Supply-chain worker Chris Neville gives us his view on shortages, supply chains and a changing balance of power
What we’re seeing at the minute has been described as a ‘perfect storm’ as lots of different factors have combined to create a level of supply-chain disruption that I haven’t seen since I started working in the industry eleven years ago. There are several theories around what is happening and why, including some from those overly keen to lay the blame for everything at the feet of Brexit, but this doesn’t explain why countries in the EU and North America are suffering similar disruption. Certainly, in the UK, the disastrous Tory handling of Brexit has played a part, but so too have Covid and several other factors.
The situation now has similar causes to many of the other issues we face in society. Years of chipping away at infrastructure, to get away with the bare minimum of investment, has left global supply chains precariously exposed to disruption. A lack of training means we don’t have enough workers to fill certain job vacancies.
As the UK’s economy moved away from being one with a decent manufacturing base over the last forty years, we have increasingly come to rely on what is effectively an outsourced manufacturing policy, where cheaper labour and a lack of workers’ rights have made it more financially viable for British companies (and also those of other western nations) to depend on other countries to produce their goods.
In order to maximise ‘efficiency’ (see profit) in an increasingly globalised world of trade, supply chains have changed over the years. In the mid-twentieth century, Toyota pioneered the ‘Toyota Model’ of production which was designed to reduce ‘waste’. By waste, they do not generally mean spoiled goods or packaging but wasted capital.
The theory goes that by using accurate quantity forecasting and delivery times, it’s possible to order manufacturing components that arrive ‘just in time’ for production. In doing so, you can avoid shelling out unnecessary cash on inventory or warehousing. Whilst supply chains were originally only a part of the just-in-time production method, this theory has been applied to supply chains in the resale of finished goods imported from other countries to make savings.
Similarly, there can be, in the eyes of the bosses, the most inexcusable wastage of all: wasted labour. Too many pickers or unloaders, in a warehouse that is not busy, represents expenditure that could be saved. In this sense, many warehouses and fulfilment centres take advantage of ‘agency labour’ where external recruitment companies provide a roster of workers, often on zero-hour contracts, that can be ordered in advance of when needed. I’ve seen this be as little as twelve hours. It’s a slow, irreversible and expensive process to expand a warehouse, but it’s very easy to pick up a phone and ask the agency for more workers the next day, which you can then cast aside when business dies down. The reduction of trade-union membership and workers’ rights over recent decades has served the bosses well in this respect.
Since the start of the neoliberal period in the 1980s, the UK’s trade deficit in goods has increased to such an extent that even its surplus in services could not stop it from sinking to the bottom of the G7 list by 2018. In the first quarter of this year, China replaced Germany as the UK’s biggest market for imports, accounting for £16.9bn worth of imported goods.
So how does nearly seventeen billion quid’s worth of Chinese goods make its way here? Mainly in containers that are sent by sea freight. They generally come in three sizes: 20ft, 40ft, and 40ft-high cubed, which are a bit taller than the regular 40ft containers. Once manufacturing time and shipping is factored in, it can take several months from point of order for the goods to arrive at a port in the UK for delivery to a warehouse.
This creates huge problems for companies in terms of cash flow. Having a large value of goods in transit, that you can’t sell, is undesirable. When you take into account that the goods in the container can sell through in a short amount of time (in some cases, days) before they need to be restocked, it’s easy to see how some companies could have many containers on the water at any point.
It’s also easy to imagine how disruption at any point can cause problems. Each ‘link’ in the supply chain is dependent on the others, and all are designed to be as cost-effective as possible.
Some of the factors that I’ve seen recently, that have contributed to the issues we are facing, have been on the cards for a long time, but some have come totally out of the blue. For years before the pandemic, there had been a container shortage, meaning a lack of empty containers available in which to ship goods. As you would imagine, it makes little financial sense to send an empty container across the ocean, and trade wars between the US and China have played a significant part in exacerbating this issue.
The impact of Covid
Then there was Covid. Overnight, online shopping surged and created significant excess demand for certain goods. China took the threat of Covid very seriously, and often quarantined large areas, including factories and ports, shutting them down completely. This led to a backlog in production and shipping, as well as excess pressure on other ports.
Warehouses, hauliers and ports around the world were affected by staff shortages, both as a result of increased demand and increased time off, as workers got ill or had to self-isolate. Despite the low pay on offer to those working in warehouses as pickers, it is a difficult and skilled job that requires training and plenty of stamina. There is plenty that can go wrong by throwing new staff in at the deep end in terms of safety, timing, and accuracy.
The initial stock-market crash caused by Covid was enough to spook companies into cancelling backorders of products out of fear that they would be overstocked should the market not recover. The legacy of these decisions, coupled with a storm in Texas and a fire at a factory in Japan, has led to a global semiconductor shortage, meaning critical components for everything from games consoles to cars are in perilously short supply. Many of the goods produced using these components operate using the most fragile just-in-time supply-chain models, where a small delay in components arriving can have disastrous knock-on effects.
What global supply chains certainly didn’t need to happen a year after the start of Covid was the incident in the Suez Canal in March, when the grounding of one vessel, the Ever Given, for only a week, was enough to delay $10bn worth of goods being delivered on time. That a ship so big should have to squeeze through such a narrow waterway, so crucial to delivering goods around the world, is a clear example of the approach of maximum profits through a minimum investment of contemporary capitalism.
Inflation and the fightback
And of course, there is also a shortage of skilled lorry drivers willing to work under the harsh conditions and low pay for which the industry has become known. So if you’re lucky enough to get your container delivered to the UK in a timely manner, good luck getting it moved out of the port.
In terms of how these issues have affected markets and pricing, before Covid, $2,000 to send a 40ft container from China to the UK was on the expensive side. Now, you can count your lucky stars if you can get it for less than $20,000. The rise in online shopping caused demand for cardboard boxes to shoot through the roof, and as such, the price of board and packaging has risen by around 50%. The shortage of new cars, due to a lack of semiconductors and metals, means second-hand cars are appreciating in value, something totally unprecedented in that sector.
So there is now an increased cost of goods everywhere along the line. From my experience working in the supply chain, there is a recurring scenario that plays out. A man in a suit who works for a supplier will request a meeting. At the meeting, he will sorrowfully speak of the fact that his company has no choice but to increase prices. A small negotiation will occur, and an increase will be accepted when both sides think they have done their bit. What is quite spectacular is how readily these price increases are accepted by company executives as inevitable. I have never seen such willingness to accept similar percentage increases when it comes to wages at the end of the year, regardless of inflation. Instead, the wage bill is often looked to as a way to recoup losses.
In the UK there, unfortunately, seems to be no long-term plan to sort out these issues from a government still obsessed with leaving the market to solve failures, even as the system collapses in front of our eyes. Yet, as the invisible hand of the free market comes into view, and workers see it as in fact raising its middle finger to them in the face of inflation, poor-paying jobs and crumbling public services, the arguments we have been making for change become easier to understand and accept.
As a result, while inflation now is a huge issue facing workers, we are seeing a fightback. Trade-union membership has increased in the last few years and labour shortages in some sectors have shifted the balance of power in favour of workers. Building trade-union strength is one way workers can avoid having to pay the price for another crisis, but we also have to be prepared to present a better vision of how society can be managed. We must demand a society where social need, long-term planning, investment in critical infrastructure, and environmental impact are the priority over profit for the bosses.
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