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Rising Energy Costs and a Global Parts Shortage: A 2022 Breakdown of the Supply Chain Crisis

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Despite gradually recovering from the impact of the global coronavirus, small and medium-sized enterprises (SMEs) are no closer to feeling comfortable about their business outgoings, with a fear that costs are constantly on the rise.  

A dramatic hike in fuel and energy costs combined with a global semiconductor shortage has left the automotive repairs industry facing delays to get their customers’ vehicles fixed. Now, “excessive delays” are a growing concern, and a survey conducted by the Motor Ombudsman highlighted that this is impacting up to 60% of businesses in their efforts to keep up with demand.

This is because previously, many manufacturers had advocated a JIT (just in time) manufacturing approach, which works exceptionally well when all products are in good supply. But when the supply of even just one component is affected, the consequences are then felt throughout the entire supply chain.  In other words, businesses are left with no choice but to plan for a JIC (just in case) approach instead, in order to mitigate the potential challenges. These are as follows;

Petrol and diesel fuel duty

The cost-of-living crisis, exacerbated by the war in Ukraine, has sent an unforeseen shock through the global oil market, causing wholesale prices to quadruple in the last year.

This extreme pressure on the UK economy has led the Chancellor, Rishi Sunak, to help households and business by announcing an immediate measure as part of the spring statement; that as of 6pm Wednesday 23rd March, there will be a 5 pence per litre (ppl) cut in fuel duty.

However, whilst the Chancellor’s decision has been broadly welcomed by fleets, many have questioned whether he went far enough, highlighting that this only takes prices back to where they were a week ago.

Paul Hollick, chair, Association of Fleet Professionals (AFP), said: “literally every part of the cost equation that goes into operating cars and vans are facing substantial rises, and while the Chancellor has taken some actions that will serve to offer some mitigation, such as the reduction in fuel duty, none of these will really alter the overall direction of travel.”

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), commented further, saying “measures to help address the accelerating cost of living are welcome but business also needs support, especially on energy, investment and skills… time is of the essence as the industry is not yet in recovery, but costs are increasing rapidly, undermining UK competitiveness.”

But, rising fuel costs are not just limited to petrol and diesel.

Energy cost hike

Businesses and households alike have experienced the recent surge in energy prices, skyrocketing gas and electric bills to astonishingly high prices. According to Ofgem, the price cap is to increase by £693 from April 2022, making this a record increase in global gas prices of 54%.

These soaring energy costs are leaving some small businesses ‘terrified’ about the future with the potential for bills to rocket by thousands of pounds this year, as highlighted in This Is Money

Business energy is also different to domestic too, with fixed-price contracts commonly in place for one, two or three years. Business energy tariffs also don’t come with a price cap like standard variable deals do, meaning the prices can be huge and damaging for small-medium sized organisations.  

Global parts shortage

A global shortage of semiconductors became apparent during the first quarter of 2021 with some experts expecting it to last beyond 2022 and into 2023. As a result, this had a knock-on effect on customer experience, where speed is of the essence for short claim lifecycles and quick repairs.

As cars have almost literally become smartphones on wheels, semiconductors have become increasingly critical for a variety of applications, from fuel-pressure sensors to digital speedometers and artificial intelligence-driven tools that assist with parking, finding the next fuel station, or alerting the driver when an oil change is needed.

Without these semiconductor chips, the auto industry’s post-pandemic recovery has stalled, as manufacturers have been unable to complete orders. By some estimates, the impact on global production volumes is expected to be about 7-to-8 million units, and McKinsey report that major carmakers have already announced significant rollbacks in their production due to chip shortages, lowering expected revenue for 2021 by billions of dollars.

How can repairers protect their businesses during uncertain times?

Being able to keep customers updated and making them aware of what they can expect from the get-go, can transform the overall claims experience in turbulent times.

With GT Motive, we offer the very latest references, labour times and spare parts prices in our cloud-based estimating solution. This allows our customers to instantly access the exact right data they need, whether that’s for an insurer demanding accuracy, or repairers seeking thorough updates.

But that’s not all.

We’re constantly updating our data points to ensure our entire supply chain have the most precise data, always. For example, new vehicle models are added bi- weekly to our OEM prices, with data being updated daily in our solution. This helps us to offer an accurate 96-98% car parc coverage, making our system a highly reliable tool for a claims department.

Keen to find out more?

Request your free GT Motive trial today.

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