What’s the connection between the Covid vaccine rollout in the US and Europe and increased container costs and shipping delays for retailers? It’s all a matter of supply and demand. Stores are back open and people are shopping again in the US, UK, France, Germany and other European countries that have fully vaccinated over half of their populations, which is straining global supply chains that are still badly impacted by Covid-19. “Consumer demand is outpacing container supply and ve
and vessel space,” Jamie Dixon, TMX’s director of supply chain, told Inside Retail.
Ninety per cent of ships are currently being used to meet demand, Dixon said, and air freight remains limited due to reduced international air travel.
On top of this, Covid-19 outbreaks at ports in China have led to temporary shutdowns and shipping delays, while backlogs at ports in Los Angeles and Rotterdam, some of the world’s busiest docks, have caused container shortages and price increases.
Container prices have increased each week for the last 19 weeks, according to Drewry’s World Container index. Last week, the composite price of a 40-foot container was US$9,817.72, a 2.1 per cent increase from the previous week and a 351 per cent increase from the same week last year. Prices are expected to rise again this week.
The rise of onshoring
Retailers that source most of their products from overseas have been the hardest hit by supply chain disruptions.
“Home and leisure goods, furniture and electronics coming out of Asia are all experiencing significant delays of up to four to six weeks,” Dixon said.
Similarly, retailers with less control over access to global supplies will be more vulnerable.
“In particular, major global retail brands will typically dictate how much and what type of inventory they will make available to each geography,” he said.
“With demand in Europe and North America rebounding very strongly, there is a significant risk that Australian retailers won’t be able to get their hands on these global branded products, or at least as much as they like.”
On the flip side, retailers that source products locally are in a better position to avoid stock shortages and price increases. This may lead businesses to secure new suppliers and potentially onshore some of their production.
“Publishers are looking at how they can print in each region and avoid sending containers across the planet,” Tony Nash, CEO of Australian online bookstore Booktopia, told Inside Retail.
“Shorter print runs in Australia that make the product available for immediate sale addresses a lot of the global supply chain and logistics issues that we are currently contending with globally.
“Print-on-demand is also a mature printing process where someone places an order for a book and the printer has the technology to only print one copy. Most of that is handled in Australia now, removing any need to deal with global supply chains.”
What it means for Christmas trading
Supply chain disruptions couldn’t come at a worse for retailers with the peak trading period just around the corner. Scott sought to allay concerns about Wesfarmers’ supply levels on the call with investors last week.
“There are some challenges getting stock there, but generally our businesses are well positioned to make sure we’re going to have stock on shelves in the lead-up to Christmas,” he said.
However, Deloitte Australia’s national retail lead David White believes stock shortages are inevitable.
“[W]e are going to see some shortages on popular products as the global economy rebounds,” he said.
“We can expect sales to be brought forward as consumers rush to get in ahead of others, and we may see the level of discounting reduce as demand outstrips supply.”
With this in mind, retailers should aim to get their hands on stock as soon as possible, Dixon said.
“A retailer’s availability of stock will ultimately become a competitive advantage come Christmas time.”