Wed. Aug 4th, 2021

Driver shortages, the imposition of inbound customs checks from October 1st, continuing shipping concerns, the container crisis – they are all coming together to create supply chain problems for us in the near future. Why?

In the run-up to January 1st this year, there was much talk about supply chain issues that would happen as a result of Brexit: the government had not finalised the TCA until late December 2020 – indeed, its information for the new systems didn’t go live until December 30th. While many of the expected food and goods shortages did not materialise – because the government avoided them by delaying the impositions of import checks, first intending to bring them in in a two step process from April 1st and July 1st, and later pushing that back to October 1st and January 1st 2022 – for the first few months of the year exporters had problem after problem, most of which have not gone away, and some of which are worsening.

Yes, exporters are still having problems, but it’s not news any more. Market Watch reported in late May that trade with the European Union plunged in the first quarter after the U.K exited the customs bloc.

According to the Office for National Statistics, U.K. exports in goods contracted by 18% with the European Union, and imports collapsed by 22%. U.K. trade with the rest of the world was little changed, with exports edging up 0.4% while imports fell 0.9%. For the first quarter since data began to be tabulated in 1998, imports from non-EU countries – specifically, China, and mostly driven last year by the trade in electronics and this year by textiles, surpassed that of EU countries.

The statistics agency cautioned it was too early to make sweeping conclusions. “We have seen trade with non-EU countries overtake trade with EU countries for the first time in Quarter 1 2021. However, trade was already at depressed levels because of the ongoing pandemic and recession. It is therefore too early to assess the extent to which the transition period reflects short-term trade disruption or longer-term supply chain adjustments.”

The latter statement is significant: the ONS considers that it is too early to assess whether this is short-term, pandemic based disruption or a longer term rearrangement. The pandemic, has, in fact, masked the deleterious effects of Brexit on the UK’s exports. However, the government’s delays on import checks and the pandemic have also masked Brexit’s contribution to the incoming supply chain. Unfortunately for us, however, all the indications are that the reckoning is only a few months down the road: the thunder is in the distance, but the storm is on its way.

If you have a teenager of the appropriate age, one of the things you will undoubtedly have noticed is the difficulty of getting driving lessons: totally in abeyance during the pandemic, they resumed with long queues of hopefuls struggling to find both lessons and test slots. The same is true of HGV drivers: there is a shortfall in trained drivers and it has been exacerbated because fewer and fewer European drivers are prepared to travel to the UK. The situation is so bad that the Loadstar, the hauliers’ industry magazine, carried this report yesterday:

“Calls to bring in the army to help ease the UK’s worsening driver shortage have been rebuffed by industry associations seeking “long-term sustainable solutions”.

Chief executive of the Federation of Wholesale Distributors (FWD) James Bielby said the situation had become so extreme, with the shortage hitting 70,000, he recommended the government having army trucks on standby “to ensure… enough vehicles and drivers to distribute food,” adding “this is a crisis and drastic action is needed now.”

However, an RHA spokesperson questioned the validity of using the military, noting that at any rate army drivers “would certainly need retraining. We need sensible short- and long-term solutions to tackle the driver shortage, army drivers have different jobs on different vehicles from those in civilian logistics, and the numbers of them are not large in any case. That’s not to say a handful of military drivers might not be able to help, but it really isn’t a solution to the current driver shortage.”

A spokesperson for the FWD told The Loadstar that, while its call for military intervention was serious, and had been proposed to the government, it was also one of the more “sensational” options among other “less drastic measures”.

“The shortage of drivers is now critical, food wholesalers are experiencing severe difficulties delivering to stores, pubs, restaurants and care homes,” the spokesperson said. “We are meeting with ministers this week to discuss options, which we believe should include having army drivers on standby to ensure food distribution is not interrupted.”

Among the proposals it intends to put forward is a temporary extension of drivers’ hours, perhaps limited to multi-drops in remote areas and regions with a food supply threat. The association has also called for an end to furlough for HGV drivers and a waiving of requirements for both medical certification and Certificate of Professional Competence (CPC) in the case of drivers’ whose CPC has expired.

FWD members are also becoming increasingly concerned that, with the situation at “crisis point”, it was only likely to worsen as lockdown restrictions are eased and demand from the hospitality sector increases.

“The UK government needs to act very quickly, even if the 21 June re-opening does not go ahead as planned,” Mr Bielby said. “Wholesalers have done all they can, including raising drivers’ wages and even sending depot staff out in non-HGV vehicles to fulfil smaller orders. Some have had to turn down business to fulfil regular customers, and they’ve tried engaging agencies but these are also short of drivers.”

Mr Bielby said the shortage was also exacerbating the country’s growing food waste issue, with unfulfilled deliveries difficult to redistribute. Shortfalls in soft drinks, beer, ice cream, cheese, yoghurt and meats were being reported. Meanwhile, the driver shortage is not confined to the UK. Transporeon research shows European capacity hit a three-year low last month, nearly 60% lower than a year earlier.”

(And if you had any doubts at all about the complexity of goods distribution in the context of which these driver shortages are happening, I cannot recommend highly enough this series of tweets by “Cold Chain Shane.” The series has some excellent graphics – which make the whole matter clearer – and so it’s worth reading for those, as well as the commentary.) https://twitter.com/ColdChainShane/status/1403349355122278407?s=20

Meanwhile, here’s the shape of things to come. Last week, on June 8th, Nationwide Produce PLC, ran the article which follows.

(The company bills itself as “one of the largest, longest established and most diverse produce companies in UK.” It says on its website:

“What do we do? Well, just about everything in fresh produce. We grow it, we grade it, we pack it, we trade it, we import and we export… but above all we are importers.

Group turnover for financial year 2018-19 was £144m – 61% of this was produce we bought from outside the UK. Our customers are in every sector of the market – food-service, catering, processing, wholesale, export and retail – and want to be able to buy a full range of veg, fruit and exotics from around the World every day…whatever the circumstances. We provide this service to over 1,000 customers throughout Europe, every day of the year.

Whether you’re a caterer or a processor; whether you require potatoes or pomegranates – we’re here to serve you!”)

Not a small player, I’m sure you would agree. Not a company that doesn’t know about import and distribution. Not a bit-part player. And what did it have to say?

“Perfectly Good Graded And Packed Fresh Produce Is Being Dumped.”

A shocking headline….but true. The acute shortage of HGV drivers is now the direct cause of perfectly good, graded and packed fresh produce being dumped or rotting in cold stores, waiting for wheels to go under it. Supermarket shelves and restaurant plates are going empty – this is a crisis of national importance.

In all my years in fresh produce (says the writer of the article) I’ve never seen anything like this. Example – we supply one of the largest restaurant chains in the UK. It goes without saying how much they’ve suffered throughout the pandemic. However, business is booming for them at the moment.

On Sunday, our guy who handles their account received a call from our haulier at 1pm to say that due to a shortage of lorry drivers, they cannot deliver anything to any of the depots for our restaurant customer that evening. We reminded them that all the goods were graded and packed and ready to go. They said they simply could not deliver due to a lack of drivers. After hours of begging and pleading we managed to get them to deliver to one of the eight depots.

And we were one of a number of suppliers to the restaurant chain that the haulier was breaking the same bad news to. The restaurant chain went drastically short of fresh produce this weekend. And this is by no means an isolated incident. It’s happening throughout the industry, every day and across all sectors. I heard of one major supermarket chain which had 22 full loads of produce not delivered this weekend due to the shortage of drivers. Goods are being produced….but not delivered.

Our haulier I refer to above has been one of our main hauliers for many years. And yet despite this I hold no grudge. Quite the opposite, I feel for them and have urged our guys to work with them to sort through such issues as it wasn’t the first and won’t be the last. In fairness to them, they’ve been warning us about this for a long time but we’re now starting to feel the painful reality of this long-predicted shortage of drivers. So how did it come to this? One of our hauliers summed it up perfectly in a recent email:

• BREXIT

o Large proportion of drivers in UK are foreign nationals from European countries which have returned to the EU.

o Government failure to add LGV drivers to the skilled labour list, means any new drivers from EU require immigration paperwork – new barrier to entry.

COVID

o No test of new drivers has taken place for over 12 months which is the equivalent of 20,000 new drivers.

o No potential new drivers have been trained for over 12 months due to COVID social distance rules.

IR35

o Changes to the taxation rules of self-employed drivers has seen a sharp decline in those drivers as many were foreign nationals who have returned home.

o This change has seen a 25% increase in Agency driver costs. This is a massive on-cost considering that Transport companies drivers are around 40% of their costs.

Ageing UK driver force

o 13% of the industry’s UK drivers are over 60, compared to only 1% under 25.

Rise in driver wages – as companies fight to retain drivers, wages are sharply rising and already this year-to-date wages have increased by circa 10%. Again, this is a massive on-cost where this represents 40% of an operators costs.

So how can we deal with this crisis? There’s no quick fix. For example, when schools/universities break up for summer soon we should see a much-needed boost in staff availability, particularly for the hospitality sector. But while it may take a matter of hours to train a waiter, it takes a lot more time and money to train a lorry driver.

The quickest fix would be government intervention to change the tax rules, add drivers to the migrant skilled labour list etc. That sounds like a long-shot but MI5’s maxim is that society is only ever “four meals away from anarchy”. Perhaps empty shelves and plates will be the wake-up call the government needs to deal with this crisis. If not that, perhaps a spike in fresh produce prices as the industry is forced to pass on the huge increase in all labour costs to the consumer. Or perhaps a spike in business failures of fresh produce SMEs.

It concerns me the amount of our smaller customers who have been on to us this week asking for help because their hauliers have simply abandoned them. It’s a genuine existential threat for them as they are left struggling to find anyone to deliver their goods to their customers. I’ve just had an email chat with the owner of one of the largest hauliers in the country and he said “we have to highlight this at the most senior level – it doesn’t stop with produce and food generally, it’s worse in other sectors – and the rate of escalation of this situation is truly staggering…..first sign of shortage April 17th – now it’s a national crisis and still escalating.”

I would urge all suppliers in the industry to work with hauliers and customers to get us through this crisis. I heard of one supermarket who stuck to their rules rigorously last week and rejected lorries for being literally minutes late.

They are now in crisis talks with two major hauliers who are seriously threatening to stop carrying goods for them or any of their suppliers. I would urge you not to shout at your hauliers and threaten them with bills, that will get you nowhere – work with them to find solutions. Customers will have to be far more flexible on delivery times.

We also need to stop hauling fresh air around the country. Full pallets and full loads are what we need in a crisis like this. Customers need to work with us to stagger orders and reduce the number of deliveries to ensure full pallets and loads. We also need to see customers being more flexible on date codes to allow direct deliveries from abroad. I’m sure this will eventually lead us all to adopt better practices but for now we need to work together to find a way through this crisis.”

That is the view of a major player in haulage. He’s saying there is a huge problem NOW. What’s the government doing? Nothing. Is it even aware of the problem? Doubtful. Look at how it handled Covid.

This company’s opinion  – and the opinions of many players in the industry – should be covered by the UK media, but it is ignoring the gravity of our supply situation in favour of soft-focus shots of the PM’s son playing on the beach (is that dynastic ambition we’re seeing there, Johnson?) and stupid spats over sovereignty and sausages.  

And this situation is BEFORE we bring in the import checks in October. Before the inevitable delays. Remember that the UK Gov is not fully implementing “planned” customs processes (full, non deferred declarations)  & SPS  (sanitary and phytosanitary) border post processing; it’s not even doing pre-notifications nor safety/security ENS checks until January through to March 2022 for live animals.

Don’t forget that for these import checks the UK will, unless it organises itself, also be critically short of adequately trained (never mind experienced) customs agents; customs officers; port health inspectors & vets with supporting infrastructure/inventory – especially vets, since many of the young European vets from Portugal and Spain who used to come to the UK to do a couple of years working in the areas (abattoirs, e.g.) which UK vets shun if they possibly can, are no longer coming over.

What about those import checks? Will the government be ready? Well, the fact that they are not happening, or not happening properly, is at the root of the whole Northern Ireland issue: as Maroš Šefčovič said before the G7 – the fallout from which is still falling out – the UK has done absolutely nothing to prepare for the checks – no infrastructure, no nothing –  and is in breach of its treaty agreements in that respect. If it hasn’t created the infrastructure for Northern Ireland, is there any reason why it will do it for the rest of the UK?

Meanwhile, if you think the hauliers’ crisis is going to cause problems now and down the line, far away in China, and coming to you soon, the shipping crisis is also getting worse, according, again, to Loadstar:

“Shippers are facing a perfect storm as the logistics industry has entered an “an era of unprecedented disruption”, with ports crippled by acute congestion as the malaise faced by China’s Yantian spreads to others. According to Alex Hersham, CEO and co-founder of supply chain technology company Zencargo, the knock-on effect from Yantian, which has been operating at just 20% of normal productivity due to an outbreak of positive Covid-19 cases, will be acutely felt in the coming weeks by retailers and consumers.

The delays to Chinese exports, which have escalated to 16 days or more for vessels not cancelling their Yantian call, threatens an impact significantly worse than March’s Suez Canal blockage.

“Container shortages and delays will severely impact companies’ ability to deliver to customers,” said Mr Hersham. And he warned that industries “will face shortages of materials, and countries will struggle to stock up on PPE”, and also claimed “we are in an era of unprecedented supply chain disruption”.

Ocean carriers are scrambling to mitigate the impact, Maersk, for example, confirming the omission of Yantian on 11 of its services and ad-hoc cancellations on eight others. The carrier said the Yantian port authority had successfully re-opened part of the port, moving productivity back to around 45% of normal, but this was far from sufficient.

It told customers: “While this has a positive impact on gate activity, which is soon expected to reach the same levels as before the incident, schedule reliability will continue to suffer with an average waiting time of 16 days and counting.” As and when the pent-up export cargo does move, this huge wave of cargo hitting European and US ports will be extremely challenging for them and their already stretched landside operations.

In the US, ports struggle to cope with peaks more than their European counterparts, but the North Europe port of Hamburg has been under intense pressure in the past few weeks and today Hapag-Lloyd advised customers of a tightening of restrictions for export cargo deliveries at Antwerp.

An advisory from the carrier said terminal operator PSA Antwerp had been “forced” to implement a “seven-day cargo opening rule” for export containers to its terminals, meaning shippers would henceforth not be allowed to deliver containers to the quay more than seven days before the confirmed arrival date of the nominated vessel.

Speaking to The Loadstar today (13th June)  Mr Hersham said carriers could decide to omit the UK to mitigate the impact on their schedules.

“Congestion will rise significantly, meaning that ports, and especially those already suffering such as Felixstowe, will be heavily impacted,” he said. “The scale of the issue in South China is already bigger than Suez.

“Two accurate metrics to measure disruption by are days of delay and teu (Twenty-foot Equivalent Unit, an exact unit used to measure cargo capacity for container ships and container terminals.  In both cases, Yantian’s partial closure far surpasses what happened with the Ever Given.”

To sum up: there is a haulage crisis. There is an ongoing shipping crisis.  Assuming the government does actually start import regulations in October, that will exacerbate supply chain issues. Even if it doesn’t, those issues will not go away.

Unfortunately, all the government appears to be doing in this period of crisis is to grandstand over  “sovereignty” and play with its friends. Will warnings from the industries galvanise it into action? Or will it wait to do anything until we actually are “four meals away from anarchy”?

“Queue on the A14 eastbound nearing Junction 1” by Robin Stott is licensed under CC BY-SA 2.0

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