There are several phenomena impacting the general medical supply market – primary factors include consumer supply and demand, manufacturing, transportation and warehousing expense.
Manufacturing costs are largely comprised of raw material, labor and energy – all of which are up as much as 30% over the past 36 months (input costs). Consequently, you would expect product prices from OEMs (OEM prices) to be on the rise to cover these higher input costs, but this is not the case in certain categories where demand is temporarily suppressed. This suppression is caused by large amounts of inventory being held by supplier, distributor, and end consumer (health system) warehouses, that have drastically decreased demand, driving OEM prices much lower amidst higher input costs. There have also been increases in manufacturing capacity because of the previous extreme pandemic demand. You would expect this supply-demand in balance to put downward pressure on pricing health systems are receiving (end user pricing), however, we continue to see a disconnect between OEM pricing and end user pricing. End user prices remain inflated as a hangover from the many price increases since the start of the pandemic.
Transportation expense, following suit with decreased demand, has also drastically decreased in the past 90 days.
Ocean Freight rates reached their peak at 10X pre-pandemic levels in May 2021, with more recent costs of 4X pre-pandemic prices, a 60% decrease.
Domestic transportation has also come down due to lessening demand, in light of increased shortage of available drivers and fuel expense.
What does this mean for me/my organization?
There is a unique opportunity to take advantage of current market dynamics for certain categories. We expect there to be continued volatility over the next 12 months. There will likely be buying opportunities where OEM pricing is down which presents the opportunity to buy at prices below the end user market price.