A cocktail with a hangover

Energy prices continue to shoot up and this in turn further increases inflation.

Given the terrible war now raging in Ukraine and its enormous impact on the population, the economic and personal consequences for the Netherlands are relatively limited. We have sufficient water, food and our homes are still well heated. Yet Dutch people and Dutch companies will also be increasingly affected. Below we focus on the consequences for a number of entrepreneurs.

In the previous year, several trade chains were already disrupted by COVID and the temporary blockade of the Suez Canal. This in turn had the effect of overloading various ports. In turn, the resulting scarcity of certain goods caused inflation. This was followed by higher energy prices.

After the outbreak of the war in Ukraine, the negative trend is intensifying. Energy prices are on the rise, as are raw material prices, and this is causing inflation to rise further. As if this were not enough, companies will also be affected by the phasing out of support measures, payment of deferred tax and interest obligations and also an increase in interest rates.

CBS data show that agriculture and fisheries, industry and health and welfare are particularly large consumers of gas and electricity. We have already read about agriculture and fisheries in the media.

The above was reason for us to contact some of our relations in a variety of sectors. We spoke to a builder who indicated that he was facing (very) long delivery times, a sharp increase in concrete prices and an extreme rise in steel prices. Part of those costs can be passed on to the client and with long-term relationships, agreements can sometimes be made where there is some give and take. This keeps the increase in the cost price within limits and works can still go ahead.

We also contacted an international wholesaler in the food industry who also reported experiencing longer delivery times and a sharp increase in raw materials. In the market in question, it remains possible to pass on these increases albeit a few customers opt for a cheaper product elsewhere.

Furthermore, we also hear from various quarters that energy and commodity suppliers are breaking open contracts with large consumers without consultation; it is then a choice or a split since litigation against such parties is time-consuming and costly.

Of a completely different order are the problems of a company in the medical sector that saw demand for its products decline by 40-60%. In order to cut costs, it laid off a significant number of staff, who are difficult to get back in due to the current labor market. This entrepreneur has found a private capital provider willing to invest, thus ensuring its survival for the time being.

Finally, we spoke to an entrepreneur who exports capital goods to Russia, among other countries, and is now affected by the sanctions. This means no new orders, no delivery of finished goods and possible default on outstanding invoices. One immediately intensified marketing efforts in other markets which quickly yielded results.

Although there seems little time left, business owners would do well to take action whenever possible. So what can be done to mitigate risk?