John Whelan: As workers return to offices supply chain risks pile up

Long-distance shipping used to be more than 80% predictable, now there is only a one-third chance of your ship arriving on time

Mon, 20 Sep, 2021 - 12:31

John Whelan

As workers head back to offices, shops and factories today and 'Freedom Day' nears, retailers and manufacturers alike fear their recovery from the effects of the pandemic will be hampered by freight rate rises, shipping delays, and stock shortages.

Costs are rising on goods imported from Asia, Africa, and America, with port congestion and container shortages disrupting the normal flow of goods; nearer to home, Brexit regulations blowing hot and cold, have hit food exporters to the UK.

Last week’s joint briefing for the industry by Irish Revenue customs division and the Department of Agriculture on handling health certificates for each shipment of everything from pork pies, pizzas, beef, and plants, did not make for easy listening, despite the welcome news of the push back to January next, particularly the remarkable advice to open a facility in the UK to overcome the supply chain problems for UK customers.

Global supply chain bottlenecks have made scheduling predictability abysmal.

Long-distance shipping used to be more than 80% predictable, now there is only a one-third chance of your ship arriving on time.

Sea freight transit times tripled

Fashion retailers in particular will feel the impact as they mainly import from China, where sea freight transit times have tripled from 20 days to 60 days over the past year.

Shortages have cropped up also across the wider manufacturing industry; Wavin in Balbriggan have been forced to limit production due to PVC shortages; IKEA reported shortages of range of products; and Brown Foreman, the owner of Cooley Irish whiskey, is reporting glass bottle shortages.

Sea freight rates have skyrocketed on popular routes, with rates rising consecutively for the past 22 weeks, according to Drewry the global shipping consultancy, who report that in August the average shipping rate for a 40-foot container was now 323% higher than the same week last year.

Labour shortages are also part of the problem.

The haulage industry reports extreme difficulty in getting drivers following the return of many eastern Europeans to their home countries because of Covid lockdowns and Brexit transit problems.

KPMG in its most recent Global Manufacturing Output report states "the greatest threat to manufacturers growth over the next three years, apart from the pandemic, is the risk to the supply chain".

The report goes on to state that 60% of chief executives report that they will have to re-think their approach to supply chains in order to become more agile, as well as bringing production closer to home and making their supply chain more robust.

Supply chain pressures

One of the fundamental ways that companies are now examining their supply chain is looking beyond their immediate suppliers, to check the sources these so-called 'first tier' suppliers are using.

Previously, some manufacturers knew very little of the location of their suppliers below this first level.

Adding urgency to the matter, the European Parliament has increased the pressure on manufacturers to get more active in building better supply chains that ensure the absence of child and forced labour as well as environmentally friendly material supplies.

This all adds up to the not-so-rosy picture of further disruption to traditional supply chains, and potentially continued cost inflation for some time to come.

Already we are seeing strong evidence of the impact of supply chain cost increases on the wider economy, with Eurozone data rising more than expected recently and hitting a 10-year high of 3% in August.

But some European central bank chiefs believe that the fears of rampant inflation are misplaced including Gabriel Makhlouf, Ireland’s central bank governor, who stated last week that fears of excessive eurozone inflation are 'overstated' at the moment and that notwithstanding the considerable uncertainty about the persistence of price pressure, the current pick up is transitory.