to need.
D. If sales are good, raise prices before the more expensive goods hit your warehouse.
E. Cut loser products, especially big ones.
E. Cut loser products, especially big ones.
F. It may not make sense to cancel orders, even when prices get crazy high. For example, if you're the only company which buys at the high price, you'll have the market to yourself and can raise prices.
G. After the holidays, unless the ratio between container prices to domestic wages crashes, look at shifting production to the US and Mexico. It only works for some products, but look into it. If you manufacture in the US, manufacture yourself. Contract out Mexico.
H. Save space in containers any way you can (vacuum packing, assembling in USA, shrinking down packaging, more per box, box configuration in container), but don't do stuff that you'll regret if prices return to normal.
/thread
What'd I get wrong?
What'd I get wrong?
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