What is causing all these problems and do they have any significance for investors?
The answer to the first question is Brexit and the pandemic, though determining which is most important is not easy. As for the second question, of course there are implications in the investment world, but some will be of a positive nature, even if there are clear negative aspects to the disruption we presently face.
It is hard to disentangle these two defining factors that threaten to interfere with our supply of festive goods this Christmas. Brexit might initially appear a more straightforward influence to assess, but it is still difficult to determine how things might ultimately pan out. The pandemic affects us all, so the disruption we are facing is being shared in some measure all around the world and we still do not know what the final outcome might be, if indeed there is one. It is worth looking at the specific areas of disruption to try to determine what the future might hold.
It is believed that 14,000 or more European HGV drivers returned home as a consequence of both Brexit and the pandemic.
Take the current shortage of lorry drivers, often blamed on European drivers leaving the UK. True, it is believed that 14,000 or more European HGV drivers returned home as a consequence of both Brexit and the pandemic, with just a few hundred subsequently returning. The main reason for this mass migration of these transportation workers is far from clear, but this absence of drivers has simply added to a problem exacerbated by difficulties in recruiting new drivers because the pandemic has interfered with training programmes. In addition, the so-called pingdemic further reduced the supply of those able to work.
But it is not just road freight that is providing a block on getting goods transported from manufacturer to consumer. Ocean freight has also suffered. According to Hapag Lloyd, the German transportation company, some 12% of the world’s ocean shipping fleet was laid up by early this year due to the pandemic. Yet demand for goods has been on the increase as consumer behaviour changes as a consequence of the measures introduced to combat Covid. The result has been to push freight rates higher – good news for shipping companies, but less so for retailers and their customers.
Other issues disrupted international trade, with the closure of the Suez Canal back in March an unwelcome further influence. Freight rates soared in some areas, with rises as much as 350% being recorded. Even at the most basic level it now costs 50% more to ship a container than it did before coronavirus struck. Moreover, as demand becomes more robust as restrictions to deal with Covid are removed, port facilities are becoming over stretched. With investment in shipping infrastructure lagging the boost to demand that the change in consumption patterns has engendered, little wonder that this situation is both adding to inflationary pressures and slowing the rate of recovery from the pandemic-induced recession.
The restricted supply of some goods is producing a knock-on effect elsewhere. A shortage of semi-conductors is impinging on a number of industries, most notably car manufacturing, as recent figures have demonstrated. Mobile phones are similarly affected. Several consumer giants, like Unilever, have also pointed to the negative impact of supply chain disruption. It seems that escape from the coronavirus pandemic is going to be far from straightforward.
It seems that it is the lowest paid jobs that are not being filled, so perhaps one consequence of this will be to push labour rates higher.
There are other industries where labour shortages are having an adverse effect. Agriculture has suffered from a lack of workers to harvest some crops, while in my part of the country, suppliers of chicken products have complained of having insufficient staffing levels to cope with demand. Again, it seems that it is the lowest paid jobs that are not being filled, so perhaps one consequence of this will be to push labour rates higher, with a possible further knock-on effect for inflation.
Recent numbers from emerging markets confirm that the rate of global economic growth is slowing. Similarly, sterling pulling back from recent highs underscore the growing belief that our own economic recovery is being adversely affected by both supply chain issues and the expectation of yet more disruption occurring as the new rules governing trade with our erstwhile European partners add to the complexity of shipping goods between here and the Continent.
So far markets have managed to shrug these concerns aside. Indeed, the pressures created could drive productivity higher and help reduce unemployment, so it is by no means all bad news. We have to rely on innovation and flexibility to sort these problems out, but if they persist into the next year, it is hard to see our economic performance remaining unaffected. This is a developing situation that needs to be watched closely.