Challenge Accepted!

In view of the high and continually fluctuating material prices, how would you sum up 2022?

Stoll: “Challenging and stormy” would be a good description of 2022. We were faced with an unprecedented market situation last year that was reflected in raw material prices. That has persisted to this day. One particular challenge in the industry was delivery scheduling by manufacturers, which varied enormously in line with demand and thus caused uncertainty along the entire supply chain.

What other factors were there?

Stoll: And then there were the material shortages, some of which were still a hangover from Covid times, which were exacerbated further by the Ukraine crisis. Keeping supplies flowing was one of the biggest challenges that we overcame successfully. Like everyone else, however, the record price hikes for key categories of materials, such as aluminum, nickel, and plastics, had an impact on our costs. The market price of aluminum and steel, for instance, hit an all-time high midway through the year. Meanwhile, the availability of plastics and elastomers became increasingly critical as the year went on, with bottlenecks persisting right up until the fourth quarter and prices rising continuously. And then you have the high energy prices, which are having an additional impact on the various categories of materials.

Mr. Jessulat, what problem does reverse factoring solve, and how does such an arrangement work?

Jessulat: ElringKlinger launched a reverse factoring scheme last year. It allows participating suppliers to assign their receivables from ElringKlinger Group companies to the financing bank if they accept a discount. This enables them to get their invoices paid early, albeit with that discount applied. When the invoice falls due, ElringKlinger then settles it with the bank providing the finance rather than with the supplier.

Liquidity is an important asset for companies to have. So do both sides get something out of an arrangement like this?

Jessulat: Yes, an arrangement like this is geared toward improving the liquidity situation at both the companies involved, i.e., ElringKlinger as well as its suppliers. This is important, particularly in uncertain times like these. Every company wants full coffers and healthy financing for its business.

What are the specific benefits for ElringKlinger and its suppliers?

Jessulat: The reverse factoring scheme is mainly about generating added value for the Group and its suppliers. Suppliers can sometimes get more favorable terms than with their own alternative financing arrangements. Getting bills settled early can be financed based on the creditworthiness of ElringKlinger. It also gives suppliers more flexibility.

You don’t need to study the graphs of energy and transportation prices particularly hard to see that the past 24 months have been tricky. What’s been behind that?

Weckenmann: Yes, the two markets have been hit by multiple shortages and crises piling in at the same time. Unlike in the two previous years, which were dominated by semiconductor and container shortages among other things, 2022 was a year of price rises – some of them extreme – that also affected transportation and energy. Exacerbated here and there by the war in Ukraine, the price of natural gas, for example, was quadruple that of its pre-pandemic level at times. All of us are feeling the effect of the energy crisis in our everyday lives. For a corporate group like ElringKlinger, the new situation meant once again that the less energy we use, the less energy we will need to buy. We in the Group benefit from the fact that we generate much of the energy we need ourselves at some of our sites – and from renewable sources at that.

How did you respond to the situation?

Weckenmann: The main factor in terms of purchasing was a forward-looking, long-term procurement strategy that had enabled us to cover most of our energy needs before the crisis even emerged. This meant that a significant portion was acquired on terms that were much better than the market, despite the crisis. Nevertheless, as a manufacturing company we still faced significantly higher energy costs overall last year.

How did the situation develop with your transportation supply chains?

Weckenmann: The situation with freight costs was slightly different. Happily, freight prices fell as the year went on, ultimately dropping to a level last seen prior to the Ever Given accident in the Suez Canal in March 2021. Shipping containers are even back below the prices they were at before the coronavirus pandemic. Nevertheless, we mustn’t forget the many bottlenecks that supply chains are still grappling with. Semiconductors, for instance, have remained in short supply, while the war in Ukraine has exacerbated bottlenecks affecting products manufactured there or in Russia.