WITH SHIPPING COSTS skyrocketing and world trade gripped by a major supply chain crunch, Irish shoppers are being advised to start planning their Christmas purchases as soon as they can.
Some of the biggest toy and home furnishing companies operating in Ireland have already said that they are experiencing major delays ahead of the busy season.
Shoppers are advised to buy early this year, a spokesperson for Smyths Toys told The Journal this week.
While this is always a good idea, it’s “particularly important” this year, they added, “as global shipping and container shortages are causing supply issues in many parts of our lives”.
Earlier this week, Ikea Ireland as well as bike and car part retailer Halfords warned customers about the impact of the crisis on their operations and prices.
Up to 10% of Ikea’s product lines are currently unavailable in Ireland, the Swedish furniture giant said in a statement. Meanwhile, UK-anchored Halfords said it expects the crunch to continue well into the future.
These are “choppy waters” for business and consumers alike, says Alan Holland, who is better placed than most to make sense of the ongoing supply chain crunch.
As chief executive of Bishopstown, Co Cork-based software company Keelvar, Holland’s bread and butter is connecting large multinational clients like BMW, Nestle and Samsung with international suppliers.
Although much of the heavy lifting is done by Keelvar’s advanced AI-based sourcing tools, it’s work, Holland tells The Journal, that hasn’t been made easy in 2021 with the world economy in the grip of what Ikea described earlier this year as “a global transport crisis”.
The current difficulties are “so acute”, he says, that we can probably expect shortages of some goods and higher prices for at least another 12 months.
His advice is for shoppers to get moving and for businesses to batten down the hatches — the winds don’t look like shifting any time soon.
But what’s behind the disruption?
‘Demand shock’
To some extent, the term ‘supply’ crisis is a bit of a misnomer.
As Holland explains, “most of the disruption is from the demand side” after consumption came to a sudden, shuddering halt at the outset of the Covid-19 pandemic last year.
“When the pandemic first hit, demand collapsed” with consumers largely stuck at home, shops closed and avenues for spending closed off, he says.
Irish and European companies that bought goods in February suddenly found in March and April 2020 that they didn’t have customers to whom they could sell.
“So when demand collapsed, you had ships crossing the oceans [from Asia] that were half-empty — their containers were sitting in warehouses in America and Europe holding goods.”
As a result of the shock, ships weren’t repatriating containers to their origins.
That meant that shipping companies “didn’t have the containers they needed” to actually move goods and commodities once global demand began trickling back in the months after the initial outbreaks.
“We saw e-commerce booming, six weeks after Covid first hit,” Holland says.
Suddenly everyone’s saying, ‘Okay, I’m not going to restaurants. I’m not going on foreign holidays. I’ve got more money to spend, so I’m going to buy shoes, laptops, household goods, office equipment.’ And now, there was that problem.
Pandemic disruption to ports, particularly in China, over the past year or so has prolonged the difficulties — as did the blockage of the Suez Canal for six days in March 2021.
Production-related disruption has also been a factor. A freak Texas ice storm that knocked out semiconductor plants in February sent the already-constrained global supply of microchips into a spiral.
That’s had a knock-on effect on a vast multitude of industries from tech to car manufacturing.
“It was just one major issue after another,” Holland says.
Now these issues are being compounded, he explains, by the “behavioural changes” that they have set in motion.
Because businesses and consumers are anticipating prolonged delays, shortages and general disruption, they’re ordering more and more goods, in turn, putting more and more pressure on creaking supply chains.
It’s also helped to send the price of shipping to the moon, heaping costs upon firms.
One of the world’s biggest port operators told The Financial Times earlier this week that a “vicious circle” of soaring consumer demand will have to ease before supply chains can be shored up.
“With the disruptions that are happening, transport companies are constantly changing the routes they’re offering and the trade lanes they serve,” Holland says.
Consequently, companies are having to put a lot more effort into negotiating with suppliers.
Such is the level of disruption that where large-scale multinationals like Nestle might have been running bids for transport contracts every couple of years in pre-pandemic times, they’re now running “weekly or monthly bids” to minimise costs, he says.
“So, our customers have to go back out to market more frequently than they ever did before.”
Buying insurance
While a once-in-several-generations sized shock of the Covid-19 pandemic certainly deserves the lion’s share of the blame for the crisis, the way supply chains have developed over the past few decades left them particularly vulnerable, Holland says.
In “the quest for higher profit margins,” Holland says, many companies adopted to “just-in-time manufacturing philosophy”, pioneered by Toyota in the 1970s.
“The idea was to have your suppliers deliver ‘just in time’ so your cash flow was enhanced, your storage needs were minimised and you manufacture the goods as the inputs were arriving in the factory,” he explains.
“And that’s efficient but it’s very brittle.”
If the supply of just one of those many inputs becomes constrained or if the demand for it suddenly skyrockets, you have a serious problem.
“That’s what you’re seeing now with the semi-conductor industry,” Holland says.
But the experience of the past year may be forcing companies to rethink their philosophies, shifting from ‘just-in-time’ to a ‘just-in-case’ system.
“I’ll give you an example — if you take two iPads and take them apart, what you’ll see is that you could have chips from one manufacturer in iPad A and then in iPad B, you could see — in the same location under motherboard — chips from another manufacturer,” Holland says.
So Apple built robustness into their supply chain. They planned for the fact that some suppliers could go bust, or could have supply chain issues or whatever, and there could be failures.
But “buying insurance” of this variety, as Holland puts it, isn’t cheap.
It will also take time to bed in — so the kind of brittleness we’ve observed in the past year and a half is likely to remain a feature of supply chains for the foreseeable.
Fluffy toys
Is there any relief in sight at all?
“Air freight is one thing that will help,” Holland believes. “As passenger traffic is now increasing between Asia and Europe, there will be more capacity to move goods in the belly of those aircraft that are transporting passengers.”
While that will mitigate the situation somewhat, most bulkier, higher-value goods like furniture will still have to go by ship, meaning that prices for those sort of goods are likely to continue in an upward trajectory.
With all of this in mind, Holland is telling businesses ahead of the Christmas rush that they need to be as agile as possible.
“These are choppy waters and you alone as one actor, you’re not going to change the landscape that you have to operate in. But you can be fast and nimble,” he says.
For Christmas shoppers, the advice is to get moving as quickly as possible.
“Buy early,” he says, “particularly if it’s anything with electronics in it, which is most gifts these days. Even your fluffy toys and the like haves semiconductors in them these days.”
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