The pandemic had wide reaching effects all over the globe and even in our post-pandemic world, there are many things that have not returned to “normal,” or the way they were before the pandemic. As a society, we have largely come to accept that many things are not going back to the way they were and the changes that occurred are now our “new normal.”
The global economy was drastically affected by the pandemic as supply chains were disrupted, which affected the cost of products and of doing business in general. Many of the economic conditions caused by the pandemic have remained to this day and become part of our new normal.
In this episode of Brothers, Battles and Bounty, the Gfesser brothers discuss the new normal when it comes to the cost of money, energy, labor, and transportation. Dan Sullivan, one of the founders of Strategic Coach and author of dozens of books that help businesses and entrepreneurs, discusses the concept of MELT (money, energy, labor, and transportation) costs in his book The Great Meltdown. The Gfesser brothers discuss the concept of MELT costs, how the pandemic changed these costs, and how Trendler adjusted to this new normal.
You can watch the full episode here:
MELT Costs
Andreas starts by explaining the concept of MELT costs as the costs of the four key areas of commerce in the world that include money, energy, labor, and transportation. The goal for businesses is to focus on these key elements and leverage each element for their benefit, though sometimes these elements are beyond control. As Andreas points out, the pandemic drastically affected transportation, which had an affect on the costs of the other elements as well.
Stefan explains that in his book, Dan Sullivan points out that MELT costs have doubled since the pandemic. Before the pandemic, there was a 20-30 year period in which MELT costs were relatively low globally which benefited businesses and economies around the world. The pandemic caused MELT costs to double worldwide which is affecting individuals and businesses as well as entire countries.
The Gfesser brothers all agree that they have experienced the effects of the increased MELT costs and seen businesses fail to navigate this new normal. Martin attributes the difficulty of businesses navigating the rise in MELT costs to believing that these increases will only be temporary and not making the right adjustments, such as changing pricing or looking for ways to make their processes more efficient. Andreas takes this a step further and points out that businesses who are more proactive to the change are navigating this situation much better than businesses that are more reactive while hoping MELT costs will return to pre-pandemic levels.
How MELT Costs Have Affected Trendler
Materials
One of the areas that is particularly difficult for business is the increased cost of materials. Trendler is especially affected by the cost of steel as we use tubing and flat roll steel in so many of our products. Martin points out that for years, the price of steel per pound averaged out around at around 18 cents but peaked at $1.10 per pound. While the price did come down from the peak, the new normal for the price of steel is now between 40 to 60 cents per pound compared to 18 to 25 cents before the pandemic. Martin acknowledges that it is highly unlikely that steel will ever go back down to 18 cents per pound.
Transportation
Anton then discusses another element of MELT that became scarcer and more expensive, transportation. Transportation options became less available, causing shipping and transportation costs to increase at the same levels as materials like steel. Ground transportation companies increased their pricing and the cost of shipping in containers from overseas also drastically increased. The cost of one shipping container went from $4000 to $24,000, which is a 600% increase. In addition to the increase in cost, all modes of transportation were backed up, which made the shipping process take much longer.
Martin explains that while the congestion has gotten much better, the prices have shifted from what they were before the pandemic. The previous cost range for shipping containers was between $3000 and $4000 while the new normal is between $7000 and $8000.
Labor
Andreas explains that the labor was affected a little differently as labor became less available and labor costs went up. Martin brings up the increase of the minimum wage in Chicago as an example of rising labor costs and how a shortage of labor resulted in Trendler offering higher pay to get new workers.
Energy
The biggest impact felt by Trendler when it comes to increasing energy costs is higher utility bills, including gas, electricity, and water.
How Trendler Has Responded to Increased MELT Costs
As Anton points out, what makes these cost increases unique is that they did not happen in increments. Instead, there have been significant increases in all areas which have shifted costs from what they were pre-pandemic to what is now the new normal. It is important for businesses to understand that these costs are here to stay, and they can no longer operate like they did under the old dynamic.
The inflation in the wake of the pandemic has reached near historic levels, which has created many challenges for businesses who now face significant increases in costs across the board. While it is easy for businesses to respond by increasing prices, there is more that businesses should be doing to help offset the rise in MELT costs.
At Trendler, increasing the prices dollar-for-dollar to match the increase in our costs would make our prices too high. Instead, we reviewed our processes to see where we can streamline, automate, and find better sources of transportation. There have been major changes in our plant in the last couple of years so we can do things more efficiently and cut down costs while providing the same quality for our products. It was not an option to keep our operations the same after MELT costs increased.
Every year, the Gfesser brothers take three days to strategically plan for the upcoming year in which they address the MELT elements. They identify problems and challenges Trendler faces as well as how and when to confront these challenges and find a solution. The goal is to help ensure that our business stays as efficient as possible to continue to make a profit.
Why the U.S. Can Recover
Martin makes a point about how the hyperinflation of MELT costs has affected American workers. Importing parts and products and automating certain processes harms American workers because this takes away jobs. However, Andreas explains that the U.S. may be in the best position within the global economy to prosper after the increase in MELT costs. Among the reasons he gives include having a government that focuses on their citizens, the availability of resources and labor, and the size and infrastructure that many other countries do not have.
Stefan adds that the U.S. economy is an entrepreneurial system that allows for innovation. Unlike in many other countries, the Constitution protects American citizens from the government, allowing individuals and businesses to prosper. Other nations that are impacted by increasing MELT costs do not have entrepreneurial governments, which makes it difficult to deal with these issues. The U.S. economy can be fueled in certain ways to help foster growth across different sectors.
Andreas also mentions the high-tech sector as a major advantage for the U.S. with so many industries built around important technologies like automation. These industries will continue to innovate which can make the American economy even more productive. Stefan then explains that while Trendler faces many challenges as a manufacturer based in the U.S., we have unprecedented opportunities to grow and prosper that are not available in many other parts of the world.
If you want to see more of the Brothers, Battles & Bounty podcast with the Gfesser brothers, visit Trendler’s YouTube channel. You can watch the complete episode about the new normal here: