RISING FREIGHT COSTS AND STOCK SHORTAGES AFFECTING ALLIED TRADE

Rising costs and lack of stock availability hits allied businesses

By Matt Ross

The impact of the COVID-19 pandemic has, and will continue, to be felt across the horticulture industry in a myriad of ways. Whether it’s the increased public demand for greenlife borne out of lengthy lockdowns, a desire to connect with nature and beautify homes and gardens, or the toll it’s taken on a diminished seasonal workforce and loss of employees through mandated vaccinations. But there is another concerning outcome that is having severe ramifications on one sector of our industry, that needs to be raised.

Our allied businesses are being hit hard by astronomical rises in stock and shipping costs, as well as an unparalleled shortage in stock availability. And those factors could ultimately impact growers and retailers across the state.

We caught up with three of our Industry Partners to understand how they have been impacted by rising stock and freight costs, and stock availability.

Shipping Costs

The Drewry world container index shows shipping costs have increased by around 400% over the last 12 months.

We spoke to one allied business that reported an increase from $2,500 to $12,000 to ship a for a 40-foot container.

Product Cost

There have been significant price increases for many key inputs that are used to manufacture finished products for our industry (both domestically and internationally). One business we spoke

Port Congestion: Supply chain disruptions increase global congestion rates

Anchorage Shanghai/Ningbo/Zhoushan Hong Kong/Shenzhen/PRD Los Angeles/Long Beach Singapore Rotterdam Busan Qingdao Jebel Ali/Dubai/Sharjah Bangkok/Laem Chabang Savannah Antwerp/Zebrugge Surabaya Total ships Waiting ships In port Congest (%) Net change

269 237 112 81 58 53 53 40 39 35 33 31 68 88 35 34 3 6 9 3 3 24 0 8 77 62 29 38 34 31 28 26 22 4 22 5 46.9%

-4.9% 58.7% +15.5% 54.7% +1.2% 47.2% +10.6% 8.1% -11.3%

16.2%

-1.7% 24.3% +0.3% 10.3% -6.3% 12.0% -10.7% 85.7% +10.7% 0.0% -23.1% 61.5% +11.5%

Sources: Bloomberg, IHS Markit, Genscape Note: Congestion % estimated as anchored container ships waiting divided by sum of anchored container ships and container ships in port. Total container ships provided above include all vessels in anchorage area to show all activity. Net change shows current congestion minus April-Oct. median.

to has reported receiving three price increases for key items in the past 12 months (in some instances well over 20 per cent) across numerous product lines.

The drivers for these increases generally due to reduced manufacturing capability. As an example, the impacts of shutdowns for COVID-19 has led to less production staff and reduced output. In China, due to power shortages, restrictions have been placed on business operating hours to ensure enough supply of heat throughout the winter for their large population. This creates a supply and demand effect leading to large price increases.

Product Delays

In addition to the above challenges, this is further exacerbated by the global supply chain delays for importation of products across the globe. Shipping congestion at some of the largest ports all over the world and throwing lead times into disarray.

The table above provides a good insight into the severity of this problem with congestion rates at or around 50 per cent and with very little improvement on the horizon. We know from discussions with our allied businesses, that time of order to time of receipt for internationally sourced products is taking well over six months in some cases, which means larger orders need to be placed (at larger prices) to ensure that there is enough raw material to continue to manufacture finished products.

If not, this leads to a risk of being able to supply the market.

The difficulty for these businesses to secure stock, with unprecedented lack of availability both from the Australian and overseas market is a perfect storm for allied businesses.

And what does that mean for our growers and retailers? Ultimately some allied businesses will need to raise their prices in 2022 to ensure they can continue to supply goods to the industry.

And if that does transpire, that may prompt an industry wide review of the prices growers sell to retailers, and retailers sell on to consumers.