Supply chain costs are rising, and businesses are struggling to mitigate the surge in costs, faced with inflation, rising energy costs, and pandemic-induced consumer demand, business owners bear many new financial challenges. In addition, according to a Federal Reserve survey of CFOs, nearly 90% of companies said they face extraordinary cost increases because of supply constraints, with more than 60% expecting the trend to persist at least into the 4th quarter of next year.

Should You Use a Marketplace to Build Your Onsite Energy System?

Rising supply chain costs are seen across industries from food and beverage production to mining, transportation companies and distribution centers.  And companies are left with few options to mitigate these costs.  80% of companies are passing on rising costs to consumers as they adjust to rising supply chain costs and a surge of inflation to a 30-year high.

How are companies absorbing these higher prices in the supply chain?

  • Reducing profit margins
  • Substituting or eliminating products
  • Adding contingency clauses to contracts
  • Turning down work

However, many business owners that are taking control of their energy supply are seeing the benefits increase daily. Let’s look into where costs are rising in the supply chain and how transitioning to onsite energy can provide lasting relief for your bottom line.

Supply Chain Costs Are Rising & Increases in Electricity Prices Continue

Energy prices around the country are on the rise. Retail electricity prices in 2021 rose at their fastest rate since 2008, according to the U.S. Energy Information Association (EIA). The average nominal price increased 4.3% from 2020 to $0.1372/kWh in 2021, and is expected to reach $0.1426/kWh in this year. These increase are an average across the country, some areas of California have seen increases of 15-20% or more.

Rise in Transportation and Shipping Costs

At the start of the COVID-19 pandemic, transporting goods by road, rail or cargo ship began to increase. The first lockdowns drove consumer demand while disrupting global supply chains.

Businesses also have to account for high gasoline prices. They might not spend directly on gasoline, but their suppliers and transportation companies do. Therefore, any aspect of transporting goods by road, rail, or cargo ship is now more expensive.

Rising Supply Chain Costs

Shipping rates by road and rail are up 23% since 2020.  The cost increases are far greater by sea, the average cost to ship a 40-foot container or 40 foot equivalent unit (FEU) from China to the West Coast is now between $16,000-20,000, up from $5,500 just a year ago.  And in 2019 it was closer to $2,500 per 40 FEU.

Rising Supply Chain Costs at Breweries

Within the food and beverage industry, breweries are especially impacted. Every aspect of the production of beer has grown more expensive. Beer prices peaked in April 2020 due to the pandemic, and reached another high this year in response to the crisis in Ukraine.

Rising Supply Chain Cost hit Breweries Hard

Russia and Ukraine account for 30% of global exports of grain, and a shortage due to the conflict affects the entire global supply for brewers.

In addition to the cost of grains and malt, an analysis by Rabobank, a Dutch financial services company, “estimates that over the past year, the total cost of producing beer in the US rose by 15%, largely due to rising energy costs and packaging materials, the latter which account for about 25% of the price of beer.”

Leading San Diego Brewery Karl Strauss recently shared how the cost of aluminum cans is increasing from 5 cents a can to 35 cents a can, and suppliers are increasing the size of minimum orders.

Breweries can absorb the cost, pass it along to their consumers, or begin to make changes like we’re seeing with Anderson Valley Brewing Company (AVBC). 

MItigating Supply Chain Costs

Most companies can’t go into the aluminum or steel production business, buy large farms to produce their own grains, or build their own electronic components.  They are at the mercy of their suppliers.  

And when supply chain prices increase, they either absorb those costs which eat into their margins, or pass the cost along to their customers.  Neither option is ideal when trying to grow a business in an increasingly competitive market.

With already shrinking profit margins, small businesses are significantly affected by rising costs throughout the supply chain.  Therefore, even a small amount of cost mitigation in any area can go a long way.

How Onsite Energy Systems Can Reduce Costs

In many states, and especially here in California, building an onsite energy system can dramatically reduce or at the very least stabilize rising energy costs.  So even with supply chain costs rising, VECKTA has helped clients like Anderson Valley Brewing Company not only make strides towards minimizing costs, but together we have:

  • Established resiliency and reliability during power outages
  • Reduced 80+ percent of their energy-related carbon emissions
  • Moved closer to AVBC’s commitment of sourcing all of their energy needs from renewable sources

The economics of an onsite system become even more attractive when you consider electricity costs conservatively increase on average 3% per year. This means these are anticipated to nearly double over the next 20 years, which is the expected useful life of most onsite energy technologies.

Financing an Onsite Energy System

Supply Chain Costs Are Rising

The best part is, that there are financiers eager to finance these high CAPEX, low OPEX systems, so businesses can get the benefits without having to come up with the upfront capital.

Microgrid customers can further avoid paying anything upfront with the Energy-as-a-Service (EaaS) model, where third-party Energy Service Providers (ESPs) bundle asset installation, financing, and electricity. VECKTA can help you determine whether there is an economic case for onsite energy for your business and facilities.

Self-Reliance in Your Energy Supply

Onsite energy systems like microgrids allow companies to be self-reliant during times when our aging power grid experiences outages from natural disasters like flooding, mudslides, wind storms, and earthquakes.

In addition, you have more control over your power supply and can consume from the grid when prices are their lowest.  And even when suppliers drastically shift their prices, your business can trust their own energy system to operate as usual and at consistent costs. 

With control over your energy supply, there is more wiggle room for your business to pivot in the face of uncontrollable factors.

Resilient and reliable energy is critical for all commercial and industrial businesses. Supply chain costs are rising, so whether you operate within the food and beverage industry, mining, pharmaceutical, or grocery, by installing an onsite energy system, you can hedge rising energy costs, and be better positioned to handle rising supply chain costs, move closer to your sustainability goals, and continue doing what you do best. 

Taking action on carbon neutral commitments also makes companies more attractive to consumers, building a more loyal and engaged customer base. 

What was once considered an extra perk is now vital to your successful day-to-day operations.  That’s why VECKTA’s marketplace and uniquely-designed platform makes it easy to connect to various suppliers, financing options, and receive tailored assistance throughout the process. 

Contact us to learn more about how you can avoid rising supply chain costs and energy hikes with a microgrid or other distributed energy systems.  

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