SunLive – Supply Chain Crank Should Steal Christmas

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Consumers could be faced with the prospect of empty shelves or much higher prices for Christmas gifts this year, as the situation continues to worsen in ports around the world.

Freight Right Global Logistics Managing Director Robert Khachatryan is issuing stern warnings about the likelihood of everyone receiving gifts this Christmas.

Speaking to an industry webinar in July, he tells them that if they wait until September to get their product on a ship to the United States, then they likely won’t get any of their products. under a Christmas tree this holiday season.

Its customers have been putting their vacation stock on ships since May and next year they will likely put it on the water even sooner.

“The big problem is that no matter how much you pay, there just isn’t enough space. The problem is, any ship just has limited space in its containers and is sold within half an hour of being released. “

Khachatryan says the freight forwarder, a crucial link between shipping companies and those who want to send and receive cargo, turned into something akin to a panicked stock market in the 1980s and 1990s, where people are screaming , yell and jostle on the phone, just to get a glimpse of the action.

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

“You have to book as soon as the reservation is available. It is literally a matter of half an hour. If you step back, then let’s go.

The same happened in New Zealand last year over Christmas, but University of Auckland deputy dean, supply chain management specialist Tava Olsen, says congestion in ports around the world are probably worse off than they were back then.

Not only did last year’s issues with Auckland’s delayed ports automation project continued this year, leaving ships at anchor for days on end, there were multiple blockages in the chain system. global supply.

First, the container ship Ever Given blocked the Suez Canal, then a Covid-19 outbreak in the Chinese hub port of Yantian caused more disruption, followed by a similar problem at the third largest port terminal container in the world, Ningbo Meishan, not to mention persistent port congestion problems on the west coast of the United States where every day 40 container ships would be at anchor waiting to enter and unload cargo.

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

The managing director of Kuehne and Nagel in New Zealand, Simon Dedman, sums up the chaos with a statistic: For the months of June and July, only one in 60 ships arrived here on time.

Which shows that the reliability of shipping is about the same as when Stuff earlier announced it had plunged to historic lows of less than six percent at our major ports of Auckland and Tauranga.

Federation of Customs Brokers and Freight Forwarders chairman Chris Edwards said if your stock isn’t on a ship to New Zealand right now, it likely won’t get here by Christmas.

“It doesn’t matter how mean or nice you’ve been, you might not get your stuff anyway. It just won’t be here on time.

Edwards says smart retailers, and possibly bigger ones, saw congestion in Auckland’s ports last year and started ordering their stock for next Christmas right away.

The old philosophy of “just in time” is shifting to “just in case”, once lean businesses now order early and fill warehouses with excess inventory to avoid shortages.

First Retail Group chief executive Chris Wilkinson says things are almost back to an earlier era when retailers ordered their products well in advance and kept much of it in stock.

The trend is for companies like DHL to massively expand their warehousing operations with two new facilities in Auckland and Christchurch, increasing its overall footprint by almost 10%, or 12,500 square meters, from its previous capacity of 120,000. m².

DHL Supply Chain General Manager Matt Casbolt said these warehouses are not just four walls and a roof, but rather describes something much more sophisticated, almost resembling a floor of factory itself.

They offer services such as packaging operations, some value-added promotion and marketing services, as well as specialized storage facilities such as ultra-cold freezers suitable only for specialized products such as vaccines. He will not know if their warehouses are also used to store the Pfizer Covid-19 vaccine stock.

Casbolt says there is a lot of demand for warehouse space from customers, but the big problem is finding space to build warehouses at a time when there is already not enough storage space. land available for other uses, such as housing.

“They [customers] Realize, to maintain resilience, they have to own more shares in the market, and obviously that has an impact on us because it puts more demand on that high quality warehouse space.

However, building up your stocks is not a panacea either. Earlier this year, Bloomberg reported that Toyota had succeeded in gobbling up market share in the auto industry because it had racked up four months of semiconductor inventory before chip shortages began 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 deliver components when they are needed.

After an earthquake in 2011, the company began to deviate from this strategy, demanding more transparency from its lower-level suppliers to assess where the vulnerabilities lie in its supply chain.

Toyota suddenly realized that it was particularly 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 that could cripple auto production. if a natural disaster or unforeseen event removed it. the image.

While this helped Toyota deal with the chip shortage, things changed in August, when Bloomberg announced that Toyota was planning to cut production by 40% and halt production at 14 factories.

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

Edwards says these plant closures are one of the new things in the mix this year. Employees in Vietnam and other Asian countries have been absent from work because they are sick or afraid of catching Covid-19.

The products that we might order for Christmas, or the components that go into them, are not produced in the quantities we expected.

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

“My fundamental point of view is that Covid-19 is a [supply] shock, that he’s here to stay. This is the new normal.

“By definition, if Covid-19 is here to stay, it’s because it’s constantly mutating, which means you’ll have periodic outbreaks. Which means that countries, periodically, will close their ports.

“Don’t you think this will increase the cost of sourcing along the food chain? Of course. Globalization has been such an important aspect of why inflation has been low for so long over the past 20 years. “

Edwards says political decisions in response to these epidemics could lead to further instability in the supply chain in the years to come.

When cases of Covid-19 were detected at Shanghai International Airport last month, strict quarantine requirements were placed on staff, sparking a wave of resignations and leading to a sudden increase in air freight rates.

Casbolt believes that many of the price signals being issued now are leading to the construction of many more shipments and warehouses that will come online in the coming years, and that should smooth things out. He notes that in the supply chain logistics industry, things often go from under-supply to over-supply.

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

Immediately after the global financial crisis, many additional shipping capacities were added to the market, driving down shipping rates and triggering a wave of consolidations in the industry, which is now largely dominated by three shipping alliances.

Freightos lead researcher Judah Levine attends same webinar as Khachatryan and says that while additional shipping capacity is expected to hit the market in two or three years, there are signs the shipping industry is doing better. able to control the amount of excess shipments that comes online.

As evidence, Levine cites shipping rates at the start of the pandemic, which were previously expected to drop, but have instead remained stable.

“It shows how maritime alliances can control the availability of shipping capacity much more effectively than ever before.”

Then there is the demand element of it all. Dedman says that between January and May 2021, there was a 30% increase in goods imported from Asia to New Zealand, a trend that is reflected around the world as people shifted from consuming services. the purchase of goods in response to restrictions on the movement of people.

The Drewry World Container Index, which is a composite of different freight rates on a variety of routes, has grown from less than US $ 2,000 (NZ $ 2,800) per 40ft container in 2019, to nearly $ 10,000 US by container in September.

Levine also says it will all work out eventually, but he wants people to understand that supply chains are stretched by a 100-year event.

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

-Stuff / Dileepa Fonseka.


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