Is the supply chain broken?
Global supply chain capacity has been drastically reduced due to disruptions caused by the Covid-19 pandemic – shutdowns, sanitising and sickness – directly impacting the manufacturing and retail sectors.
The sudden shutdown, and subsequent stop-start interruptions, have dramatically altered trade patterns, both in industry and transport logistics. Delays of up to five weeks (on top of the usual six-week wait) in the shipping and distribution of essential raw materials, goods and services halted operations in factories and businesses across the world, leading to production delays and shortages of everything. Analysts predict the trend to continue until at least March 2022¹.
Governments ordered strict lockdowns and restricted movement, effectively ceasing trade whilst prioritising medical supplies. Producers shut down plants while retailers scrambled to secure stock as consumers stockpiled essential goods from the safety of their homes. Flights and sea-freight services were either halted or reprioritised for medical supplies and repatriation, while demand for shopping goods and services dwindled. Unemployment skyrocketed as businesses buckled, decreasing disposable household income and expenditure along with it. Reduced operations and staff shortages saw increased port congestion or closures and reduced container availability leading to hikes in freight premiums.
²According to Drewry Shipping’s World Container Index (WCI), container prices were up 281% from a year ago, hitting $10 274.64 (R155 202) in August 2021. The $7 191 per 40ft container average composite index, assessed by Drewry for year-to-date, is $4 661 higher than the 5-year average of $2 530. *Despite the fact that the number of container ships has increased by around 10% in the past 10 years, the container throughput increased far more by 39.2% – nearly four times the rate of new ships. Port hours however have not increased much and the number of cranes by only about 7% making for an obvious bottleneck in transport logistics.
³To add fuel to the fire, Durban’s harbour was ranked among the world’s worst out of 351 ports by the “World Bank’s Container Port Performance Index 2020: A Comparable Assessment of Container Port Performance (CPPI)”. Ranked lowest for their knowledge and expertise in the Administrative Approach, Durban fared only slightly worse at 349th behind Cape Town (347th) and Port Elizabeth (348th) in the Statistical Approach which considers infrastructure and operations. The Suez Canal blockage in March, as well as the Transnet cyberattack coupled with the political unrest and looting in July, further compounded already critical supply shortages.
The challenges of the supply chain network forces production managers to rethink procurement policies and project timelines. Minimum order quantities are being replaced by maximum order quantities based on capacity restrictions, continued lockdowns further delaying production and shipping, port congestion and increasing freight rates. Even pricing structures will need to be reviewed as supply and demand dynamics influence cost control and profit margins. No more bulk bargaining based on volume and economies of scale, He who pays most, Wins! And he who owns the stock coins it!
4According to Denys Hobson, logistics and pricing analyst for Investec Business, longer lead times and increasing rates need to be factored into business planning.
The only other possible solution is to shorten the supply chain through localisation.
#Specify SA and avoid lengthy project delays by sourcing local.
Floorworx is the only South African vinyl flooring manufacturer that produces vinyl composite tiles (VCT) and sheeting at its factory in East London. Using readily available limestone as their raw material instead of chalk, there are no import delays or exorbitant freight charges to produce their world-class flooring ranges. Their warehoused stock-holding and 24-hour turnaround time to any major city centre through their partnership with Triton Express ensure on-time delivery on site. Lead times for production planning for major projects in excess of 10 000 squares are limited to two weeks compared to the 6-10 weeks on imports, with no port delays and infinitely lower transport costs. In addition, buying local reduces the risk of material loss or damage (at sea or in storage) whilst also creating much-needed employment.
The benefits of buying local are obvious: Product availability, shorter lead times, quality improvements, lower transport costs and reduced carbon miles, on-time delivery and improved cashflows, skills transfer and training, faster national development. Who wouldn’t want to do that? Specify SA. Everyone wins.
For more information, contact FloorworX:
Tel: 0861 833 338
¹Source: (Ina Opperman, 2021, “Global supply chain is broken and South Africans are about to feel its pinch,” Oct 2021, https://www.citizen.co.za/business/business-news/2742409/global-supply-chain-broken-will-impact-south-africans/)
²Source: (Drewry, 2021, “World Container Index – 21 Oct,” October 2021, https://www.drewry.co.uk/supply-chain-advisors/supply-chain-expertise/world-container-index-assessed-by-drewry)
³Source: (Vernon Mchunu, 2021, “Durban port ranks in the bottom 3 out of 351 ports worldwide,” May 2021, https://www.iol.co.za/mercury/news/durban-port-ranks-in-the-bottom-3-out-of-351-ports-worldwide-d4c20b16-afea-4271-85b3-1ef4649cfbd5)
4Source: (Denys Hobson, 2021, “Supply chain disruptions to persist into 2022,” August 2021, https://www.investec.com/en_za/focus/logistics-update/supply-chain-disruptions-to-persist-into-2022.html)