A few months ago David Navazio, founder and CEO of the medical company Gentell, had never heard of the Strait of Hormuz. But now, a narrow waterway thousands of miles from the company’s headquarters in Yardley, Pennsylvania, is impacting the company’s operations in more ways than one.
Chief among them is price, with Gentell under pressure from many angles. The company relies on output from oil and gas production to make its products, including medical clothing. Some raw material costs have increased by as much as 30%.
And, with a global brand spanning five continents, shipping those products has become more expensive. Navazio said the cost of shipping a container from New Zealand to California is now about $4,500 – up from $2,000 before the war.
For Americans, the most visible sign of the war in Iran is the prices at the pump, where the national average has increased for almost four years over $4.50 a liter. But petrochemicals from oil and gas production are found in more than 6,000 products that consumers use every day – including aspirin, keyboards, perfumes, contact lenses and vitamin pills.
As those raw material costs rise, companies must decide whether to pass this on to consumers and potentially face reduced demand, or keep prices low at the expense of company margins.
Although Gentell’s costs are rising, they are currently unable to cover all of the higher costs in part because their largest customer is the US government through the Medicare program. Gentell supplies products to nearly 5,000 nursing homes across the US, and those contracts are typically set annually. Ultimately, Navazio said, “the government is going to be the most affected by all of this.”
In the meantime, Kevin Quilty, Gentell’s chief executive, said the higher prices were “a bit of a margin” for the company. Although he said the company hopes the raw material price fluctuations are short-term, it will have a “downward effect in terms of what our prices will be.”
The oil price shock from the closure of the Strait of Hormuz is just the latest upheaval the company has had to deal with, after navigating tax uncertainty and supply disruptions from the Covid-19 pandemic.
Quilty said that the pandemic has somewhat prepared the company for the current price shock, as it has greatly emphasized the need to close schedules and the commitment of suppliers. At this time, Quilty said that the epidemic is a bigger challenge for the company than the current environment.
But everything will depend on how long traffic through the Strait of Hormuz remains at a standstill. President Donald Trump said on Sunday that talks to end the war with Iran and reopen the strait were continuing, but he urged his negotiating team not to rush into a deal.
Experts also say that once the waterway is open, it will take months for traffic to return to pre-war levels.
“We hope that … once the war in Iran is over and the crisis … hopefully we will see oil prices come down,” Navazio said.
When asked what happens if the conflict is not temporary, he said bluntly: “Then we will raise the price.”
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