How one medical supply CEO is navigating the oil price shock
A few months ago, David Navazio, founder and CEO of medical supplies company Gentell, had never heard of the Strait of Hormuz. But now the narrow waterway, thousands of miles from the company’s headquarters in Yardley, Pennsylvania, is impacting the company’s operations in more ways than one.
The most important of these is the price; Gentell is under pressure from many angles. The company relies on derivatives from oil and gas production to produce its products, including medical dressings. Some raw material costs increased by up to 30%.
Transporting these products has become much more expensive due to its global footprint spanning five continents. Navazio said the cost of shipping a container from New Zealand to California is currently about $4,500; this figure was about $2,000 before the war.
For Americans, the most visible sign of the war in Iran is pump prices, which have reached a nearly four-year high above the national average of over $4.50 per gallon. But petrochemicals from oil and gas production are found in more than 6,000 products that consumers use daily, including aspirin, keyboards, perfumes, contact lenses and vitamin capsules.
As raw material costs rise, companies must decide whether to pass this increase on to consumers and face potentially reduced demand, or to keep prices lower at the expense of company margins.
While Gentell’s costs are rising, they can’t afford the high expenses for now because their biggest customer is the U.S. government through the Medicare program. Gentell supplies approximately 5,000 nursing homes across the United States, and these contracts are typically determined on an annual basis. Ultimately, “the government is going to be really affected by all of this,” Navazio said.
Kevin Quilty, now Gentell’s chief operating officer, said the higher prices are creating “some margin crunch” for the company. He said the company hopes the volatility in raw material prices will be short-term, but there will be “some downward impact on what our pricing is going to be.”
The oil price shock resulting from the closure of the Strait of Hormuz is just one of the latest headwinds the company has had to deal with due to tariff uncertainties and supply chain disruptions due to the Covid-19 pandemic.
Quilty said the pandemic in some ways prepared the company for the current price shock, as it critically highlighted the need for suppliers to stick to their schedules and commitments. At this point, Quilty said the pandemic is a bigger challenge for the company than the current environment.
But everything will depend on how long traffic in the Strait of Hormuz will be largely halted. President Donald Trump said Sunday that talks were ongoing with Iran to end the war and reopen the strait, but he urged his negotiating team not to rush to reach a deal.
Experts also said it would take months for traffic to return to pre-war levels once the waterway is opened.
“We hope that when the war in Iran is over and the strait is opened, oil prices will fall,” Navazio said.
When asked what would happen if the conflict was not temporary, he said firmly: “Then we will increase the price.”
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