Margins disappear for small businesses amid supply chain challenges

Before the COVID-19 pandemic, Helmi Ansari could get espresso makers and stainless steel water bottles manufactured within three months and delivered to Canada by boat for about US$4,500 per shipping container.

Between labour shortages, rising stainless steel costs and overwhelmed ports, those days are long gone. Ansari’s products now take almost a year to make, and he pays about US$28,500 to get 10,000 of them to Canada — assuming he can get them shipped at all.

He’s often outbid for boat spots and has to stop shipping companies from sending his goods back to the factory by offering more cash.

“All our margins are gone. We’re selling product, but we’re not making any money,” said Ansari, who owns Grosche International in Cambridge, Ont.

“It’s insane. There’s absolutely no way that a small business like ours can really continue to cope with this.”

The pressures Ansari faces as he fights to keep his company alive are being mirrored by small businesses across the country.

They’re feeling the crunch of a tight labour market and supply chain challenges — semiconductor shortages, skyrocketing shipping costs, backed up ports and flooded regions of B.C. — but don’t have enough clout or cash to spend their way out of trouble.

The timing couldn’t be worse. With the winter holiday nearly in full swing, late shipments and bare shelves could be disastrous for the busiest sales season of the year.

The outcome could be even more grim for companies that were counting on this period to help them rebound from COVID-19 closures and even stave off bankruptcy.

“It’s a matter of survival,” Ansari said of the supply chain challenges, which pushed his 15-year-old company to take out its first bank loan.

Ansari has resisted raising prices, but knows many other companies have taken that route because demand for shipping is at a record high and packages are piling up at many ports, allowing shippers to raise their prices. In some cases, the cost has more than tripled.

The Drewry World Container Index, for example, showed the rate to move a 40-foot container from Rotterdam to New York reached US$6,214 at the start of December and has surged by 208 per cent since last year. The Shanghai-Rotterdam route was even more expensive at US$13,500, up 283 per cent from last year.

Prices are also climbing because Statistics Canada said the annual pace of inflation hit 4.7 per cent last month, the largest year-over-year gain in the consumer price index since February 2003.

Food prices saw a four per cent bump last month alone.

“Meat has gone up by like $2 a pound and my co-packer said it used to go up by 25 cents,” said Lola Adeyemi, the founder of It’s Souper, a Toronto company making Afro-fusion soups.

She had to increase her pricing to cope with the inflation and a labour shortage at a company Adeyemi hired to manufacture her new sauce line that kicked in just as the products were scheduled for packaging.

While companies often opted for foreign production before the pandemic because of lower costs, Yeaman said shipping prices and other expenses have surged so dramatically, businesses are no longer saving as much through overseas manufacturing.

Myriam Maguire, the Montreal designer behind Maguire Boutique, understands those risks well.

She had to create wait-lists for goods sold through her fashion business after European factories closed during COVID-19 outbreaks. The factories reopened, but now problems loom in Asia.

Her $300 combat boots handmade in Florence have been delayed four times because Maguire’s outsole supplier struggled to get an ingredient from China.

“Even when they are produced in Italy, the main chemical comes from China, but right now China’s keeping as much as possible for themselves, so they’re having a really hard time,” Maguire said.

She’s coping by shipping products by air and using pre-sales and waiting lists to train customers to expect delays.