Tim Doggett, Chief Executive of the Chemical Business Association, highlights the combination of forces contributing to a perfect storm for the chemical supply chain.
Identifying the primary causes of the current supply chain issues is relatively easy. Covid-19 and Brexit, as well as a chronic shortage of HGV drivers, have each contributed to a greater or lesser extent to the current situation. But finding workable solutions to these related issues is more problematic.
There is no universal quick fix or magic bullet. We have become reliant on extended and complex supply chains, and the only way forward is to unpack each of these individual issues, identify their causes, and find pragmatic solutions.
International Supply Chains
The international supply chain broadly divides into three main markets: Asia Pacific, the Americas, and the European Union (EU). Of these, the EU is the most important to the UK chemical supply chain as it is the source of 70% of the UK’s chemical imports (and the destination for 60% of the UK’s chemical exports).
Problems with chemical supplies from the Asia-Pacific region – dominated in volume terms by China and India – were triggered by the initial outbreak of Covid-19 in Wuhan, a London-sized city in central China. With the spread of the pandemic, lockdowns quickly began to affect the logistics chain and, within a matter of weeks, international trade from the region slowed to a virtual stop.
Even as the lockdowns eased several months later, the logistical logjam caused other problems. Many shipping containers were displaced which resulted in the price of shipping containers increasing exponentially.
Shipping companies were not slow to see an opportunity to boost their profits and massively increased their shipping rates. According to the consultants McKinsey’s, during this period, it cost six times more to ship a container from China to Europe than it did just twelve months earlier. At the same time, shipping performance rapidly decreased with vessel reliability falling month-on-month to just 36% in July 2021 – down 40 percentage points year-on-year. Shippers were left to pick up the bill despite a declining level of service from the ship operators.
These facts were endorsed by the CEO of the Global Shippers’ Forum who complained that “We are the victim of circumstances in this terrible pandemic, but shippers have long been dissatisfied with the shipping industry’s apparent magical ability to co-operate in ways that would land any other business owner in jail and leave shippers paying record freight rates for a service that is increasingly declining in performance.”
The rate at which the international supply chain resumes to a more sustainable balance will almost entirely depend on the incremental speed at which global economies emerge from the pandemic and the skill with which individual countries manage the continuing influence of Covid-19.
UK Supply Chains
Perhaps it’s worthwhile establishing the Chemical Business Association’s credentials in relation to the UK chemical supply chain. Our membership consists of chemical distributors and logistics services providers that together represent the greater part of the UK’s chemical supply chain. We therefore have a 360° perspective on the UK supply chain.
Three factors have acted together to destabilise the UK’s chemical supply chain: Brexit, Covid-19, and the chronic shortage of HGV drivers. To a large extent, this is a consequence of cause and effect. Some European HGV drivers have taken the rational decision to return to their home countries to be with their families during the pandemic. Others may have taken the equally rational decision to return home because of the new Brexit residency rules and changes to the UK tax regime, whilst some may just have opted to return for better pay and working conditions on the Continent.
It is impossible to untangle these various motives with any degree of certainty – but their impact is clear to see. According to the Office of National Statistics (ONS), across all industries, the number of people employed as HGV drivers in the UK has fallen by 53,000 in the last four years. The largest single group of drivers leaving the industry were 46-55 years of age.
The expected consequence of this relatively sudden contraction in the availability of a specific skill – rapidly rising wage rates (to an extent encouraged by comments from the Prime Minister) – is already happening. The next inevitable stage in this process is that prices will also rise as companies pass these increased costs onto their customers. The same phenomenon will undoubtedly also affect products supplied by international supply chains. The cumulative impact on inflation of these events remains to be seen.
Another practical impact of Covid-19 on the HGV driver shortage was that fact that most driving tests were suspended during lockdown periods. According to official sources, only 16,000 candidates passed their HGV driving test in the year to March 2021. This compares with an average of more than 41,000 HGV tests passed in a normal pre-pandemic year.
Recent labour market data provides focus on the long-term issue. Vacancies in transport and storage occupations are the highest on record. In the three months to September this year, there were 52,000 vacancies in this category, an increase of almost 50% on pre-pandemic levels. But transport is not the only sector with this problem. Vacancies are at record levels across all industries, standing at just over one million – a figure which is 40% higher than pre-pandemic levels.
Clearly, these problems do not lend themselves to quick, simple, and low-cost solutions. Businesses are having to manage in the best way they can. Our distributor and logistics members are reporting delayed deliveries and, in many cases, deliveries that are not being made at all. In the meantime, supplies of key chemical components, many operating on a just-in-time basis, are becoming erratic with consequences for advanced manufacturing, the process industries, key utilities, and the health sector.
There is no sign of improvement in the short term with the latest report from Transport Intelligence showing that European Freight Rates have continued to rise for the fifth consecutive quarter and are expected to continue in this upward trajectory for the rest of 2021 as demand increases and road haulage capacity remains tight.
The industry’s response to this situation has remained consistent throughout the crisis. Accepting that Covid-19 and its impact on the international supply chain were issues beyond the reach of an individual business sector in the UK, the industry has focused on the longer-term structural solutions needed to solve the domestic HGV driver problem.
Some of the responses from Government included the issuing of short-term visas to encourage some European drivers to return to the UK and the creation of a Government-Industry initiative to tackle issues such as the training and testing of HGV drivers, a new apprenticeship system, and higher levels of investment in roadside lorry facilities along the lines of those on the Continent.
Whilst Government may have responded relatively positively to the industry’s proposals, it has often been reactive rather than proactive, and it has also managed a few missteps. Relaxing the limits on HGV driving hours and the cabotage rules applying to foreign drivers were both resisted by industry organisations: the first being impractical and inappropriate and the second, which allowed foreign drivers to carry out unlimited work in any given two-week period, being dismissed as ‘cabotage sabotage’ and a measure which disadvantages UK hauliers.
Other Government measures to try and improve the situation have so far had little positive impact. As far as short-term visas are concerned, Ministers have admitted that of the 300 applications received from foreign HGV drivers, ‘just over 20 drivers’ have actually received visas. The Government’s target is to grant 5,000 visas by the end of February 2022 – but this figure is dwarfed by the actual shortage of HGV driver shortages in the UK, which is estimated to be around 100,000 drivers.
There are ongoing issues still to be resolved and clarity is required in relation to the workability of the Government’s measures and in developing a long-term strategy to the chronic HGV driver shortage, it is not simply an issue that is down to industry to fix. The fact is that there is little likelihood of a quick end to the current supply chain disruption which may bring permanent change to the chemical supply chain.
These may include longer and less reliable lead times and a recalibration of just-in-time deliveries. It may also bring about changes in purchasing strategies, an increase in the average size of consignments, higher general stock levels, and an increased use of storage and warehouse facilities.
The Chemical Business Association has led on this issue for the UK chemical supply chain and will continue to pursue longer term solutions with Government and to lobby for increased investment in training, testing, and on-the-road facilities for HGV drivers.
The Chemical Business Association represents chemical distributors and logistics companies in the UK independent supply chain. To learn more, contact Dr Karen Harvey, Membership Manager, on 01270 258200 or email