Threats of a Christmas catastrophe featuring empty supermarket shelves and no toys under the tree is only increasing anxiety among Britain’s stressed-out consumers amid a supply chain crisis.
The country is newly recovering from a fuel shortage, caused by a lack of HGV drivers, during which motorists fought on the forecourt and formed Facebook groups to find stocked up petrol stations.
News that shipping bosses are turning away cargo vessels from Felixstowe, the UK’s biggest container port, after the lorry driver shortage left vessels stranded offshore for days only feeds into the country’s darkening mood.
While many see the chaos as evidence that Britain’s exit from the EU is ending in disarray as red tape constrains the shipment of goods between the UK and Europe, the cause of the crisis extends much further.
“Britain is by no means alone in suffering these problems,” said Richard Ballantyne, chief executive of the British Ports Association, referring to the recent challenges at the country’s ports.
“This is not a Brexit issue,” he said, and it was unfair “to say border controls resulting from leaving the EU are a cause of this”.
Problems at the ports are an issue stretching across the globe as the world struggles to recover from Covid-19 shutdowns with a shortage of lorry drivers commonplace in a number of countries.
When did the shipping glut start?
Container ports have been facing backlogs since the end of the Covid-19 lockdowns, when a sudden surge in activity globally put pressure on cargo storage.
Getting empty containers back to Asia and other locations to pick up new supplies is causing logistical problems not only in Britain but in North America and continental Europe.
The International Monetary Fund blames the global supply chaos on the Covid pandemic, with factories shut, planes grounded and ports around the world slashing trade volumes at the start of the crisis.
Then demand roared back into life, but it was poorly matched by production levels as countries imposed restrictions on their workforces to contain the spread of the virus. As a result, ships and containers were left in the wrong place.
“The world distribution of shipping containers became highly distorted during the pandemic, leaving many stranded off their usual routes,” the IMF said in its latest World Economic Outlook.
“Temporary disruptions (such as the closure of the Suez Canal, restrictions in ports in China’s Pearl River Delta following Covid-19 outbreaks, and congestion in the ports of Los Angeles and Long Beach) exacerbated delays in delivery times.”
When the Chinese economy first emerged from lockdown this year, there was a glut of containers in the UK and Europe but a depressed demand for goods, which meant storage and warehouse space was full.
Once a backlog starts, it ripples up and down the supply chain, with vessels forced to wait outside ports until a return to pick up more goods is possible.
Meanwhile, the closure of a factory in China can leave a container stuck waiting for goods instead of sailing to the country that needs the products.
Some traders chose to hold more stock than they needed to offset the congestion, which compounded new post-Brexit trade barriers, driver shortages and increased costs.
“This is putting pressure on warehousing space, meaning some importers are choosing to leave goods at ports for longer,” the BPA said.
Freight rates have soared
With containers in the wrong place and some Chinese ports dormant or operating at reduced capacity, freight rates have soared by up to 10 times in some cases from only two years ago.
In turn, manufacturers requiring internationally traded components to finish the production and distribution of their goods and services are then effectively stuck as they wait for parts.
Car production in Britain, for instance, suffered a 27 per cent decline in August, with only 37,000 cars manufactured.
Once again, this is caused by a global problem, with the industry dependent upon two countries for supply – Taiwan and South Korea.
Then three things happened: chip factories closed during lockdowns, a series of natural disasters hit chip supply and demand surged as consumers fresh from lockdown demanded more durable goods such as cars and appliances.
While global container congestion is one issue, Britain’s ports also have the unique problem of not enough haulage drivers to offload freight.
This is exacerbated by the current peak season in the freight calendar “as the pre-Christmas order books create an additional surge in the demand for the ever import hungry British economy”, said Mr Ballantyne.
The HGV driver shortage is more closely linked to Brexit, due to a flight of foreign workers in the post-Brexit era as well as during the pandemic lockdowns.
UK job vacancies at record high
The number of job vacancies in the UK hit a record high of 1.2 million in September, with shortages in the retail sector, accommodation, food services, professional activities and manufacturing.
“These vacancy figures also provide continued evidence of shortages in the UK labour market, which has added to existing problems with supply chain bottlenecks experienced all over the country,” said Pushpin Singh, economist at the Centre for Economics and Business Research.
However, the HGV driver shortage unleashed panic in the UK when a leaked document showing BP had told ministers of looming supply chain problems led to fuel deliveries being rationed and motorists rushing to the pumps.
Britain’s Prime Minister Boris Johnson dismissed the notion that Brexit was to blame and said countries around the world, including China, had also been hit by a lack of HGV drivers as economies rally after lockdowns.
While the UK aims to bring in 5,000 qualified tanker drivers to alleviate the shortage by granting temporary visas to overseas workers, it might struggle to hit that goal because the dearth of drivers is so widespread.
Conservative party co-chairman Oliver Dowden said on Thursday that there is “clearly a challenging problem, particularly with HGV drivers, not just here – it’s across Europe, Poland, the US, even China has this challenge”.
“That’s why we’ve been taking steps to address it,” he said.
Energy shortages also played their part
Meanwhile, soaring gas prices in the UK and Europe caused two of Britain’s main carbon dioxide factories to shut down last month because extortionate costs were leading to enormous losses.
The carbon output supplies 60 per cent of Britain’s needs and therefore threatened packaging and other vital parts of the food supply chain, with many consumers realising for the first time how reliant the economy was on carbon dioxide, which is used extensively in the food and health sectors.
While the Conservative government was partly to blame for shutting down Britain’s last major gas reserve plant in Yorkshire in 2017, reducing the nation’s gas storage capacity to 1.7 per cent of annual demand, rising gas prices also caused shortages in Europe.
The increasing prices are not caused by the UK itself but by the global transition to greener energy supplies and the end of the Covid-19 crisis.
While global energy networks were working well a year ago as the recovery gathered pace, the supply of natural gas was not sufficient to meet the new demand.
As a result, natural gas prices in the UK surged 700 per cent over the past year, while Europe faces the risk of not having enough energy supplies for the coming winter.
What does this all mean for Christmas?
People in Britain face higher fuel bills, while turkeys may be in short supply because of a lack of seasonal workers to pack, prepare and deliver the birds.
Meanwhile, toy retailers have given a warning of Christmas shortages and higher prices amid delivery challenges.
Robert Gliddon, owner of Gliddons Toy Shop in Sidmouth, Devon, urged consumers to “buy now” to avoid Christmas disappointment and to expect price rises of 10 per cent to 15 per cent “on anything from across the seas”.
Food will also be more expensive, with British grocery prices increasing 1.7 per cent in the four weeks to October 3 on the year, market researcher Kantar estimates.
With inflationary pressures mounting in the British economy, one Bank of England policymaker has warned households to get ready for early interest rate rises.
Danni Hewson, an AJ Bell financial analyst, said consumer confidence is shaky in the UK as the optimism created by post-lockdown summer freedom is ”giving way to a nagging concern that this winter really could be a discontented one”.
“Rising prices, gaps on supermarket shelves and warnings that this is the thin end of the wedge have already prompted many to price in an interest rate rise before the end of the year,” she said.
An expensive winter is one thing, dampened economic growth is another
Britain’s economy grew 0.4 per cent in August, leaving it only 0.8 per cent smaller than pre-pandemic levels, with figures suggesting a slowdown in the recovery amid the supply chain woes.
Paul Dales, chief UK economist at Capital Economics, said shortages are set to be a bigger drag on GDP in September and October as the petrol crisis prevented some people from getting to work.
“The recent broadening in shortages and the fuel crisis may mean that growth has come to a near-standstill since August,” he said.
So when will it all end? The bad news is that the world’s supply chain problems are more persistent and more severe than previously realised, with no straightforward fix.
While Sultan bin Sulayem, chairman and chief executive of ports operator DP World, said supply chain bottlenecks that disrupted global trade will linger until 2023, the BPA expects congestion to continue for at least six to nine months.
Brexit may have played its part in the UK’s current challenge but ultimately Britain’s supply-chain pain is shared with the rest of the world thanks to a toxic mix of Covid and bad luck.
