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Simon Wolfson, Baron Wolfson of Aspley Guise, is a British businessman and chief executive of the clothing retailer Next plc, as well as a Conservative life peer. He was a prominent ‘Vote Leave’ supporter with no regrets over his support for Brexit but he’s not a fan of the Government’s vision and action plan. To name a few problem areas: the shortage of about 90,000 heavy goods vehicle drivers; exponential freight costs, soaring energy prices and now the fuel crisis has been added to the mix. In his latest corporate update, Baron Wolfson predicted that prices at Next will rise by an average of 2.5% over the first half of 2022 with homeware prices up 6%. He feels that most of these problems should have been foreseen and handled better.
Next’s high street shops contributed less than a third towards its half year revenue while Label (its standalone dedicated brand website) generated over half of total revenues. The retailer now has around 8.4 million online customers, 40% more than two years ago. The technology team has grown to around 1,000 with more marketing staff, data scientists and software specialists. Retailers have worked hard on their digital presence during the pandemic and the delivery of goods has become a vital part of economic activity with many businesses adapting their services to stay solvent. The good news is that items are still flying off the online shelves, the bad news though is that there are now multiple issues in getting all these orders out to customers. Up to 90% of forecourts ran dry at the worst point during the fuel crisis. The ‘don’t panic’ message was too little too late and the scales are still tipping precariously in the ongoing battle between supply and demand.
After an incredibly tough year, how are retailers navigating these hurdles? Tesco is bringing fruit and vegetables to the UK from Spain using a chilled rail service, cutting emissions, and reducing reliance on HGVs. Tesco are aiming to increase the number of containers delivered by rail to the UK from 65,000 each year to 90,000 by the end of 2021, saving 22 million road miles on an annual basis. With the world’s largest container ships capable of transporting close to 24,000 containers, this ambitious goal would seem achievable, but there’s another spanner in the works. The average cost of a 40ft container shipped from China to the UK has risen by over 500% since the start of the pandemic, so it’s far from plain sailing.
Dwindling pay, poor roadside conditions and post-Brexit immigration rules have led to a critical shortage of drivers in the UK. The UK government is bringing in emergency measures to get fuel flowing again but is accused of sitting back and allowing the supply-chain crisis to worsen. What is the Government doing now to address this critical shortfall? Close to 1 million people who hold a heavy goods licence have received a letter urging them back onto the road. With annual earnings for drivers now significantly higher than a few months ago, the Government is crossing every digit that some will be tempted. Visa restrictions are also being relaxed for thousands of foreign workers in the hope that they’ll apply for temporary work in Britain. Desperate times call for desperate measures and with Dominic Raab suggesting that low-level criminals are enlisted to plug the gap in the HGV market, we certainly seem to have hit rock bottom. How has it come to this? As Simon Wolfson observed, the shortage of drivers was ‘foreseen, and widely predicted’ and failure to reverse the trend has led us down a costly and precarious path.
The market fears inflation. If the supply lines take too long to return to normal, temporary price rises may create permanent expectations of a higher rate of inflation. The economy has been suspended for long periods of time and is now on a steep recovery curve, but these erratic and extreme movements have created dislocations, making the immediate future harder to predict.
The Bank of England has warned of a bigger-than-expected rise in inflation due to rocketing energy costs and has stated that the supply chain crisis is curbing Britain’s economic recovery. We tend to focus on the ebbs and flows of consumption when we assess the economy, but rarely do we consider that disruption to supply could hamper our path. The result of the supply chain crisis – the growth forecast for next quarter has been revised down and inflation is expected to rise above 4% by the end of the year.
How much more can businesses take? A pandemic, Brexit, a record surge in energy prices, the supply-chain crisis, and now the sudden disruption to road-fuel supplies. The success stories that have managed to get this far must be shaking their heads in despair. We were unprepared for the Covid-19 pandemic and now we seem distinctly lacking when confronting the shortage of labour and disruption to supply. With true British grit, we’re emerging from the blows that the last few years have dealt us, but with potentially broad and deep implications for the global economy, the supply chain crisis may turn out to be more than just a bump in the road.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
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