Supply Chain Issues – The Perfect Storm

Supply Chain Issues – The Perfect Storm

 

As a manufacturer, we are at the “pointy” end of the supply chain, and I want to share with you how a “Just in Time” ordering model could leave you quite literally high and dry with disappointed clients.

We are experiencing a Perfect Storm, I am an industry veteran and have experienced delays in shipping caused by Earthquakes, Factory fires, Floods and other natural disasters but never has the global supply chain been under such immense pressure as it is right now – irrelevant of sector this affects us all from the price of exotic fruits to the availability of Pizza ovens.

China has experienced unprecedented floods across all provinces where coal is produced, with a harsh winter expected and demand for energy to increase, Beijing have ordered power rationing resulting in factories moving from 7 day working weeks to 2-day weeks and in some extreme cases complete closure. To keep these factories powered some are moving to Diesel generators and electricity both of which are expensive forms of energy, we will inevitably see cost increases because of this at a time where there is huge resurgence in demand for goods.

What’s happening with containers?

Containers, there has been a lot of talk about rising container costs, these increases have been driven by a significant shift in the direction of trade with high demand for export from China but very little going back hence a build-up of empty containers. In North America one port is only sending back 40 out of every 100 containers, this is the case across Europe with containers stranded in the wrong place with nothing to ship back in them – no one will bear the cost of shipping back empty containers to China. This has resulted in an almost cattle market approach to getting allocation of containers and has driven a sharp increase in container shipping costs from Jan 2020 circa €3k to €19k in November.

Pre Covid a container would take 13 weeks, with an average of 66% of containers arriving on time – the figures are now less than 30%,resulting from reduced manpower at Ports and the impact of the lack of HGV drivers affecting our European neighbours as well as the UK. Only recently it was reported that the port of Folkestone was refusing any more containers due to being at max capacity due to shortage of HGV drivers. The knock-on effects we are seeing are that containers are now being diverted to Amsterdam and Antwerp whereby they are either being shipped on smaller vessels or being diverted to use the road network – the Channel Tunnel is only big enough for a certain number of vehicles and the unexpected increase in road haulage has increased the flow of traffic via the tunnel into the UK resulting in further delays and stress to the supply chain.

Cost to fly is prohibitive not to mention getting space for air freight is challenging and requires plenty of forward planning – the skies are full right now with manufacturers desperate to get goods to shelves for Christmas and Q4 Peak

The global chip demand increase

Covid and the “Stay at Home” directive across the globe saw chip demand increase by 11% 2020 vs 2019 over €464b chip sales. Intel is on record stating the shortage of chips will last up to 2 years, high demand and strained relations with China being the core drivers for this.

Intel are planning on building plants in the US & Europe to reduce the reliance on China with support from the Biden administration but building new plants does not happen overnight, consumer demand for new 5G handsets in 2022 will have an impact on a market already under pressure to supply.

The demand for Glass has been prominent due demand for notebooks and screens but compounded by one of the largest glass manufactures’ moving away from the lower end of the market to focus on 4K and Mobile phones leaving a gap in the market.

Just when you think nothing else can happen…

February is Chinese Lunar New Year, the only holiday in China which will result in a complete shutdown from mid-January to end of February, my advice is plan now and minimise disruption to your business and planned projects.

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