Author: Cahal Milmo
When history comes to tell the story of Britain’s supply chain crisis of 2021, the postponement of the hotly anticipated clash between Folkestone Invicta and Hornchurch FC in the Isthmian Premier Division may prove an instructive place to start.
The match was one of many midweek non-league football fixtures cancelled in the last week of September on the not unreasonable basis that a lack of fuel raised the prospect of neither players nor supporters being able to physically get to their games.
While some pondered whether the situation was also an opportunity for sides to gain additional rest before potentially lucrative preliminary FA Cup ties, the postponements were just one manifestation of an unfamiliar phenomenon that is rapidly beginning to feel like a feature of daily life in Britain: shortages.
As one footballing wit put it: “It’s a changing world, isn’t it? ‘Sorry I didn’t score, I ran out of petrol’ is a new one on me.”
When it comes to trying to summarise the disparate nature and extent of current difficulties, the disappointment of Kentish football supporters can be placed alongside a number of unlikely bedfellows.
There is the forlorn presence of 1.5 million cauliflowers left unpicked in fields around Fife; a global dearth of PVC which means tamper-proof lids for medicines or chemicals could soon be in short supply; and the unsung lack of multilayer ceramic capacitors – tiny hi-tech components the size of a rice grain – vital to the UK’s nascent electric vehicle industry. And drinks maker AG Barr warned last week that a shortage of aluminium cans is one of the factors affecting interruption to supplies of the carbonated soft drink Irn-Bru.
Together, they tell the story of a multifaceted upheaval to the supply chain – an ecosystem of transactions and relationships upon which modern, globalised life relies and yet goes unseen until it starts to go wrong. And then when it does go wrong, everyone from Home Counties football fans to Scottish farmers quickly know about it.
The present problems have their roots in a bewilderingly complex logistical logjam with diverse ingredients – ranging from the rocketing price of bringing a 40ft cargo container from China to Felixstowe, to the lack of predominantly Eastern European crop pickers who have been relied upon for decades to get the produce from fields to shop shelves.
The result, as Britons have experienced in recent weeks, is a devil’s brew of disruptions, with causes that encompass the geopolitical ripples of the pandemic and Brexit to long-standing weaknesses and idiosyncrasies in both the global and the domestic economy.
Crucially, it is a pattern of periodic economic dyspepsia – from the McDonald’s countrywide milkshake shortage in August to the carbon dioxide crisis in the middle of last month and then the petrol queues – that is not going away any time soon. As Susan Boylan, a director analyst and logistics expert at consulting firm Gartner, tells i: “It is undoubtedly a perfect storm. Consumers would be wise to anticipate reduced choice and higher prices, certainly in the immediate term.”
What, then, are the causes of these faltering steps in the normally seamless choreography of providing the wherewithal for daily life – and what can be done about them?
Fuel on the fire
When BP issued a largely bland statement acknowledging the temporary closure of a number of petrol station forecourts after they ran out of unleaded and diesel fuel on the afternoon of Thursday 23 September, it was followed by immediate efforts to reassure consumers that all was well.
The Petrol Retailers Association, which represents two thirds of service station operators, pointed out that fuel demand was still 8 per cent below pre-pandemic levels and that any problems were likely to be short-lived. Meanwhile, the minister for small businesses, Paul Scully, said in a radio interview: “There is no need for people to go out and panic-buy.”
Psychologists have long warned of the dangers of asking people not to panic as the public tends to conclude that there is indeed something to panic about.
The scenes of drivers brawling on forecourts, funerals being cancelled due to hearses running out of fuel and motorists forming long queues – many of them in dire need of the petrol they need to do vital jobs – are graphic proof that the psychological profession may have a point.
But the fuel shortages are even more potent proof of a key truth behind this year’s supply chain crisis: in many cases there is no absolute absence of a commodity, be it diesel or courgettes, but there is a failure in getting that commodity to where it needs to be.
Dr Justas Dainauskas, a fellow in the department of economics at the London School of Economics, tells i: “It is not a crisis borne out of scarcity, but it is a crisis of the distribution network.”
In the case of the punch-ups at the pumps, a leading cause of the fuel problems is a lack of between 200 and 500 trained tanker drivers to deliver from fully stocked refineries and terminals.
The absence of these drivers has overstretched the supply system, and while that might mean that only a small number of service stations are liable to find themselves running on empty, this invited a dramatic response from motorists who have been unable to fill their tanks as expected, and whose worries soon spread.
“The current problems are all because there is no real extra capacity to boost deliveries,” says a source in the industry. “If you get a situation where there is a sudden spike in demand, the system simply cannot catch up fast enough. As we have seen, it can then spiral out of control very quickly.
“If you look back 20 or 30 years, tanker drivers were the crème de la crème of the lorry driving profession. They drive a hazardous load on our most crowded streets. But companies have since sub-contracted deliveries or wages have been depressed and – surprise, surprise – people don’t want to do it any more. If you were looking for a reason [for the fuel crisis] I wouldn’t look much further than that.”
Food for thought
East of Scotland Growers is a co-operative in Fife and Perthshire which represents 15 farms in the region. Together they are the UK’s largest grower of brassicas. But in recent months a depressing proportion of their premium crop has ended up not on the nation’s dining tables but either as sheep fodder or left to rot in fields.
Since the start of the harvesting season last month, the co-operative has lost more than 5.5 million heads of broccoli and 1.5 million cauliflowers, representing a loss of around £2m. Andrew Faichney, the company’s managing director, said it was looking at 35 per cent of its turnover disappearing – a “disastrous” situation.
The Scottish growers blame a shortage of hauliers to deliver their crops and, crucially, labourers to take the vegetables from the ground and prepare them for sale in pack houses.
They are far from alone in their concerns among the UK’s £120bn agriculture sector. In West Sussex, vegetable grower Barfoots was forced to pick 600 tonnes of courgettes and then leave them to rot earlier this summer, due to a lack of workers to package the crop.
The result, say farmers, is a deeply perverse scenario where Britain will spend the next months, and quite possibly longer, with greater reliance on food imports while homegrown food rots in the ground for lack of the labour to pick it. It is, they say, a problem with its roots in the departure of thousands of EU seasonal workers, most of them Eastern European, coinciding with the ending of freedom of movement under Brexit and a subsequent failure to attract them back or secure labour from elsewhere, not least Britain itself.
In a letter last month to the Prime Minister, 12 farming and food supply organisations, including the National Farmers’ Union, warned that the sector has 500,000 job vacancies and urgently needs measures, including the introduction of a 12-month worker visa, to recover from the challenges generated by Brexit and the pandemic.
Cautioning of gaps in supermarket shelves and food price inflation, the letter stated: “It is a travesty that this is happening in parallel with UK food producers disposing of perfectly edible food as it either cannot be picked, packed, processed or transported to the end customer.
“Every day there are new examples of food waste across the industry, from chicken to pork, fruit and vegetables, dairy and many other products. The food is there, but it needs people to get it to the consumers.”
The supply of hardy souls willing to do the sort back-breaking work – for which the natives show little appetite – is just one factor affecting Britain’s food supply. Experts point to the systemic effects of decades of consolidation and cost-cutting generated by constant pressure on price from supermarket buyers – notoriously, the price of strawberries remained more or less static for a decade to 2018 while the minimum wage rose by almost 40 per cent.
But for now, many argue that whatever the aspirations of ministers to reduce the reliance on cheaper, imported labour by ending freedom of movement, the fact that UK Plc is not yet in a position to cope without it has been brutally exposed.
“Whilst the UK Government pushes firms to transform their technologies to become less dependent on labour in the long-term,” says Dr Dainauskas, “distribution hiccups will almost certainly continue in the foreseeable future, unless we successfully plug the employment gap with migrant workers as we did before Brexit.”
British truckers and Chinese containers
When one shipping expert was asked recently to summarise the bottlenecks causing problems in the global economy, she replied pithily: “The ‘pinch point’ is the entire chain.”
An overarching factor in the events that have prompted advice to buy Christmas toys sooner rather than later, and major retailers such as Ikea to charter their own container ships to get goods onto shelves, is the paroxysms inflicted by the pandemic on global demand.
When the enormity of Covid-19 became apparent in the early months of last year, millions of businesses around the globe responded by slashing production in expectation of a slump in consumer activity, as humanity hunkered down to weather the viral storm.
Instead, beyond the initial emergency, demand for goods – in particular cars, electronics and certain pandemic winners such as exercise equipment – rocketed as consumers flocked to a burgeoning world of online retail.
Once stimulus packages were added to the mix, such as the $1.9trn (£1.4trn) injected by the Biden administration into the world’s biggest consumer market, the complex task of shipping the vast number of goods on order to those with open wallets was suddenly out of kilter.
To take but one example, a vast number of cargo containers – around 8 million – are currently on board ships or waiting at ports, forcing China to massively increase production of the steel boxes to simply maintain trade.
Around the world, the average cost of shipping a standard 40ft cargo container has shot past £7,000, four times higher than it was a year ago. The “spot rate” for last-minute bookings on the busiest routes, such as from China to America’s west coast, is now as high as £14,000. And even then, do not expect to receive your goods quickly; the average door-to-door shipping time for a container has risen in the past 12 months from 41 days to 70.
Once other factors are taken into account, such as the sight of the 400m-long Ever Given container ship skewed across the Suez Canal for six days in March and thereby blocking 12 per cent of global daily trade, or the rise in Covid cases in Vietnam which last month caused the shutdown of most of its clothing factories, the result is an expensively congested, stop-start worldwide supply chain – even before goods reach Britain’s ports.
The effects of this global disconnect between rampant demand and constrained supply have been felt across multiple sectors, from garden furniture to neck ties.
Among the most eyebrow-raising phenomena has been the topsy-turvy fact that, in some cases, nearly new second-hand cars are selling for more than the list-price of new cars. The reason for this is that while second-hand cars are at least physically available in sales rooms, many new vehicles remain only partly assembled, lying in factories where production has been suspended due to the global shortage in semiconductor chips. One recent survey found that 52 per cent of auto-sector manufacturers are experiencing “very significant” disruption to supply chains.
Even when new cars do roll off the production lines, manufacturers face the issue that has dogged both the UK economy and beleaguered Government ministers for months: the uncomfortable fact that Britain is 100,000 truck drivers short of the level of haulage capacity it needs to operate deliveries smoothly.
Debate will continue to rage over whether Brexit has exacerbated the problems with the supply of truckers. While it is certainly true that the UK is not alone in Europe in suffering a shortage of qualified HGV drivers, the apparently lukewarm response of EU-based drivers to the Government’s release of 5,000 three-month visas to alleviate the problem appears to be a deflating indication of the attractiveness of working in Britain to this most in-demand cohort of skilled workers.
Others point out that the problem is nothing new. The International Longevity Centre UK think-tank pointed out last month that hauliers, retailers and the wider economy are paying the price for a failure to attract workers into an industry where the average age is now 53, with just one in 50 lorry drivers aged 25 or under.
It said the demographic time bomb was part of a wider problem of failure to tackle issues of sustainable employment generated by an ageing workforce.
Either way it would seem the result is increasingly volcanic frustration in the nation’s boardrooms. Clive Black, a retail analyst for City investment firm Shore Capital, says there is a growing view among some that Britain’s problems are due to “economic mismanagement”.
As he puts it: “The Government just hasn’t listened and only does stuff when it is cornered. To not allow fruit pickers, meat packers and lorry drivers into the country was stupid beyond belief. The food industry has been warning the Government until it is blue in the face and I have talked to some chief executives who have just given up trying. They are totally disillusioned over the capability of the Government.”
Energy, retail… and resilience
If proof were needed of the perilously interconnected nature of the modern economy, then look no further than the events on 15 September at the two fertiliser plants in Teesside and Cheshire, owned by American company CF Industries.
When the firm decided to respond to rocketing natural gas prices – the key ingredient for its production of ammonia to make fertiliser – by shutting down the two sites, its actions wiped out, at one fell swoop, 60 per cent of the UK’s supply of purified carbon dioxide, with profound repercussions.
The gas is a vital commodity for industries from food and drink – where it is used in facilitating animal slaughter, fizzy drinks and packaging – to cooling nuclear power stations and allowing certain medical operations to take place.
So in the same week that the Government announced it was providing £200m to incentivise UK businesses to invest in technology to reduce their CO2 emissions, it sealed a deal with CF Industries worth “tens of millions” to subsidise the urgent reopening of its Teesside plant to produce the very same chemical.
Experts argue that beyond such expensive ironies lies what is already one of the principal lessons and consequences of the supply chain shortage: the need to once more swap efficiency and corporate profit margins for the benefits of resilience.
In a globalised world where the “just in time” model – producing goods, often across multiple countries, with minimal stockpiling – has become an article of commercial faith for manufacturers, the talk is now of “just in case”. This is an alternative model in which supply chains are shortened by so-called “on-shoring” (returning significant parts of production to within national borders) and, crucially, profit margins are narrowed in return for greater security of supply.
Russ Mould, investment director at stockbroker AJ Bell, says: “We have swapped resilience for efficiency. This is looking less sensible now in a post-pandemic world. Firms are already on-shoring to get more consistent supply, they are already paying higher wages to retain staff and they may have to take on more inventory and staff to ensure business continuity.
“These steps may all make businesses more resilient but they all bring extra costs. Perhaps corporate profit margins are finally to come under pressure.
“After over 40 years of corporate profits rising as a percentage of GDP (gross domestic product) and wages and pay falling, maybe labour is about to start getting its own back and balance things up a bit. From a social equality point of view that may be no bad thing, even if it won’t help financial markets or investors.”
A few miles north of Newcastle on the site of a defunct power station in the coastal town of Blyth, a prime example of the strategic necessity of ensuring crucial technologies are manufactured on home soil is taking shape in the form of Britain’s first “gigafactory” to manufacture lithium-ion batteries for electric vehicles. It is hoped to be the first of up to five such facilities operating in the UK by 2030.
With the first batteries due to be produced at the Britishvolt plant by 2023, its owners argue that if the UK is to maintain its 180,000 car manufacturing jobs, it also needs to be producing the means to power those vehicles. Graham Hoare, the former chairman of Ford UK who left the company to head Britishvolt, said in June: “If the UK doesn’t localise batteries, then the car industry that they support will be significantly compromised.”
It is part of a wider message about the ways in which Britain and the wider world might eventually emerge from its supply chain crisis – a hybrid of both localised and globalised production, of higher wages, moderated profits and green tech.
Indeed, if Britishvolt has its way and the nation is driving electric vehicles sooner rather than later, the supporters of Folkestone Invicta and Hornchurch FC will never again have to experience a game being cancelled for lack of petrol.