The past two years have presented importers with large increases in freight costs and the loss of reliability of freight schedules.
The freight costs will eventually come back to pre-pandemic levels. That is because the extraordinary profits of the major shipping lines have attracted new players keen to get a share of that bonanza. Capacity will increase and so will competition.
Likewise, freight schedules will return to some level of predictability, as supply chains gradually adapt to the new conditions. The capacity to spontaneously adapt is what makes supply chains so resilient. They are a product of millions of decisions made independently by millions of individuals, every day.
So, Covid-related disruptions will come to an end but there are two other factors at play which are of present concern to importers. The first is the need for democratic nations to realign their trade to other democracies. The second is the looming inflation and the resulting corrective recessions, which could adversely affect economies for years to come.
Two examples of the perils of trading with dictatorships: (1) Germany becoming dependent on Russian gas while dismantling its nuclear energy sector; and (2) many other countries’ decisions to subcontract manufacturing to China.
China’s zero-Covid folly is one that we are familiar with, having tried it here. Our attempt to eliminate Omicron was only abandoned when people decided that it was futile and stopped complying with the increasingly absurd isolation mandates. In China, however, the option to change course when mugged by reality is not in play, as rulers there appear to believe themselves to be infallible.
Importers in the rest of the world will be affected by the resulting disruptions. As they realise that the lure of cheaper labour is not sufficient to outweigh the uncertainties inherent in dictatorships, like a brutal lockdown here or a small neighbourly invasion there, they may start to trade more with other democracies. This tendency even has its own buzzword: “friendshoring”.
The other cloud on the horizon is the looming inflation and the inevitable corrective recessions. This is the result of some believing that “this time it’s different”. It wasn’t. This too will pass, but it may take a decade or two.
In May of 2021 we were storing 3.1 million units of stock. Today, we are storing just over 4 million, an increase of 29%. This is an illustration of how supply chains are fast to adjust to changing conditions. Most of our clients decided (wisely in our view) to increase their inventories. We are responding by increasing our storage capacity.
On 1 June, we will take possession of a fourth warehouse in Mangere.
This warehouse, unlike the others, will not be used for a specific set of clients. Instead, it will become a fulfilment centre for the other three warehouses. That will enable us to centrally deploy our automation investments and increase the storage space available in the main warehouses.