Supply-chain shock: ‘Do your Christmas shopping early’

Bryan Maher took delivery of a container of luxury artificial Christmas trees at the Garden House in Malahide last Tuesday, just as he has for the past 25 years.

The door to door transport cost for the consignment of trees, whose arrival traditionally signals the start of the Christmas selling season, came to just over €3,000 in 2020. This year, it rocketed up to €14,000 – for the same trees making the same trip from a factory in China to his shop in north Co Dublin.

Recent headlines about UK shortages of everything from petrol to milk to games consoles have been met with concern here and the occasional hint of schadenfreude. But the story of how Maher’s Christmas trees got snarled up in a global supply chain crunch as they travelled from the factory owned by his US supplier in China to Malahide is part of a much larger, and infinitely more complex picture that dwarfs the problems caused by Brexit, and is already leading to price hikes and goods shortages here.

Maher produces a document tracking the journey his Christmas trees took from China. On July 26th they arrived into Yantian in Shenzhen, the world's fourth busiest port which admits 8,000 trucks daily and exports 90 per cent of the world's electronics. Satellite images taken of the port over the summer showed a backlog of containers at the port so big it could be seen from space. On August 4th, Maher's container was one of 40,000 loaded onto freight ships bound for Europe and the US. The trees made it as far as Rotterdam on September 14th, where they sat in port for another 10 days before they left for Ireland.

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Because of Covid, “each of those ports are working at half capacity, because the staff are spaced out more. What would have taken five weeks is now taking two months,” he says.

It could have been worse: earlier in September he also took delivery of two consignments of garden furniture within a few days of each other. The first had been ordered in early 2021 and was due to arrive last April. The second was ordered just a few weeks ago for next summer. They both landed in his store together at the worst possible time of year for garden furniture. “We’ve had to double our stock holdings” due to the unpredictability, he says. “It’s a lottery.”

For Ireland's independent retailers, the best they can do is sit and wait to see if their stock arrives: 'We're just like a cork floating on a wave'

Maher has decided not to pass on the bulk of the extra cost of the Christmas trees to his customers. But “unquestionably” the prices consumers pay for a huge range of goods will go up, he says. “We’re seeing it already. The retail cost of garden furniture is set to go up 20 per cent.”

The same pressures may result in empty shelves this Christmas. "We will see inflation, that's for sure. We'll see shortages in certain lines of goods, particularly voluminous things. You'll see furniture stores with empty shelves. And I think the one that parents might be concerned about is toy stores and shelves possibly being empty there." Goods imported from Asia, "whether it's Barbies or bouncy castles, you might not be able to get those," says Alan Holland.

The Cork-based computer science lecturer-turned-founder of global logistics company Keelvar has a ringside seat on the global shipping crunch. He designs AI (artificial intelligence) bots to help customers including Glanbia, Primark, Adidas and BMW source and move goods around the world more efficiently.

As a result of what he is seeing, Holland will be starting his own Christmas shopping immediately. “There’s a confluence of things happening in different locations around the world that are all contributing to problems in many different industries from computer chips to fuel supplies to furniture.”

Last week, the global supply shock led to a warning by the world's top central bankers that inflation levels – which hit a 10 year high in Ireland in August – will remain elevated for some time. The global shipping giant Maersk recently announced that stock inventory levels in Europe and the UK are at their lowest level on record. It advised customers "to plan their supply chains well ahead, particularly for the upcoming holiday rush". Building materials are in short supply. Manufacturers around the world are running out of plastics and metal parts. Toyota is to slash car production by 40 per cent because of a chip shortage.

And here, retailers across a range of sectors are struggling with similar challenges: escalating shipment costs; stock stuck in transit; difficulty securing manufacturing slots in China; goods shortages; delivery times that are a moving target; a mountain of paperwork as a result of Brexit; entire consignments returned to customs because of a single missing form. Against this backdrop are warnings of a shortage of  3,000 to  4,000 lorry drivers in Ireland.

A container that would have cost €4,000 prior to Covid would now cost €18,000

There’s little optimism that it will be resolved any time soon. “I would say it’s at least 12 months off before we see kind of normalisation in the ocean freight sector,” says Holland. In the meantime, “we’re going to see price inflation. We’re going to see delays. We’re going to see some products missing. So we’re going to have less choice than usual. And we should get used to having to wait a bit longer.”

For Ireland’s independent retailers, the best they can do is sit and wait to see if their stock arrives. “We’re just like a cork floating on a wave,” says Maher.

Julie Colclough, managing director of e-commerce fulfilment company Eurobase, which helps Irish companies get their goods onto and off the island, uses a phrase you hear over and over about this issue.

“It’s been a perfect storm. The country of Ireland is in a very precarious position. Here, Brexit coincided with Covid, and whereas a lot of Irish retailers would have been very dependent on the Irish market, Covid forced them to look outside the island. But they’ve been struggling to get product on and off the island because of a combination of an increase in shipping costs and complete congestion on carrier routes. There’s an awful lot of aircraft gone from the sky since Covid, so that reduced air freight as an option.”

Shipping costs “have more than quadrupled between China and Europe,” she estimates. “A container that would have cost €4,000 prior to Covid would now cost €18,000. At the moment, we’ve got a container with sporting goods destined for Black Friday and the Christmas season. It left China 54 days ago, and it’s currently somewhere off the coast of Portugal.”

Some larger retailers, such as Ikea and the US giant Costco, have taken to chartering their own freight ships to get around the freight logjam. Smaller retailers don't have that luxury. "When you think about the smaller players, every organisation is in a supply chain but they don't necessarily manage that chain," says Dr Eoin Plant-O'Toole, associate professor of logistics at Edinburgh Napier University and chair of policy at the Chartered Institute of Logistics and Transport in Ireland.

“All of these factors that we hear about - whether it’s chicken running out at KFC, or McDonald’s running out of milkshakes or the delays with the Xbox Series X – all of those factors impact the smaller players too in the same way. But they don’t have the resources or the bargaining power to try and influence their supply chain. If you’re a small independent retailer and you’re looking for a small delivery of Xboxes – you don’t have the same negotiating power.”

How exactly did we end up here?

The crunch began when the pandemic hit, manufacturing stalled and ports closed suddenly, leaving some container ships stranded in the wrong part of the world. For several weeks, freight container ships stopped moving altogether or saileed half-empty. “People stopped buying for a period of six to eight weeks. And then America started spraying the cash and encouraging everyone to spend money,” says Holland.

As Americans began spending again, demand for luxury goods soared, catching manufacturers off guard. “And nobody in China could get containers, because the containers were sitting in warehouses in America. This had a ripple effect across the globe.”

Even after trade restarted, “port capacity has been an issue. Sourcing containers has been an issue,” says Plant-O’Toole.

Christmas is going to be difficult in terms of shortages. You should be buying now. We're certainly seeing that a little bit in store already

The past 18 months has shown up the fragility of the global supply chains and how “a small disruption can cause havoc. We saw what happened with the Suez canal”, when the Ever Given container ship became lodged in the shipping route and caused mayhem. That was a warning sign of things to come.

Now, the combined effect of Covid, labour issues, historical underinvestment in the freight industry, electricity outages in Chinese manufacturing hubs, and a handful of one-off freak events – including a drought in Taiwan that derailed chip production – makes the Ever Given look like a storm in a teacup. The bottom line, stresses Holland, is that “it’s a very good idea to do your Christmas shopping early”.

Over the past week, The Irish Times spoke to small independent companies selling a wide range of products including baby food, garden goods and furniture, bicycles, toys, gifts and clothing. Across the board, they are struggling with stock issues and rising prices.

The bike shop

“We have bikes that have been sitting greenlit in the warehouse in the UK since June. They’re just not moving because we’re somewhere in a queue,” says Eamon Barrett who owns Altitude bike shop in Waterford city. “We’re only getting, say, four bikes a week ago. But in order to make any inroads to the queue, we’d have to have access to 15 or 20 bikes a week.”

If a customer comes in with their heart set on a particular make or model of bike, I have to warn them it could take up to a year

If a customer comes in wanting a bike and they’re flexible about which brand, he can usually find them a good match. But if they come in with their heart set on a particular make or model, he has to warn them that it could take up to a year.

The bike industry is booming and he’s not complaining, but he has found himself taking longer positions on stock to keep supply up next year. And to keep his repair business going, he is sourcing parts at retail prices from European suppliers.

There’s no margin in it, and it’s not a sustainable long-term strategy, but “if somebody hands in a bike that needs a specific part, and Shimano don’t have availability of that part in to the next year, we can’t just say to a customer sorry, you’re off the road until next year. As a friend put it to me, sales are about 30 per cent up but I feel like I’ve worked about 130 per cent harder to get that 30 per cent.”

The clothing store

Rebecca Harrison owns Fishers of Newtown Mount Kennedy, a clothing, gift store and café in Co Wicklow. She pinpoints three big supply issues. The first is Brexit.

“We stock a few significant UK brands that would have a very loyal following, so the decision to just replace them isn’t straightforward. Some of them have been amazing in terms of setting up EU hubs. But some have just completely stuck their head in the sand and they’ve done nothing. They’re just sending stock as they normally would and we’re then getting huge bills on delivery from the delivery companies for the customs and VAT. The average is about a 12 per cent duty that we’re having to pay.”

The second issue is that “our suppliers are having great difficulty getting production slots in the factories in China, throughout Asia, and even in Europe. We’re seeing cancellations come through with styles.”

The final challenge is shipping. “It’s all adding to the increase in costs to us, which obviously adds to the increase in cost for the end consumer.”

She’s hopeful that she has ordered enough stock for Christmas. But “Christmas is going to be difficult in terms of shortages. You should be buying now. We’re certainly seeing that a little bit in store already with our customers.”

The toy shop

Miriam Doyle runs Mimi Toys, which specialises in traditional wooden toys and "nothing battery operated" in Summerhill, Co Meath. This year has seen a shortage of larger wooden toys – things like doll's houses, big wooden playsets. "For me, as a small supplier, orders are taking far longer to reach me. I have extra costs in terms of customers and duty, so there is a cash flow implication."

It’s a guessing game how much goods coming from the UK will end up costing. On top of that, “because of their own manufacturing issues, suppliers have increased their trade prices”.

For now, Doyle won't be passing the extra costs on to consumers. "I will take it on the chin until Christmas." But she's concerned about next year and beyond. "I heard that Amazon has opened a warehouse in Ireland. That's a worry for tomorrow."

The gift shop

Lisa Kinsella of Finders Keepers gift shop in Waterford city shudders when she’s asked about the prospect of empty shelves this Christmas. “I hate all the conversation around it. I hate putting people in that whole panic mentality.” She has planned ahead and is hopeful that when her big Christmas orders drop in October, there will be enough to keep the shop full until Christmas. “But it’s still all so unknown.”

In previous years, Kinsella was able to reorder throughout October and November from suppliers in France. This year she’s worried that won’t be an option. “At some point, we might end up just saying, ‘Okay, we’ve done our bit. There’s no point trying to get more.’ There’s no way I can see us being able to place an order and then get stock in a week from France.”

The small food producer

It's not just those importing manufactured goods from Britain or Asia who have been hit with supply chain issues. Irene Queally is the owner of Pipin Pear, a producer of organic chilled baby food to major supermarkets in Ireland and Europe. For her business, the challenge has been securing both packaging materials and raw ingredients.

“For cardboard and packaging, we used to have a 14-day turnaround. Now it’s 14 weeks. Our pots were a six-week turnaround. Now they’re 18 weeks. The cost of pots has gone up 26 per cent. The cost of raw materials and transport is up. You can’t get product out, because you can’t get truck drivers.”

Pipin Pear produces all-organic baby food and the raw ingredients are often not available in Ireland. But Brexit has meant that some of her UK suppliers are no longer willing do business with her because the volumes are too small to justify the additional paperwork. “We’re a small company dealing in small volumes, and from their point of view, this is a load of paperwork.”

We're bringing in more Irish brands than we've ever had in store. And I think there's been a real swelling in support for Irish products, which is fantastic to see

Queally’s products already have a short shelf life, so even brief delays can be disastrous. “When you’re dealing with fresh, raw materials, you’re trying to line them all up for production on certain days. If you don’t get product in on time, it’s not possible to do a production run. It’s causing a lot of headaches.”

If there is a silver lining in any of this, it is that Irish retailers are increasingly turning to local producers to fill the gaps on their shelves previously occupied by imported goods. “We’re bringing in more Irish brands than we’ve ever had in store. And I think there’s been a real swelling in support for Irish products, which is fantastic to see,” says Rebecca Harrison.

Miriam Doyle has been really encouraged by the “buy Irish campaign” that kicked off during Covid. “This Christmas will test that. I hope Irish people will still be faithful to Irish businesses.”

Holland says that, in a world where we’ve taken for granted our ability to get what we want when we want it at the price we want to pay, we’re going to have rethink how we shop. “We became accustomed to everything being ready on-demand waiting in warehouses nearby. That’s not the case anymore. We’re going to have to get used to waiting.”