By Carl Tiu, First Vice President for F&B financing at BHI
While the supply chain crisis has affected nearly every industry sector, it has hit food and beverage companies particularly hard. According to data from IRI, a market research firm, supplies of food and household items were 11% lower than normal as of October 31, close to the 13% experienced during the height of the pandemic in March 2020. The result is higher prices and disappointed consumers, who face sparse supermarket shelves and a scarcity of popular items.
In October, inflation in the US reached a 30-year high, as the consumer price index hit 6.2%. According to the Bureau of Labor Statistics, wholesale prices in October were 8.6% higher than a year ago, the highest increase in at least 11 years.
F&B manufacturers and distributors are dealing with the bottlenecks at ports, which have been widespread at most major facilities. The Washington Post reported that on November 8, 77 container ships were anchored off the ports of Los Angeles and Long Beach, California, waiting for open dockside space. The same article included data from the Georgia Ports Authority that noted in Savannah, more than 30,000 containers full of imported products for American consumers were sitting on the docks.
The congestion at ports has been exacerbated by labor shortages in the trucking industry. The American Trucking Associations released a report in October that estimated the industry is short a record 80,000 drivers, a number that could double by 2030. The lack of truckers has led to stacked and brimming warehouses and delivery times which have been delayed by weeks or months.
In an interview, former US trade negotiator Harry G. Broadman summed up the present situation. “The world economy is out of sync because parts of it were forced to go offline when the pandemic started and getting all the industry players back in line at the same time is near impossible,” he said.
Given that it seems the supply chain issues may persist for some time, here are three considerations for operating in the current challenging business environment.
Maintain your relationships
These are the kind of times that will test your relationships, not just with your bankers, but also with your suppliers and other key partners. You should work at cultivating your partner relationships, which have become critical now. For example, it’s easier to speak with suppliers about better terms if you have stayed in close touch with them.
Consider expanding your network
You may need to diversify your usual network of partners and suppliers for your business to continue operating smoothly. You should evaluate and line up potential alternatives, even if you don’t need to act on them right away.
Be proactive and communicate with your banker and financing partners
The best clients are the ones who tell us the good, the bad, and the ugly. We hear from companies that working capital is tight or that they can’t convert inventory. It’s best to be up front and transparent with your lenders, so they are familiar with your company’s individual situation and can work with you to determine a solution.
To paraphrase Charles Dickens, it has been the best of times and the worst of times. The pandemic’s ebb and burgeoning consumer demand constitute the good news that has led to the current bad news about the supply chain. In this scenario, operating with a measure of clarity will go a long way toward assisting your company, especially as we continue to move forward into potentially better times ahead.