Ports completely clogged, land transport companies that cannot supply, factories running at half gas in China, a global energy crisis that is only getting worse and consumers with full pockets (after forced savings from confinement) who want to enjoy the relatively normal first Christmas since the covid arrived from the East. It is still too early to say that the Christmas campaign is in serious danger, but the threat grows by weeks. Transport and logistics companies are doing their best, but within the retail they are beginning to herald some dark months.
The Swedish giant Ikea is one of the great actors of the retail which has warned that the shortage of products in its stores will continue even in 2022. From the Swedish group they believe that the problems in the supply chain will continue to be important until the middle of next year. Today not enough containers to transport all the goods and inputs that are demanded, while in the Chinese, American and British ports goods are accumulated both outbound and inbound due to the lack of personnel and truck drivers.
For now, “the biggest challenge has been getting products out of China, where there has been very limited capacity, “Jon Abrahamsson Ring, Inter Ikea’s CEO, says in an interview. Shortage of shipping containers and collapsed ports have created a logistical knot that is affecting all retailers. of the world, they assure from the financial agency Bloomberg.
All this commotion could drag on and, in the worst case scenario, get worse over the next few months, which is causing warnings to be launched (profit warnings) on possible downsizing in sales growth and a cost boom at companies ranging from Hennes & Mauritz to Asos, the British online retailer. To cope with the situation, Ikea has had to prioritize and focus its offering on the most popular products, says Abrahamsson Ring.
“We are not out of the woods”
“I don’t think we’re out of the woods,” says the CEO. During the first part of 2022, these problems could persist in the supply of certain products and their distribution so that they reach the final consumer. “This is a huge challenge for the entire supply infrastructure.”
Analysts at Bank of America Merrill Lynch (BofAML) released a report this week targeting clothing, a sector that can suffer the most from these traffic jams. “In the case of retail European textile we see several problems related to the supply chain: [1] possible delays in product delivery due to port congestion and transportation disruption; [2] higher costs in sea, air and road freight; [3] inflation of raw material prices; and [4] higher wages in the clothing industry. “
“Port congestion, shipping delays and low levels of product availability in inventories can be a problem with the arrival of the major shopping season (ie coats at the beginning of winter, novelties before Christmas ) !, say the experts at BofAML.
Problems for H&M
These experts spin even finer and give concrete names. For example, they believe that H&M could suffer a more intense product shortage than Inditex, whose production chains are more diversified: “H & M’s supply is skewed towards China and Southeast Asia (that is, Bangladesh), especially compared to Inditex, which has relatively high exposure from European suppliers. By contrast, H&M has a significantly smaller manufacturing base in Europe and North Africa. Considering the large supply chain and transportation pressures that exist outside of Asia, this it implies a greater risk of delays or production shortages at H&M. “
From Moody’s Analytics they believe that the pressure on supply chains is increasing, as are prices for consumers: “Disruptions in the supply chain will get worse before improving … The global economic recovery continues to gather strength, but it will be seen hampered by disruptions in the supply chain that are now appearing at every corner, “they said from Moody’s in a report published on Monday.
RBC Capital Markets analysts agree with the concerns shown from Moody’s. In a report this month, the bank analyzed the 22 most influential ports in the world and calculated how long it takes for cargo ships to enter and unload. These experts reveal that 77% of ports are experiencing higher than average waiting times this year.
As if the problems were few, the ‘world’s factory’ (China) is immersed in an energy crisis that if it worsens will endanger part of its production, which is a key element in international trade and supply chains. “The current shortage of energy in China could interrupt the production of its factories and the export volumes of container transport, depending on the magnitude and duration of the interruption,” they warn from BofAML.
The case of the United Kingdom
While the whole world is being affected by these bottlenecks and disruptions, some regions and countries are being hit particularly hard, such as the UK and some key ports in China and the US.
UK retailers and logistics companies have warned that supply chain disruptions at Felixstowe are spreading to other ports in the country and will exacerbate shortages of Christmas supplies, they warn from the Financial Times.
Grant Liddell, director of business development for Metro Shipping, a Midlands-based logistics company, believes that the backlog of containers at Felixstowe, the country’s largest container port, was also affecting London Gateway and would soon reach Southampton.
The delay in the East Anglian installation has already forced shipping groups, including Maersk and MSC, to divert larger vessels to continental European ports, which will also increase pressure on European ports. Another option that is also being implemented is to shift cargo to smaller ships that can access and unload in smaller British ports.
Jon Swallow, co-founder of Felixstowe-based Jordon Freight, which moves goods between the UK and the European Union, doesn’t think the situation will improve just yet. “He’s definitely not getting better, that’s for sure,” he explains. “There are still no signs on the horizon that EU drivers (carriers) will change their minds. They are busy meeting Europe’s own demand. If demand continues, there is no solution.”
A more expensive Christmas
The increase in prices of transport and raw materials observed in the last six months has led to an increase in costs, which the company plans to absorb instead of transferring to Ikea customers, but everything has a limit. “We want Ikea to be even more affordable,” said Abrahamsson Ring. The company plans to get a larger share of revenue from lower-priced products, it adds.
Not everyone is able (or willing) to absorb these higher costs with margins. Carlos Moreno-Figueroa, spokesman for the Spanish Confederation of Commerce, explains to the Economist a few days ago that “what is clear and what we are seeing is that there is going to be a general price increase. Costs at origin are increasing due to increases in raw materials and this is already assuming a general increase in prices which will continue to affect all products. “
This increase in costs, if transferred to final goods and services, will give another boost to inflation figures that are already at relatively high levels in the US, Europe and many emerging countries. Whether or not there is a shortage of products at Christmas, what seems clear is that everything is going to be a little more expensive.
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