The retail
supply CHAIN’S recovery From weathering the knock-on disruptions of the pandemic to planning for an unpredictable future, ANTHONY SHARPE looks at what retailers are doing to keep the shelves stocked
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h, to be a retailer these days. From changes in consumer behaviour and other disruptions brought about by the COVID-19 pandemic, to spiralling shipping costs, stop-start production and issues with Chinese imports, it’s been a bumpy road for the past two years. We’re not over the hill just yet, so retailers are still having to learn, adjust and plan accordingly.
The COVID effect Simply put, global supply chains are still nowhere near as resilient as they were prior. The reasons for this are myriad and complex. “When COVID hit, all the retailers cancelled orders with suppliers locally and internationally because they were afraid they would end up overstocked with goods they couldn’t sell,” says Jan Tukker, managing director of supply chain consultancy BusinessChain. “Then when the supply chain opened up, the flow of goods was not as smooth and regular as it was in the past, a lot of which has to do with container availability and increased shipping costs.”
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Tukker says although retailers won’t have their optimal stocks in stores yet, “they’re certainly on the way to recovery, and turnover in a lot of these companies is quite good considering what they’ve been through”.
Shipping costs If there’s one thing that’s hit retailers hard – and will hit consumers in time – it’s shipping costs, which have skyrocketed since early 2020. This has predictably thrown many a retailer’s recovery plans into disarray. “It’s put everyone on the backfoot,” says Andrew Dinnie, sales director for DSV Air & Sea. “Retailers are still trying to plan their supply chains around what the freight cost was. How does a merchandiser, planner or product category specialist contend with freight costs that are now significantly impacting the cost of their product? They can’t put products on shelves at the same prices as before. I think that’s where the food and consumer brand retailers are really battling now.”
FRIGHTENING GLOBAL FREIGHT RATES Global average freight rates increased more than tenfold from July 2019 to September 2021, when they peaked at almost R155 000/FEU (forty-foot equivalent unit, a standard intermodal container size), before easing slightly to R144 000 in January this year. Source: Statista
Dinnie says retailers are now pushing back and cancelling orders because they can’t afford these costs, which means products aren’t on shelves and sales are lost. There are a number of reasons behind these soaring freight costs. From a South African perspective, the size of our market really doesn’t help. “Because the South African trade lane is so small, we’re severely impacted when carriers choose to serve the larger trade lanes like Europe and the US instead,” says Dinnie. Moreover, supply chain issues in Europe or the US will have a ripple effect on South Africa. “The Omicron variant has hit Europe hard, and their issues around terminal capacity and labour mean they can’t serve the carriers correctly, leading to delays. This has resulted in container equipment and large-capacity vessels being taken off the South African trade lane to service the larger ones.” This means that the vessels serving our trade lane are smaller, which creates a general constraint on carrying capacity. “The carriers will pitch their prices in terms of the supplydemand economy curve, which is what is creating this freight rate crisis,” says Dinnie. “There’s general consensus that it’s not going to improve this year, and may run into the first quarter of next year too.”
S U P P LY C H A I N M A N A G E M E N T
2022/03/16 10:29 AM
