Supply chain grinch predicted to steal Christmas

The prospect of empty shelves or higher prices is something people ae being warned to prepare for.

Consumers could face the prospect of empty shelves, or much higher prices for Christmas presents this year, as things continue to get worse at the world’s ports.

Freight Right Global Logistics chief executive Robert Khachatryan is issuing stark warnings about the likelihood of everyone in the world getting presents this Christmas.

Speaking to an industry webinar in July he tells them that if they wait till September to get their product onto a boat to the United States, then they probably aren’t going to get any of their goods under a Christmas tree this holiday season.

His clients have been putting their holiday stock on ships since May and next year they will probably be getting it on the water even earlier.

“The big problem is no matter how much you pay there is just not enough space. The problem is any vessel just has limited container space, and they just get sold out within half an hour of being released.”

Khachatryan says freight forwarding, a crucial link between the shipping companies and those who want to send and receive goods, has changed into something akin to a panicky stock market trading floor during the 1980s and 1990s, where people yell, scream, and hustle on the phone, just to get a piece of the action.

Things are so bad with international shipping now that his company operates a night shift, just in case slots on container ships pop up overnight.

“You have to book the moment that booking is available. It’s quite literally a matter of half an hour. If you flinch, then it’s gone.”

The same thing happened in New Zealand last year at Christmas, but University of Auckland deputy dean Tava Olsen, who specialises in supply chain management, says, if anything, congestion at the world’s ports is probably worse than it was back then.

Not only have last year’s issues with the Ports of Auckland’s delayed automation project continued this year, leaving ships at anchor for days, but there have been multiple blockages in the global supply chain system.

First, the Ever Given container ship blocked the Suez Canal, then a Covid-19 outbreak at the pivotal Chinese port of Yantian caused more disruption, followed by a similar issue at the world’s third-largest container port terminal, Ningbo Meishan, not to mention ongoing port congestion issues on the west coast of the US where, on any given day, 40 container ships are reportedly at anchor waiting to get in and unload cargo.

To make up for lost time, international shipping lines have given up on taking back some empty containers in New Zealand, and are skipping ports outside of Auckland and Tauranga, causing significant issues for our exporters during their peak season.

Kuehne and Nagel New Zealand managing director ​Simon Dedman sums up the chaos with one statistic: for the months of June and July, only one out of every 60 ships arrived here on time.

Which shows shipping reliability is much unchanged from when Stuff earlier reported it had plunged to historic lows of less than six per cent across our big ports of Auckland and Tauranga.

Customs Brokers and Freight Forwarders Federation president ​Chris Edwards says if your stock is not on a boat to New Zealand right now then it is probably not getting here by Christmas.

“It may not matter if you’ve been naughty or nice, you might not get your stuff anyway. It just won’t be here on time.”

​Edwards says the smart retailers, and probably the larger ones, saw the congestion at Ports of Auckland last year and started ordering their stock for next Christmas right there and then.

The old philosophy of “just in time” is turning into “just in case”, with once-lean companies now ordering early and filling warehouses with excess stock to avoid shortages.

First Retail Group managing director ​Chris Wilkinson says things are almost returning to the times of a previous age where retailers used to order product well in advance and keep a lot of it in storage.

The trend is causing firms like DHL to massively expand their warehousing operations with two new facilities in Auckland and Christchurch, increasing its overall footprint by nearly 10 per cent, or 12,500 square metres, from its earlier capacity of 120,000sqm.

DHL supply chain managing director ​Matt Casbolt says these warehouses aren’t just four walls and a roof, instead he describes something much more sophisticated, almost resembling a factory floor itself.

They offer services like packaging operations, some promotional and marketing value-added services, along with specialist storage facilities like ultracold freezers uniquely suited to specialist products like vaccines. He won’t be drawn on whether their warehouses are being used to store Pfizer Covid-19 vaccine stock too.

​Casbolt says there is plenty of demand for warehousing space from customers, but the big problem is finding space to build warehouses at a time when there is already not enough land available for other uses, like housing.

“They [customers] realise, to maintain resilience, they need to hold more stock in market, and obviously that’s impacted on us because it’s put more demand on this high-grade quality warehousing space.”

Yet building up your inventories in stock is not a panacea either. Earlier this year Bloomberg reported Toyota had managed to gobble up market share in the automobile industry because it had built up four months’ worth of semiconductor stock before chip shortages started to cripple competitors.

Toyota is often closely associated with the philosophy of “just in time” manufacturing, whereby companies keep less inventory on hand and rely on supply chains to provide components at the moment they are needed.

After an earthquake in 2011 the company started to depart from this strategy, demanding more transparency from its lower tier suppliers to assess where its supply chain vulnerabilities lay.

Toyota suddenly realised it was uniquely vulnerable to a small set of chip foundries in Asia, so built up a stockpile of these chips, along with backup stocks of other critical products which might cripple car production if a natural disaster or unexpected event took it out of the picture.

While it helped Toyota with the chip shortage, things had changed by August, when Bloomberg was reporting Toyota planned to knock its production back by 40 per cent and suspend output at 14 factories.

Toyota was still fine on the semiconductor front, but now it was suffering from delays right through its supply chain thanks to Covid-19 outbreaks across Asia.

Edwards says these factory closures are one of the new elements in the mix this year. Employees in Vietnam and other nations in Asia have been staying away from work because they are sick, or afraid of catching Covid-19.

The products we might be ordering for Christmas, or the components that go into them, are not getting made in the quantities we thought they might.

The wave of outbreaks across Asia has caused contrarian thinkers like one of Bank of America Merrill Lynch’s former top strategists David Woo to question whether all these supply chain disruptions are as temporary as everyone first thought.

“My fundamental view is that Covid-19 is a permanent [supply] shock, that it is here to stay. It is the new normal.

“By definition, if Covid-19 is here to stay it is because it is mutating constantly, which means you will get periodic outbreaks. Which means that countries, periodically, are going to shut down their ports.

“You don’t think that is going to increase the cost of supply across the food chain? Of course it will. Globalisation has been such an important aspect of why inflation has been low for so long the last 20 years.”

​Edwards says political decisions in reaction to these outbreaks could cause further instability within the supply chain in years to come.

When Covid-19 cases were detected at Shanghai International Airport last month strict quarantine requirements were lumped onto staff, prompting a rash of resignations and leading to a sudden ratcheting up of airfreight rates.

​Casbolt thinks a lot of the price signals being put out now are causing a lot more shipping and warehousing to be built which will come online in the years to come, and this should smooth things out. He notes that in the supply chain logistics industry things often move from undersupply to oversupply.

“There always will be supply chain shocks, but I do think over the years things will settle down to a new normal.”

Immediately after the global financial crisis a lot of extra shipping capacity was added to the market, driving shipping rates through the floor and prompting a wave of consolidations across the industry, one which is now largely dominated by three shipping alliances.

Freightos lead researcher ​Judah Levine is on the same webinar as ​Khachatryan and says while extra shipping capacity is slated to come onto the market in two or three years, there are signs the shipping industry is better able to control the amount of excess shipping that comes online.

As evidence ​Levine cites shipping rates early on in the pandemic, which were earlier predicted to fall, but instead stayed steady.

“It shows how the shipping alliances can control the availability of shipping capacity much more effectively than they used to.”

Then there is the demand element of all this. ​Dedman says that between January and May 2021 there was a 30 per cent spike in goods imported to New Zealand from Asia, a trend reflected worldwide as people shifted from consuming services to purchasing goods in response to restrictions on the movement of people.

The Drewry World Container Index, which is a composite of different freight rates across a variety of routes, has gone from less than US$2000 (NZ$2800) per 40-foot container in 2019, to nearly US$10,000 per container in September.

Levine too says this will all settle down, eventually, but he wants people to understand supply chains are being stretched by a one in 100 year event.

“It’s important to adjust our expectations at some point and, no pun intended, understand that everyone’s in the same boat.”

-Stuff/Dileepa Fonseka.

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@Slim Shady

Posted on 08-09-2021 21:36 | By morepork

The very fact that you are here, denies your "hermit kingdom" assertion. Zero Covid is looking increasingly viable and it is far too soon to say it has failed. It is also axiomatic that if it DOESN’T fail, we WILL be protected. As for North Korea, stop worrying... nobody here is going to worship a fat kid; it isn’t in our nature. I think you are getting a bit down with it all, (as are most of us), but the idea is to see it through and THEN evaluate it. If you are honest, and if you care about the death toll from Covid, you will admit that we are having a MUCH easier time that most of the world. Sometimes it is good to be a bit isolated and "hermitic"...

2 things.

Posted on 08-09-2021 21:27 | By morepork

1. We are a food producing nation and international food chain disruption should not affect us. We might die of boredom but we shouldn’t be undernourished... 2. If only Auckland and Tauranga are being serviced by shippers, we should use our local mercantile marine to cover the other ports and fill the gaps. We could easily increase "local traffic" and make sure our exporters get their products, at least, to points of collection.

Shortages everywhere

Posted on 08-09-2021 08:15 | By Slim Shady

It’s not just shortages of materials, food and vaccines. We have cancer treatments and operations being cancelled. We have ICU beds but not enough qualified nurses to staff them. Most come from overseas so that’s out. It’s the consequences of being a hermit kingdom, the obsession with zero Covid, and the false assertion that it is keeping us all safe. Hopefully the penny will drop before we end up like North Korea.

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