Eric Schnur, CEO of specialty chemical maker Lubrizol Corp., owned by Warren Buffett’s Berkshire Hathaway Corp, said he anticipates “many millions in extra costs associated with responding to COVID-19.” Lubrizol’s business boom includes a three-fold increase in its output of the gelling agent used to make hand sanitizer.
Schnur said the extra costs go beyond stepped up cleaning and safety equipment and includes “significant increases in supply chain and logistics costs as we work to get our materials to those who have the greatest need.”
Another company facing added costs is Calumet Electronics Corp., in Calumet, Mich., which said it has spent $80,000 on everything from soap to mobile desks to keep workers safe through the crisis.
For Emerald, orders surged 150% in March and were up another 7% in April. But there’s a dark side to that surge, both in terms of cost and complexity.
All the steps the company has taken — both to boost output and keep workers safe — are expected to add at least $350,000 to costs by the end of the year. This doesn’t include the lost production time, which adds up to at least an hour each day, that machines have to be shut down for cleaning. Kelly, Emerald’s chief executive officer, said he hasn’t figured out what this will do to his profits, but he expects a big hit to his margins. Emerald is a family-owned business with annual sales of about $85 million.
Even the company’s rag bill exploded. They used to buy 2,000 rags a week. Now it’s 7,000. The cost of that one item has jumped from $300 a month to $1,000, while disposable glove use has tripled.
Michael Rincon, Emerald’s director of operations, says each week brings new twists. For instance, they’ve discovered that having workers constantly wiping surfaces with isopropyl alcohol erodes signs and buttons — but they only realized that after it was too late. On one machine in the factory, the word “danger” printed in bright red has blurred.
Kelly said he even thought about trying to put through a price increase to offset some of these expenses. But a few weeks ago, his biggest customer let him know that was a non-starter. The customer told Kelly he was going to see who else might be able to supply him with produce bags, presumably at a better price.
“The toughest thing is that there isn’t much direction from the state or the federal government,” Pallavi Joyappa, Emerald’s chief operating officer, said. “You are kind of making it up as you go along.”
TL;DR: Some businesses’ orders bloom, but their total profit at the end may stagnate or even go down due to supply chain disruptions and needing additional PPE/cleaning to maintain operations. Excessively jacking up prices to compensate may incur pushback from clients or even public outcry.
There are separate articles about the chaos in the food processing industry, such as milk being dumped but milk prices going up due to insufficient retail milk packaging capability, and meatpacking industry’s employees not showing up for work. I have noticed numerous grocery staples’ prices had gone up over the weeks, and that’s a double whammy for the unemployed who might still be waiting for their benefits from the backlogged systems.