SIMON BROWN: I’m chatting now with Denys Hobson, logistics and pricing analyst at Investec. Denys, I appreciate the early morning time. We chatted back at the beginning of the year, early January, around supply chains looking forward. If my memory serves me correctly, we were ‘cautiously optimistic’, I suppose. It was going to be lumpy, but we expected supply chains to sort of improve over the course of the year. Has war in Europe markedly changed that picture?
DENYS HOBSON: Morning, Simon. We were optimistic, but with the latest developments in the conflict between Russia and Ukraine, we have seen that there have been significant impacts on supply chains. Most notably it’s around the trucking, and trucking getting container support as well as the increase in fuel pricing, as well as component manufacturing delays as well. So things have not improved. They’ve probably got worse and the outlook has changed, in my opinion.
SIMON BROWN: And then, we’ve also got China. The report’s out this morning that Nio has halted production. Now let’s be clear, Nio is a small producer of electric vehicles. But their point is that [with] the lockdown we are seeing in China, they simply cannot get components. That must markedly add to it. Now, China locked down Shenzhen last month for about a week. They reopened it. It’s fast-moving there, but again, sort of grinding in another part [and] the global supply chain running into issues.
DENYS HOBSON: Yeah. So that’s probably a double whammy. Shenzhen is one area of the whole Guangdong province, but that’s spread further. You’ve got Shanghai in an extended lockdown. It’s indefinite now. So that’s put significant pressure on manufacturing within China and we are seeing a lot of delays now with orders being late, port congestion building up, and again big trucking delays, a shortage of truckers especially when it comes to inter-provincial transport within China. So there is significant pressure coming ahead. Demand from a capacity point of view has dropped off slightly, freight rates have softened, which is good news, but we expect that to increase as China eventually comes out of lockdown and manufacturing starts to increase again.
SIMON BROWN: Is that the sense – that we’ve got the war in Ukraine, we’ve got lockdowns in China, and that it certainly has set us back from where we were at the beginning of the year in expectations? But we will in part, I suppose, learn to sort of work around it. Particularly in China the lockdowns will ease and perhaps even the war. If it continues, freight movers and generally logistics will sort of manage to almost work around it – or is that overly optimistic?
DENYS HOBSON: The problem is it’s very unpredictable: not knowing when the war will end, how long these lockdowns will continue and what the real impact is going to be. Obviously the longer this all goes on, the further the goal posts move in terms of when we could see some kind of normality or stabilisation within supply chains. But it does drive, you know, lessons learned from last year that the supply chains need to be flexible, and importers have to adapt to looking for additional sourcing of product or build in longer lead times and hold higher inventory.
SIMON BROWN: That is the point I suppose – learning to manage it. You mentioned inventory. I speak to CEOs locally that have all been increasing inventory levels. We’ve seen, for example, Walmart in the US looking to employ full-time truckers on around $100 000 a year. It it’s learning to live with an unpredictable [situation]. I take your point on that. What we thought was going to happen for the year, four months in is completely different.
DENYS HOBSON: That’s absolutely correct. I think we’ve probably become used to, or expect another disruption. So it’s really made supply chains become more resilient in many ways.
Where importers have adapted and come up with different strategies and how to move stock and hold stock, they’ve been the winners at the end of the day. That trend will remain going forward.
SIMON BROWN: Do we, if we roll forward, I don’t know, two years, when this is finally all behind us, actually come out of this a little bit stronger? Because, to your point there around resilience, around finding new ways of doing it, it’s an industry which is having to really learn to adapt sort of on the fly and could be smarter as a result.
DENYS HOBSON: Absolutely. I agree with that. You know, supply chains had to innovate and sometimes you get these – what we’ve been through in the last two years has really forced or pushed companies to become innovative and think out of the box. Really, collaboration’s been very important during this time as well. So there are multiple facets to consider and that will continue going forward. Whoever is innovative and forward-thinking will be the winners.
SIMON BROWN: We’ll leave it there. Denys Hobson, logistics and pricing analyst, Investec for Business. Denys, I always appreciate the early morning time.