ERA - Market Intelligence - Second Autumn Issue

2023 - Inflation Series

MarketINTEL Insight and market analysis to achieve better value from suppliers

Autumn Issue 2

In light of the ongoing challenges facing the UK economy this year, our latest collection of articles delves into the current economic landscape.

While inflation and interest rates remain elevated, our second of four special editions of Market Intelligence, seeks to illuminate opportunities within the current uncertainty. Our team of ERA specialists offers valuable guidance for weathering the economic climate, uncovering unforeseen sources of value, and refining your business strategy. For our most up-to-date insights, read our second Autumn issue.

WHAT’S INSIDE: The Murky Waters of Sea Freight Costs

Navigating the Tide of Rising Insurance Premiums

By Paul Gravatt

– pages 2-3

The Overlooked Role of Interest Rates in Managed Print

by Andrew Kinnear

By Rikesh Nichani

– pages 8-9

Top 5 Technology Concerns for IT Stakeholders in 2024 – pages 4-5

By Neil Pinner

– pages 10-11

The Chilling Effects of Inflation in Supplier Markets

By Jason Adderley

– pages 6-7 TM

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Navigating the Tide of Rising Insurance Premiums

By Paul Gravatt

In recent times, inflation has cast an ominous shadow upon various sectors, including insurance. With costs spiralling upwards, it’s becoming increasingly clear inflation is significantly reshaping the insurance landscape.

Take the UK’s property insurance scene, for example.

Surging rebuild costs in the last couple of years mean it is estimated up to 70% of commercial properties in the UK may be underinsured. This underinsurance quagmire means claimants may find claims only partly paid or not paid at all as a consequence of the often-misunderstood Average clause which penalises Policyholders for underinsurance.

Insurance companies, eventually catching wind of this reality, have embarked on a journey of indexlinking insured sums, bumping them up by over 10%/ annum to realign with the current cost environment.

The resultant effect? Even where rates stay constant, property premiums rise by 10%.

Motor insurance does not escape either. Repairing vehicles has become pricier, with parts and labour costs climbing rapidly. Consequently, a fender bender today will drill a deeper hole in the insurer’s pocket compared to a year ago. This rising cost is, in turn, reflected in renewal pricing in the motor market. A respected consumer site has recently reported average private car insurance premium rises of 41%. Whilst the corporate fleet market is a little more restrained, double-digit increases are being seen even for fleets

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with a good claims experience that is profitable to the insurer. Fleets with poor claims experience are facing much larger increases of course, making the need for proactive claims handling and risk management more important than ever. Add to this the influence of interest rates on the cost of financing insurance premiums, and the pain increases further. Previously, some insurers dangled the carrot of zero percent finance, but these offers are becoming ever more scarce at the same time as third-party insurance finance providers increase net rates from c2% flat to over 4% ….and opportunistic brokers seize the opportunity to increase their margins to offer corporate Policyholders rates of 5-6%.

But all is not lost! Engaging with ERA for expert insurance procurement advice could be your ticket to mitigating these surges. By addressing risk management issues, reducing claim frequency and/or severity, and restructuring your insurance program, we

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design bespoke sustainable solutions to help clients fight the effects of this hard insurance market.

In a soft market, where rates are descending, retaining minimal risk on the balance sheet with low excesses and deductibles works like a charm. However, assuming more risk may yield a greater reward from insurers in the hard market in which we find ourselves.

A fresh perspective, and clean look at your insurance structure can still deliver overall cost of risk reductions to our clients – as evidenced by the >£2.5M of annual savings that ERA insurance clients have enjoyed already in 2023.

Adapting to the inflation-fuelled hard insurance market and fully understanding your organisation’s exposure to risk should be a key strategic objective. ERA’s blend of expert strategic procurement advice, innovative program structuring and proactive risk management makes navigating the turbulent waters of the insurance market smoother than may be anticipated.

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The Overlooked Role of Interest Rates in Managed Print

By Andrew Kinnear

In the intricate web of business and finance, few sectors remain untouched by the fluctuations of interest rates and inflation. Managed print suppliers already suffering from reduced demand as a result of the work from home culture and the migration to digitisation, have been massively impacted by interest rate rises and double digit inflation.

Interest Rates and Managed Print Interest rate rises have resulted in challenges that have affected both client and supplier, depending on the circumstances.

With the numerous interest rate rises, the finance rates have been impacted and the rates the suppliers have received from the finance companies have increased, in some cases by as much as 10%. In theory this means clients should be paying considerably more than they were before. In such a competitive environment, the supplier has had to absorb some of the price increases.

In reality, though, suppliers and their clients have both been impacted, and often at short notice.

The Heavier Weight of Inflation Yet, as challenging as interest rates can be, it’s inflation

that’s wielding a more profound influence. The managed print industry is heavily reliant on equipment from the Far East, particularly Japan and China. Rising inflation has catapulted manufacturing costs to new highs, and delivery, transportation, and shipping costs have been heavily impacted, resulting in a several price increases per year compared to the annual price increase we used to see. This escalation isn’t contained—it cascades down the supply chain, from manufacturers to suppliers, and finally, to the end client.

Suppliers are juggling the clients desire to reduce costs along with increased capital costs for equipment, increased delivery costs from logistics companies, increased labour costs from employees and increased toner/consumable costs. Whilst some of these costs

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can be absorbed by the supplier, clients will inevitably be impacted.

Suppliers, often agree fixed-cost service agreements, or a maximum historical cap of 5% per annum and with inflation surging, they are left with no alternative but to absorb these hikes. Many educational institutions, for example, have agreed fixed costs for their entire term, and this has had a huge impact on the suppliers bottom line profits.

On the flip side, clients, historically relying on an RPI price increase, have suddenly found that their prices are increasing by 10% per annum, or more. The terms and conditions, often overlooked by the client, have clauses that can increase the service costs by as much as 15% per annum, and this has resulted in many unforeseen and unexpected price increases.

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Seeking the Silver Lining While it might sound all doom and gloom, there’s a glimmer of hope, particularly when we shift our focus from mere price adjustments to value. Through smart procurement practices, such as driving down print volumes or ensuring the right equipment is in place, costs can be optimized. This approach doesn’t just mitigate inflationary pressures—it can offset them.

Moreover, in an era of sustainability, there’s a pressing need and perhaps a hidden blessing to re-evaluate our printing habits. Encouraging clients to print only what they need can be the positive spin in an otherwise challenging environment.

In conclusion, while the managed print industry faces undeniable challenges, with the right strategies and a shift in perspective, there can be some positive outcomes.

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The Chilling Effects of Inflation in Supplier Markets

By Jason Adderley

The release of disappointingly stubborn September inflation figures will weigh further on supplier markets. This in turn will amplify the chilling effects that the first inflationary spike in a generation is having on clients.

Inflation has bent and in some cases broken suppliers over the last two years, and if their clients hadn’t already noticed – they soon will. Why is that?

It’s not just a question of general rise in price pressures for suppliers, rather that a perfect storm has developed and doesn’t appear to be abating any time soon.

Let’s consider real estate for instance. Prime industrial land values in the UK rose by 20% between Q1 and Q3 2023 from £1.5m per acre to £1.8m per acre. Big Box warehouse rental growth exceeded 12% in 2022 and looks like exceeding 10% in 2023.

Occupiers in London, the location most exposed to strong rental growth will be faced with Business Rates rises of 55% based on the revaluation that came into effect in April. Transitional relief will be applied, but even so the substantial uptick in operational costs will hurt.

Across several supplier markets firms are attempting to extricate themselves from such Lease and Business Rates liabilities.

The labour supply has also proved stubbornly resistant to growth. The ‘great resignation’ may be overblown but employees are definitely demanding higher pay, remote work, more benefits and a greater work life balance. With no uptick in productivity detected this has inevitably fed into higher costs for firms – nor does it help that so many firms let employees go during the pandemic and now cannot replace them.

Entrenched inflation means higher interest rates for longer. Suppliers with significant leveraged debt are particularly exposed, particularly those who’ve made investments in technology or premises and are now finding payback periods disappearing beyond the horizon.

So what does all this mean for clients?

As costs have spiralled so the dynamic between suppliers and their clients has shifted; at ERA we are now grappling with the type of supplier behaviour that has simply not manifested itself for more than a decade – and clients are noticing.

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Pricing is, of course, one of the most immediately noticeable effects. Whereas FD’s may have historically been comfortable with annual increases of 2-3%, RPI increases are being applied at around 9% (down from a peak of 14.2% this time last year).

Increases in excess of RPI are commonplace, moreover we’ve lost count of just how many attempts are being made by suppliers to increase prices outside contractual provisions – whether that’s the level of the increase itself, or the effective date increases can apply from, or both. Clients are simply unable to react in a timely manner if they lack a robust Contracts Register – if they’re even aware of an increase being applied before an invoice arrives.

With volatility in commodity markets come surcharges or commodity price increases. Again we’ve witnessed huge increases in fuel surcharges with reductions sorely lacking when the cost of diesel reduces and the same in the cost of paper-based and packaging goods.

And most disappointing of all is the introduction of new invoice lines, for activities that were previously included in product or service rates - or simply don’t in themselves constitute a service – particularly loathsome

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are “Administration Charges” and the now legendary “GDPR Charge”.

Pricing aside, the cost and availability of labour has led to a diminution in service levels. The Iack of available drivers and warehouse workers has increased lead times, the lack of on-premise labour in administrative services means services can be throttled due to their dependence on inadequate remote working infrastructure.

And none of this is getting better any time soon.

We know and clients know that suppliers are being hit with the type cost pressures entirely absent from muscle memory. Clearly, where valuable supplier relationships are in place clients may have to swallow a dose of realism – but that does not mean clients should be railroaded into price increases and alterations to contracts and service levels.

It has rarely been more important to be on top of your game; a robust Contracts Register is a prerequisite and forms the foundation for balanced negotiations with suppliers.

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The Murky Waters of Sea Freight Costs

By Rikesh Nichani

If there’s one thing that’s become crystal clear in recent times, it’s that predicting what sea freight rates are going to do next remains as challenging as ever. As the graph below indicates. The days of consistent and stable pricing appear to be a thing of the past and now, more than ever, ERA is helping our clients navigate the complex web of factors that impact container pricing to optimise the price they pay.

In a recent conversation, I found myself pondering what life must be like as a carrier – seeing record freight prices and record profits suddenly replaced by loss-making routes and over-capacity. At US$12,000 a container, we had strike action at ports and threats of legal action over excessive charges. At under $1,000 a container, it’s all gone a bit quieter.

changing either. Will they resort to creating demand through reduced or blank sailings? Or perhaps they’ll take the bold step of further ‘aligning’ prices between themselves, after all they are called ‘Alliances’ for a reason. The plot thickens as we ponder what lies ahead in this ever-evolving sea freight landscape.

There can be no doubt that demand has taken a nosedive and even the traditional peak season bounce hasn’t really had any impact. What’s particularly intriguing though is the uncertainty of what lies ahead. Many carriers used their record profits to invest in bigger and better ships, some of which are due to hit the waters in 2024 – but where is the demand?

With that in mind, how can ERA help? By offering transparency, the kind that lets you see through the murkiness of sea freight costs, ERA provides insights into what you’re paying and how it stacks up against the ever-shifting market trends. You see, the cost of shipping a container might drop, but those sneaky port charges might decide to take a hike because, well, nobody really knows what the port charges should be.

So, the million (or rather multi-million) dollar question is, how will they manage this situation? They suddenly have more capacity at their disposal, but the demand just isn’t keeping pace and this doesn’t look like it’s

In essence, ERA shines a light on the shadows, offering visibility and transparency on your expenses and how they compare to the broader market. It’s about having the knowledge and information to make

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informed decisions in a world where the tides of change are constant.

So, as we navigate these uncertain waters, it’s comforting to know that solutions like ERA exist to

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help us stay afloat. While we can’t predict the future of sea freight costs with certainty, we can certainly make more informed choices. And who knows, with a bit of transparency, we might just find smoother sailing ahead.

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Top 5 Technology Concerns for IT Stakeholders in 2024

By Neil Pinner

In this article, we will explore the top five technology concerns that are poised to shape the priorities and strategies of IT stakeholders in 2024. From the relentless onslaught of cybersecurity threats to the transformative power of digital technologies, these challenges will demand careful consideration and strategic planning.

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Budgets and Market Constraints: Continued pressure of inflation alongside slow growth means that while investment in technology is sorely needed, the usual annual increase in IT budget is unlikely to cover the expanding requirement. Even once a budget is defined, lead times for some areas of IT hardware are still extending into months rather than weeks making planning far more difficult than pre-Covid.

2.

Cybersecurity Threats: Cyberattacks and data breaches are likely to remain a top concern for businesses.

As technology evolves, so do the tactics of cybercriminals. Companies will need to invest in robust cybersecurity measures to protect their sensitive data and systems as well as developing insurance strategies for business continuity should a breach occur.

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Digital Transformation: The process of digital transformation can be complex and challenging. Businesses will need to manage the integration of new technologies, including AI where suitable, adapt to changing customer expectations, and ensure their workforce has the necessary skills to keep up. A clear roadmap, identifying areas where manual processes can be digitised most easily will help to build experience and confidence before rolling out to more complex areas of the business.

Cloud Computing: A significant shift that will enable far greater agility and scalability of solutions across industry, but one that requires careful consideration of the knock-on effects to areas such as telecommunications or printing and scanning workflows.

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Sustainability and Green Tech: Increasingly, businesses are being held accountable for their environmental impact.

Concerns about sustainability and the adoption of green technologies will continue to be a prominent issue, with pressure to reduce carbon footprints and adopt eco-friendly practices in order to meet net zero commitments.

The ability to quickly assess market options to find vendors that can deliver savings on consumable areas of IT spend, while working towards the more strategic goals of the business will be the key balancing act for IT stakeholders in 2024.

ERA is perfectly placed to help, with our view of best practices across various client sectors and deep understanding of the supply market – reach out today to find out more about our Value Through Insight proposition.

2023 - Inflation Series

MarketINTEL Insight and market analysis to achieve better value from suppliers

Autumn Issue 2

“

We are very pleased with the work that ERA has done for us. Julian and his team of specialists have found significant savings, provided valuable insights and streamlined our procurement in ways that we didn’t have time to consider. They did so unobtrusively, equipping us with the information necessary to make decisions autonomously. We now see them as a trusted advisor for our cost needs and look forward to entrusting them with further projects in the future.”

MALCOLM GRAY, CHIEF FINANCIAL OFFICER, THE PRIMARY FIRST TRUST

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I recognised the level of expertise that the consultants brought to the table and it became evident that this was not just a benchmarking exercise; ERA has a much broader remit. The logistics specialist spent half a day to ensure he really understood our capabilities and what we could provide for his client. It was this thorough and responsible approach that lead us to appoint ERA to review additional eras of expenditure within our organisation.

DAVID SANDERSON, JOINT OWNER, S&S DISTRIBUTION

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Aside from projected savings, ERA provides added value such as exception reporting as part of their no-savings, no-fee analysis and reporting.”

SPENCER OSBORNE, MANAGING DIRECTOR, BATES OFFICE

To find out more, visit expensereduction.com