Covid-19 Pricing Problems

I do understand that all PPE products are quite expensive (understatement) at present. Medisave UK are at the end of the supply chain; consequently, we are the ones who attract criticism for increasing prices (so called “price gouging”). This is not a fair accusation and I would like to explain some of the reasons for the price increases that we have experienced from our suppliers:

• Many products such as face masks are currently being AIR freighted into the UK. This is expensive in normal times as even though they weigh very little, their volumetric size is expensive in kg terms.
• Air freight also costs multiple £ per volumetric kilo than it did in February – this has a great deal to do with the fact that most passenger flights have been cancelled – [and they used to carry a great deal of cargo] – this has limited the amount of flights for cargo and hence pushed the prices for air freight to record prices per kg.
• Many raw materials used in some of the PPE have increased by 10-fold. For example, there is just not enough raw Ethanol in the world to make hand sanitiser for current demand [not even close] – you can read more about this here. In short:

o When demand massively exceeds supply, prices rise- the following is a graph showing how the main ingredient in hand sanitiser (isopropanol or “IPA”) has increased from just over €1500mt in 2018 to over €3000mt in 2020 o We also understand that there is even a shortage of plastic bottles for this product – and this has pushed the manufacturer price up from pence into multiple £ for the 500ml bottles (if you can find them).In the last month we have even seen product ship in squeezy tomato sauce style bottles. o The shortage of raw materials is causing operational problems with factories not able to always run at maximum output. They are still paying all their fixed costs whilst producing less. Many face mask factories cannot obtain enough of the non-woven material sources to keep production going. o They are also not working to 100% efficiency compared to normal times, due to observing social distancing / employee shielding etc. This inefficiency is probably true of their OWN supply chain for materials that make up their product.

• As a company we have seen the price of products increase daily. We have been trading for 20 years and we have some very established [and trusted] supply chains. Our normal reputable sources were sold out at the beginning of March and restocking has been nowhere near the levels needed [even before] the crisis.
• Many manufacturers and suppliers have been directly offered very high prices by governments and large organisations to secure production for ONLY themselves. This has created a bidding war for all PPE.
• Governments have put huge resources into supplying hospitals. However, there is another important market of GPs, Nursing homes, Deliver / Postal Worker etc that are also trying to buy essential PPE and are probably just as important as stopping the spread.
• Our Buying Team initially “scoffed” at the higher prices offered and refused to purchase products in March and started looking for alternative supply chains. However, it was clear that these price rises were across the board and here to stay.
• Cashflow – Many suppliers / manufacturers are now requiring upfront payment and this has increased the cost of goods.
• Sterling & $ Exchange Rate: nearly all PPE and raw materials are sourced in USD from the Far East – as the £ has dropped in value against the $. This has had a considerable impact on the landed cost of PPE.
• Advertising: We have always sold this type of PPE equipment – as part of our general marketing spend we have had very low cost campaigns in Google and Bing etc for keyword advertising – this type of product used to cost a few pence per click – however, since this crisis EVERY type of company has started selling PPE (or popped up a new company) and the price for advertising PPE has sky rocketed.
• Medisave is also under operational strain due to the Virus – through adhering to the social distancing, sickness, CV19 shielding, working from home directives etc. We simply cannot dispatch the same amount of orders as in normal times. We have had to employ inexperienced temporary staff that need training (and inevitably make mistakes.)
• Our methods of communication have been overloaded by members of the public looking for PPE from the Medisave website. Our target market is normally business to business. This has actually caused our website to crash and for us to close our phone lines etc during March. We are nowhere near our normal operating levels.
• All our suppliers have had operational capacity problems due to COVID-19, supply chain, raw materials etc and many medical goods are in short supply.
• Whilst more companies are trying to produce PPE (and the extra supply will result in price reductions) there is a lack of available certification centres in the UK for EN/ CE standards. New factories will take around 8 weeks to ensure compliance, resulting in further delays.

I think / hope that pricing may get better (we are at the END of the supply chain, so cannot dictate prices from the manufacturer and wholesaler). However, this relies on the price of air freight going down and sea shipping containers arriving in the UK. These take 10 to 12 weeks to arrive. However, as suppliers are shipping everything by air (due to the urgency of the orders) there is not enough capacity to fill container ships, and container ships cannot sail half full. It is a Catch 22 situation. I sincerely hope that these price increases are short term. Once the COVID-19 pandemic has passed, demand will return to pre pandemic levels, currency exchange rates will return to normal and manufacturers will be able to reduce their prices- allowing us to reduce our prices. I thank you for your support and understanding. Melissa Allen-Denton Director