How is Covid-19 impacting supply chains and prices?
When considering the impacts of Covid-19 upon supply chains, it doesn’t require a level of deeper philosophical thinking to conclude that many businesses are facing unprecedented challenges; mainly connected to huge swings in demand for their goods or services, which in turn have profoundly impacted supply chains.
It is also true that different industrial sectors have been disrupted in extraordinary ways. The ONS (Office for National Statistics) March release showed that ‘Accommodation and Foodservice’ was the hardest hit sector at nearly double the rate of any other sector. In general terms, service providers were worst hit. Obvious again, you may be thinking.
Well, less obvious is the fact that most supply chains are facing unprecedented disruption, that the scenarios faced are contrasted and even industry sectors sitting at the better end of the GDP report have stressed supply chains.
It is advisable to invest time in developing supply chain resilience, having a supply chain plan, a clear communication strategy and the agility to complement it.
Two sectors are starkly demonstrative of this. Firstly, the foodservice sector which has experienced a huge drop in demand, a challenged top line leading to cost pressure, cashflow challenges, excessive inventories, largely inactive operations, and uncertainty regarding if, how and when the recovery will happen.
Contrast this to suppliers of PPE or where capacity is constrained by a steep increase in demand, with volume requests at many thousands of times above normal, causing a massive strain on manufacturing plants and distribution facilities, workforce hiring, future planning and, very noticeably, inventory shortages.
Covid-19 has not just impacted single suppliers, but all segments of the connected supply chain from growing, production, warehousing, distribution and the consumer.
In relation to food markets, a surge in retail demand is driving up some prices, particularly for fruit and vegetables. Other factors include household stockpiling of fruit due to shortage concerns and attempts to boost immune-systems; restricted borders and travel disrupting supply chains; some weather-related shortages plus seasonal change, which can be a volatile time of year for quality, even aside from these extreme circumstances.
Fears of labour shortages in heavily effected regions and lack of temporary seasonal farm workers in the UK may also impact prices.
Meek muses that British consumers prioritising cheaper protein items when in lockdown has led to significant demand surges for cheaper protein items such as chicken and eggs. Shortages of flour are being driven by the enthusiastic demand for home baking.
But for the reasons identified not all prices are rising, some are falling…
The dairy industry faces challenges as a result of a collapse in the foodservice sector with falling demand and prices. There is increased demand for cheaper beef cuts such as minced beef. These increases in retail sales are failing to offset losses from the foodservice sector.
Household stockpiling is easing which should help provide a clearer picture of overall demand and how much volume has been gained within the retail sector to counter the losses in foodservice.
Countries are focusing on food security & domestic production. This may impact future supply and demand patterns for the UK and extend to other key components such as essential non-food packaging items and PPE. The virus is impacting countries at different times and at different stages of infection. As a result, commodity markets remain uncertain as varied responses impact supply chains.
The long run balance between low cost production and shorter localised supply chains requires close attention.