Supply chain squeeze threatens Christmas gifts and festive food

Don’t tell me you’re going to say the C word? It’s way too soon to talk about Christmas surely?

It is and it isn’t, but mostly it isn’t. Supply chain issues stretching all the way from Sligo to Shanghai mean we may be facing a winter of discontent.

What kind of shortages?

Anyone looking for new cars and tech will struggle because of a chronic deficit of silicon chips all over the world, while the flat-pack kings and queens of Ikea have predicted shortfall in Ireland of about 10 per cent this winter.

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But what has any of that to do with Christmas?

Because the next three months are when most Irish consumers spend most of their money and when demand for everything skyrockets. Anyone keen to deck their halls with plastic baubles might be well advised to stock up soon while industry sources at home and across the Irish Sea are predicting supermarket shortages that may not rival Soviet-era Russia but will be noticeable.

What is behind the shortages?

A hellish trifecta comprising Brexit, Covid and container shipping.

Container shipping?

Costs have gone through the roof. The impact of the Ever Given ship getting itself wedged in the Suez Canal earlier this year is still being felt up and down the supply chain, while the cost of hiring containers has soared with demand far outstripping supply in many places. According to a piece in the Economist this week, “the average cost of shipping a standard large container (a 40ft-equivalent unit, or FEU) has surpassed $10,000, some four times higher than a year ago”.

Is container cost the only issue?

No. Covid-related shutdowns at key ports in the far east have slowed traffic dramatically. Then there are companies keeping container ship vessels in ports in the European Union and the United States rather than sending them back empty to China, which has an impact on traffic going the other way.

But Santa Claus is unaffected, right?

He’ll be grand, he has his own unique shipping model to fall back on. However, toymakers, sellers and of course parents are facing challenges. This week Smyths Toys warned people to get themselves sorted out earlier than ever. It stressed that this year it would be “particularly important . . . as global shipping and container shortages are causing supply issues in many parts of our lives”.

And what’s the story with food?

We were all still enjoying our summer heatwave when Marks & Spencer started pouring cold water on Christmas. It warned that many festive treats may not make it to Ireland this year – or at least not in the volume we are used to. Its chairman Archie Norman said it had already had "to cancel sales of our Christmas Food to Order, our top-end range service, into Northern Ireland because we just don't know if we can get it there".

Then this week it blamed “complex rules and excessive paperwork” for cutting 800 lines in its stores in the Republic, including such items as free-range chicken, orchids or goods containing Parmesan. Meanwhile, it has closed 11 of its franchises in France.

But that's just Northern Ireland, right?

Wrong. M&S ships products from Scotland to Larne and from there all over the island.

Is this the point where Brexit makes its entrance?

Yes it is. While many retailers have found Brexit challenging, it probably has been most evident in M&S. It is smaller than a retail giant like Tesco and has very different suppliers to Europe-facing companies such as Lidl and Aldi, which explains why it is facing more problems than most.

What’s the problem?

In a recent letter to suppliers, it blamed reams of paperwork needed to move goods from the EU to the United Kingdom and in the other direction, and highlighted a lack of vets for essential checks.

How complicated can it be? It’s only a few forms surely?

Because of the strict rules imposed on fresh food importation into the EU, the right documentation for every product in every shipment has to be present and correct. An M&S lorry contains maybe 700 products and if there is a problem with the paperwork on just one of those products then the entire shipment will be denied entry to Ireland.

M&S has to fill in about 40,000 pieces of paper every week. With much of the stock perishable, stockpiles can’t accumulate in warehouses here, and this can lead to massive disruption and gaps on shelves.

What kind of volume are we talking about?

Marks & Spencer sends 450 lorries from Scotland to Ireland every week and every product on every lorry requires a corresponding piece of paper – the processes are not digital – every single time. And every single "I" has to be dotted and every single "T" crossed, in the right way and in the right colour ink.

But what could be done to make it better?

Maybe the system could be fully digitised and spot checks used rather than checking every lorry every day. M&S has been sourcing more products in Ireland – which is obviously good news for the economy here – and it has become more adept at identifying problem products.

But it’s not just M&S, right?

No. There are problems across the entire food supply chain in the UK – and we do a lot of business there. The chief executive of its Food & Drink Federation Ian Wright – not that one – has said a shortage of lorry drivers and staff across the supply chain, Brexit and Covid mean that the disruption “is going to get worse and it’s not going to get better after getting worse any time soon”.

Enough about there, what about here?

According to retail expert and TU Dublin academic Damien O’Reilly, Ireland is not running out of food.

Well, that’s good news, isn’t it?

Yes, but we are in for a sustained spell of shortages in some areas and we can look forward to price rises across some lines. “There are certain products that are not as easily available as they were,” O’Reilly says. “But we can get substitutes so we are not lacking anything essential, We have seen increases – flour, which is imported from Britain and made using ingredients sourced in Canada, has gone up by 9 per cent because it is subject to extra tariffs.

“Coffee, chocolate and cocoa products are climbing because of a spike in commodity prices and the price of other products will climb because of supply chain issues.”

How much are prices likely to climb by?

That depends on the products and where they come from, but we are facing into a period of food price inflation, with more and more food and agriculture companies saying they have experienced price hikes, which will inevitably be passed on to us. A recent report from the accounting and professional services firm Ifac said that  an increase in costs ranging across transport, energy, raw materials and packaging, is “an issue – in some cases – that could contribute to food price inflation in the coming months”.

Meanwhile, inflationary pressure in the Irish economy is now at its highest level in more than a decade and according to the latest figures from the Central Statistics Office, the rate of inflation stands at 2.8 per cent.

So where do we go from here?

When it comes to food supplies, it is in the interest of retailers to fix the problems soon. But systemic problems will remain and much will depend on how the relationship between the UK and the EU develops in the months ahead. And don’t discount another pandemic, a worsening of the current one or even a big boat getting wedged in a big canal. So who’s to say for certain what will happen next?