WITH SHIPPING COSTS skyrocketing and global trade in the throes of a major supply chain crisis, Irish shoppers are advised to start planning their Christmas shopping as soon as they can.
Some of the biggest toys and home furnishings companies operating in Ireland have already said they are facing significant delays ahead of the busy season.
Buyers are advised to purchase early this year, a spokesperson for Smyths Toys said. The newspaper this week.
Although it is always a good idea, it is “particularly important” this year, they added, “Because global shipping and container shortages cause supply problems in many areas of our lives.”
Earlier this week, Ikea Ireland along with bicycle and auto parts retailer Halfords warned customers of the impact of the crisis on their operations and prices.
Up to 10% of Ikea product lines are currently unavailable in Ireland, the Swedish furniture giant said in a statement. Meanwhile, UK-anchored Halfords has said he expects the crisis to continue well into the future.
These are “rough waters” for businesses and consumers, says Alan Holland, who is better positioned than most to make sense of the current supply chain crisis.
As Managing Director of Bishopstown, County Cork-based software company Keelvar, Holland’s Bread and Butter connects large multinational clients like BMW, Nestlé and Samsung with international suppliers.
While much of the heavy lifting is done by Keelvar’s advanced AI-powered procurement tools, it’s work, says Holland. The newspaper, that was not made easier in 2021 with the global economy in the throes 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 products and higher prices for at least 12 months.
His advice is for buyers to move and companies to close the hatches – the winds don’t seem to be turning anytime soon.
But what is behind the disruption?
To some extent, the term “supply crisis” is a bit of an overkill.
As Holland explains, “Most of the disruption comes from the demand side” after the sudden, shaky halt in consumption at the start of the Covid-19 pandemic last year.
“When the pandemic first hit, demand collapsed” with consumers largely trapped in their homes, stores closed and spending opportunities closed, he says.
Irish and European businesses that purchased goods in February suddenly discovered in March and April 2020 that they had no customers to sell to.
“So when demand collapsed you had ships crossing the oceans [from Asia] that were half empty – their containers were in warehouses in America and Europe with goods. “
Following the shock, the ships did not repatriate the containers to their origins.
This meant that shipping companies “didn’t have the containers they needed” to transport goods and commodities once global demand began to decline in the months following the first outbreaks.
“We saw e-commerce booming, six weeks after Covid first hit,” Holland said.
Suddenly everyone says, ‘Okay, I’m not going to a restaurant. I’m not going on vacation abroad. I have more money to spend, so I’m going to buy shoes, laptops, housewares, office supplies. And now there was this problem.
The pandemic disruption of ports, especially in China, over the past year has prolonged the hardship – as has the blockade of the Suez Canal for six days in March 2021.
Production disruptions were also a factor. An abnormal ice storm in Texas that destroyed semiconductor factories in February sent the already limited global supply of microchips into a spiral.
This has had a ripple effect on a vast multitude of industries, from technology to automotive manufacturing.
“It was just one major problem after another,” says Holland.
Now these problems are compounded, he explains, by the “behavioral changes” they triggered.
As businesses and consumers anticipate prolonged delays, shortages and general disruptions, they are ordering more and more products, putting more and more pressure on crumbling supply chains.
It also helped send the price of the expedition to the moon, putting costs on businesses.
One of the world’s largest port operators told the Financial Times earlier this week that a “vicious cycle” of growing consumer demand will have to ease before supply chains can be strengthened.
“With the disruptions that occur, transportation companies are constantly changing the routes they offer and the trade routes they serve,” Holland said.
Therefore, companies have to put much more effort into negotiating with suppliers.
The level of disruption is such that where large-scale multinationals like Nestlé could have launched bids for transport contracts every two years before the pandemic, they are now launching “weekly or monthly bids” to keep costs down, says -he.
“So our customers have to return to the market more often than they have ever done before. “
Subscribe to an insurance
While a generation-size shock over several generations from the Covid-19 pandemic certainly deserves the lion’s share of the blame for the crisis, the way supply chains have developed in recent years decades have made them particularly vulnerable, says Holland.
In “the quest for higher profit margins,” says Holland, many companies have adopted the “just-in-time manufacturing philosophy” pioneered by Toyota in the 1970s.
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“The idea was to have your suppliers delivered ‘just in time’ in order to improve your cash flow, minimize your storage needs and manufacture the goods as and when the inputs arrive at the factory”, explains- he does.
“And it’s effective, but it’s very brittle.”
If the supply of just one of these many inputs becomes limited, or if the demand suddenly skyrockets, you have a serious problem.
“This is what you are currently seeing with the semiconductor industry,” says Holland.
But last year’s experience may force companies to rethink their philosophies, moving from a “just in time” system 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 a manufacturer in iPad A and then in iPad B you could see – in the same place under the motherboard – chips from another manufacturer, ”says Holland.
Apple has therefore integrated robustness into its supply chain. They foresaw the fact that some suppliers might go bankrupt, or might have supply chain issues or whatever, and there might be failures.
But “buying insurance” from this variety, as Holland puts it, doesn’t come cheap.
It will also take time to adjust – the kind of fragility we’ve seen over the past year and a half, therefore, should remain a feature of supply chains for the foreseeable future.
Is there relief in sight?
“Air freight is one thing that will help,” said Holland. “As passenger traffic now increases between Asia and Europe, there will be more capacity to move cargo in the belly of these planes that carry passengers.”
While this will alleviate the situation somewhat, most larger and more valuable goods, such as furniture, will still need to be shipped by sea, meaning that prices for these types of goods are likely to continue on an upward trajectory. .
With all of that in mind, Holland is telling businesses ahead of the Christmas rush that they need to be as nimble as possible.
“These are rough waters and you alone as an actor are not going to change the landscape you have to operate in. But you can be quick and nimble,” he says.
The advice for Christmas shoppers is to move as quickly as possible.
“Buy early,” he says, “especially if it’s something with electronics, which is most freebies these days. Even your stuffed toys and the like contain semiconductors these days.