Inflation Pressure
When we think about logistics, we generally think about the last mile to the shelf or to the warehouse floor.
We tend not to consider the number of logistic points as finished goods are developed from their raw state.
For example, logistics has a major impact on inflation.
The world’s second largest shipping company reported last quarter that volume was down by 4%, with profits up by 80%.
This puts the cost challenges in logistics into perspective.
Low-cost geographies where goods could be sourced cheaply are now becoming less attractive as higher shipping costs offset benefits.
Packaging costs are also under pressure, with paper mills not committing to pricing contracts for more than one quarter.
This is in part due to raw material availability and raw material inflation exceeding 180%. Another factor is forward buying and stock piling of corrugated packaging by online retailers.
The same raw material costs are also affecting pallet prices.
Energy and fuel price increases are also contributing to inflation at an unprecedented rate.
Diesel prices in 2017 were at €1.22 per litre and are tipped to break €2.00 per litre in the coming months.
Gas and electricity have seen increases of over 100% in the last six months.
However, these are costs that can be overcome commercially, whereas the availability of people presents a different challenge.
Labour Shortages
Labour shortages are being experienced in production, warehousing and logistics, with all stakeholders having to increase wage rates to retain and attract staff.
Okay, investment can fix some of it, but not all of it.
Repatriation of a substantial part of the workforce has occurred in recent years as living conditions in their native economies have improved. This has been evident with eastern European colleagues.
The increase in online shopping has created demands for labour, not just traditional online operators, but in retail where there is also a bricks and mortar operation.
If we look at logistics, historically the system was, to a high degree, linear.
The supplier delivered to the store and the customer visited the store and transported their goods home. With the emergence of online shopping, the retailer is delivering goods home to the shopper.
E-commerce retailing has generated a requirement for drivers, which is causing shortages of qualified drivers and adding to the inflationary pressures within logistics.
Social distancing has also had an impact on production, as it resulted in increased hours to maintain production rates, which in turn has led to exponentially higher costs to produce finished goods.
Geo-Political Factors
The Russian invasion of Ukraine is devastating for Ukrainian citizens, and it will undoubtedly impact the country’s ability to trade in the short to medium term, and perhaps in the longer term.
Damage to infrastructure and production facilities, coupled with the dislocation of civilians, will add to the suffering of the Ukrainian people.
In addition, Ukraine is a major producer of cereals, oils and seeds, and disruption to the supply and planting of crops in spring will add to inflationary pressures in the coming months.
However, unlike the civil war in Syria, where sanctions were imposed, I believe Ukraine will be given every support to re-establish trade and reduce the longer-term impact on its people.
Volume in any operation, coupled with delivery frequency, is the key to delivering optimum efficiency within the supply chain, and particularly in the fresh supply chain.
We know shoppers want choice when visiting larger format stores, and these stores more than meet their customer’s expectations. The corollary of this is what shoppers expect when visiting discounters and convenience stores.
They expect the function they are shopping for to be available.
Brand is secondary; however, pack size is important. So, a right sized range and pack size is key to attracting shoppers, meeting their requirements, and driving volume through stores and operations.
