Price Increase Expectations in the Security Industry
It seems that currently in our industry manufacturers and vendors are considering to increase their pricing or have recently already announced to do so. Now that the COVID-19 pandemic hopefully is reaching it’s end and now that many international economies and societies are slowly released from their lockdown status, we are about to witness the changes and, potentially, the damage that are a result of the policies and measures to manage the Corona virus outbreak, as initiated and deployed by the WHO and local governments.
The COVID pandemic and the related safety meausures are not the immediate reason for the price increases that were announced so far. Many events in the last year, and probably the years before that, have resulted in the current market conditions.
The current global shortage on electronic components is significant. The Semiconductor Industry Association (SIA) recently announced worldwide sales of semiconductors totaled $123.1 billion during the first quarter of 2021, an increase of 3.6% over the previous quarter and 17.8% more than the first quarter of 2020. Global sales for the month of March 2021 were $41.0 billion, an increase of 3.7% compared to the previous month.
“Global semiconductor sales remained strong during the first quarter of 2021, topping sales from the previous quarter and substantially outpacing the total from the first quarter of last year,” said John Neuffer, SIA president and CEO. “Year-to-year and month-to-month sales in March increased across all major regional markets, and demand grew across a range of product categories.”
Regionally, year-to-year sales increased across all markets: China (25.6%), Asia Pacific/All Other (19.6%), Japan (13.0%), the Americas (9.2%), and Europe (8.7%). Month-to-month sales increased in Europe (5.8% percent), China (5.3%), Asia Pacific/All Other (3.4%), Japan (3.1%), and the Americas (0.6%). (Source: SIA)
The increase in sales might the result from a significant increase in sales of electronic consumer products during the periods of lockdowns. And although the global automotive industry experienced a drop in sales as a result of the outbreak of COVID-19, when stay-at-home orders were released, light vehicle sales bounced back to reach some 14.5 million units in the US. (Source: Statista). These market dynamics have resulted in significant shortage of production capacity of electronics components on the short term, which has lead to significant price increases and hick-ups in the supply chain of electronic security products.
Price of raw materials and building materials
Not just the prices of electronic components are rising because of the rules of supply and demand. The trend is also applicable to raw materials and building materials. Britain’s biggest builder’s merchant has warned customers of “considerable” cost increases to a wide range of raw materials in a move that will fuel fears of an inflationary price spiral as the economy pulls out of its Covid-19-induced recession (source: The Times).
The global steel price index is showing a significant increase since about a year, which has resulted in a steep increase of the producer price index for metals and metal products since October 2020. These price changes will surely have an impact on the price of physical security products, like vehicle entrances, access lanes and turnstiles.
There has been a lot of debate over the past years over the sustainability of our current financial systems. In addition, the repeated stimulus into the global economies is expected to lead to a rise in inflationary pressures. Some believe that “anyone holding cash right now is exposed to an astronomical amount of risk, as the entirety of their value resides in trust that the Federal Reserve will maintain belief in their system” (source: Bitcoin Magazine). Analysts have recently often warned for inflation.
When investors worry about inflation they often turn to commodities. This trend is well reflected in the price of gold for example. Gold prices have climbed since March this year, which may be an indication that inflation is actually expected. This will most likely also strengthen the upward trend of the producer price index for security guards and patrol services.
It seems that price increases in the security industry are inevitable and should be expected for electronic security products, physical security products and basically for security related products and services across the board.