Empty shelves for Christmas, rising prices and long delays – the global supply chains crisis is going to get “worse before it gets better”.
Empty shelves, rising prices and long delays.
Global supply chains are in chaos, and consumers around the world are being warned to expect fewer presents under the Christmas tree this year.
Already severely affected by the pandemic, the vast, interconnected and delicately tuned network of factories, ports, container ships, trucks and rail lines has been unable to keep up with a rapid rebound in demand.
It has been described as a perfect storm of events – lockdowns, labour shortages, extreme weather – that is affecting supply lines of everything from food and drinks to clothing, books, electronics and toys.
“It used to work moderately smoothly – this is the most difficult time I’ve seen in 20 years working here,” said Barbara Stokes, a director at Melbourne-based logistics firm Stokes and Bell. “The world is chaotic.”
In the US, container ships sit off the coast for weeks unable to unload their cargo.
Shoppers have flooded social media with pictures of empty shelves at retailers like Walmart, while fast-food restaurants have pulled menu items due to lack of ingredients.
Meanwhile, CNN has grimly warned Americans not to expect things to go back to the way there were “in the Before Times”.
In the UK, families have been told they may have to do without turkeys for Christmas dinner, while retail bosses say they plan to bring promotions forward by a month to avoid December shelf shortages.
On Monday, ratings agency Moody’s Analytics warned the global supply chain disruptions would “get worse before they get better”.
“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply chain disruptions that are now showing up at every corner,” Moody’s wrote in the report.
“Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise and GDP growth worldwide will not be as robust as a result.”
Moody’s said the “weakest link” may be the shortage of truck drivers – an issue that has particularly affected the UK, causing massive fuel shortages as petrol stations run dry.
Now there is serious concern among global finance officials – who gathered in Washington on Wednesday – that the supply chain bottlenecks, which are already driving prices higher, threaten to derail the post-Covid economic recovery.
The World Bank estimates 8.5 per cent of global container shipping is stalled in or around ports, twice as much as in January.
The bottlenecks are driving sharp increases in shipping fees and the final cost of goods, and World Bank President David Malpass warned that some of the price spikes “will not be transitory”.
International Monetary Fund (IMF) chief Kristalina Georgieva said the lag in vaccination rates to contain the pandemic in developing nations was contributing to the supply constraints, and “as long as it widens this risk of interruptions in global supply chains is going to be higher”.
In the US, Republicans have used the shortages to attack President Joe Biden.
“Covid is raging out of control, our supply chains are crashing with little product in our stores, we were humiliated in Afghanistan, our border is a complete disaster, gas prices and inflation are zooming upward – how’s Biden doing?” former president Donald Trump said in a statement on Wednesday.
South Dakota’s Republican Governor Kristi Noem also pointed the finger at the President. “We are seeing supply issues in SD too,” she wrote on Twitter. “Joe Biden’s America – empty promises and empty shelves.”
The Biden administration has launched into crisis mode, announcing a suite of measures on Wednesday as part of a “90-day sprint” to address the bottlenecks and stave off a looming Christmas disaster.
Those include longer port hours, efforts to boost the number of truck drivers, and commitments from private companies including Walmart, FedEx, UPS and Target to increase off-peak transport.
“Today’s announcement has the potential to be a game-changer,” Mr Biden said of the additional port hours, but warned “all of these goods won’t move by themselves”.
“For the positive impact to be felt all across the country and by all of you at home, we need major retailers who ordered the goods and the freight movers who take the goods from the ships to factories and stores to step up as well,” he said.
Speaking to CNN, Moody’s chief economist Mark Zandi said the moves were a “step in the right direction”.
“There are a lot of parties involved all over the planet. It’s a logistical nightmare by definition,” Mr Zandi said.
“It’s a complicated problem. [The] pandemic is still on, and as long as the pandemic is still plaguing the rest of the globe, this isn’t going to be easy – it’s going to take some time.”
Mr Zandi said the Delta variant had been a major factor in the supply chain disruptions – citing an example of Malaysian semiconductor plants shutting down due to workers being sick, resulting in shortages of vehicle manufacturing.
“It really creamed the rest of the world, particularly Asia and more specifically, southeast Asia, and that’s where a lot of these supply chains begin,” he said.
“The pandemic itself has just really made things a jumbled mess.”
More people stuck at home buying “all kinds of stuff” meant more pressure on the system, he added.
“You got all this stuff coming through the pipe, and the pipe is being disrupted by the pandemic, and that results in this jumbled mess,” he said.
“And then it’s an intricate set of relationships, you know, from the factory to the truck to the port to the container ship to the port to the truck to the warehouse.”
What does it mean for Australia?
Tony Srnec, operations director at Sydney-based freight forwarding firm Summit Global Logistics, said Covid-19 had been the “biggest catalyst” for the problems.
“From that point a whole heap of different branches have extended out,” he said.
Those range from industrial action to Covid-affected seamen or even entire ports.
“We’re seeing ports in Australia being affected, wharfies in Victoria doing a shutdown, whether it’s a shift or a day for cleaning, which delays vessels,” he said.
“If a vessel comes in and it’s got an affected seaman on board, that also causes delays.”
According to Ms Stokes of Stokes and Bell, China was also throwing a wrench in the works by refusing to accept trans-shipments – containers dropped off by one ship and picked up by another for the last leg of the voyage – coming from the US or South America.
“Those vessels have to trans-ship in Auckland, and Auckland is not prepared [for the influx],” she said.
“So you could have a vessel sitting off Auckland for six days before they get in.”
As a result of wharf stoppages along Australia’s eastern seaboard last year, shipping lines introduced port congestion surcharges which Mr Srnec said “increased costs to the consumer dramatically”.
Freight costs have increased so much that some importers have stopped shipping to Australia.
One of Summit’s Melbourne-based customers imports soybeans, but the increased costs of bringing the product in from Canada meant it “just wasn’t viable anymore”.
Bottlenecks are also happening at the consumer side of the chain.
According to Mr Srnec, major retailers are not taking stock into their own warehouses due to lack of sales.
“[It] is putting pressure on our own warehousing system because we’re storing stock longer than expected,” he said.
“That’s causing additional costs to our clients as well, because we’re charging them for storage.”
Ms Stokes said people should expect to “pay a little more for their Christmas goods”, if they can get them at all.
Children’s books, cheap toys and clothes might be in short supply.
“The people who own the company you buy the children’s colouring books from might be in America but they’re printed in China – they’re going to be difficult to get because they’re just not being printed,” she said.
Ms Stokes said while importers were trying to find alternate sources, ethical sourcing laws for products like clothing require factories to be inspected to ensure workers aren’t being exploited.
Covid-19 travel restrictions have made that process even more difficult.
But Mr Srnec says while Christmas stockings may be a little lighter than usual this year, we shouldn’t panic.
“I think it will all fall back into place in the New Year,” he said.
“At the end of the day, it depends on what you see as important. I’m sure we’ll have food on the table, we’ll still be able to live. We’re not going to die but we might not be able to buy a plastic toy from China or a kitchen aid or something like that.”
As a large food producer, Australia is in a much better situation than some other countries.
“We’re not a net importer of food, we’re an importer of finished goods, but food-wise we’re fairly self-sustainable,” he said.
“We should be happy we’re in such a good state of affairs compared to other countries. If we’re missing out on a few consumer products I’d rather be in this situation.”
– with AFP