Beyond coronavirus: the future of supply chains
From bottle and can shortages to shipping delays and soaring commodity costs, the pandemic has strained brewers’ global supply chains. Amid ongoing geopolitical tensions and a toughening of European legislation, brewers will need their ingenuity to adapt their supply chains in favour of greater localism.
Even before the covid-19 pandemic, global trade had been stuttering; the virus just worsened the malaise. Governments shuttered businesses, including the on-premise. Craft brewers were thrust into turmoil, while the Big Brewers’ share prices dived. As demand is recovering, there are suddenly all kinds of shortages, which are driving up prices.
At the London Metal Exchange, aluminium traded at USD 2,600 per tonne (early September 2021), the highest since June 2011, on higher demand and tight supply. Blame it on China, which accounts for 60 percent of global aluminium output. For all the right reasons, the People’s Republic is suppressing smelting to reduce pollution and meet green targets. The aluminium can shortage will not end anytime soon, the Ball Corp., the world’s largest supplier of beverage cans, said in April.
Prices for cardboard packaging have gone up too, as timber has been rerouted to builders benefitting from an unexpected spike in home remodelling and home building. The shortage was probably exacerbated by consumers discovering e-commerce during the pandemic – think of all those Amazon boxes – and the delights of food deliveries.
Trucking and shipping continue to trouble brewers. The availability of drivers, Chinese ports disrupted by covid outbreaks, and the resulting disarray of container locations and availability – all contribute to a less predictable delivery process. And then there was that ship that got stuck in the Suez Canal in March, where 12 percent of all global trade travels through. Hundreds of cargo vessels and tankers were forced to lay idle for days, costing hundreds of millions of dollars.
Except for sales bans, the compulsory closure of breweries and depleted or idling stocks, none of the Big Brewers have reported any major supply chain disruptions since covid-19 struck. Even the hassles they faced when pivoting from kegs to bottles and cans during the first global lockdown were not worth mentioning.
This could mean two things: The Big Brewers are not really worried about rising costs because they still have contracts in place that shield them from inflationary pressures this year. Or, they prefer to worry behind closed doors in order not to frighten their investors and risk their share prices to tumble just when they have climbed back from their covid trough. Beer sales in 2021 are still below 2019 levels and all brewers have issues with capacity utilisation. Besides, no one wants to be the first to hike prices as this will not go down well with retailers, which have seen their beer sales slip since the reopening of the on-premise.
The price of globalisation
Still, the coronavirus pandemic has dealt an unprecedented blow. The supply shock that started in China in February last year, and the demand shock that followed this year as the global economy began to emerge from lockdowns and restrictions, would have shown them vulnerabilities in procurement and risks in their production strategies just about everywhere.
Today’s globalised supply chain network is the result of decades of globalisation. Lulled by efficient and relatively inexpensive logistics and transport, brewers have been applying lean and just-in-time production methods that were extended across longer and longer global supply chains. These methods favoured efficiency and slimmed-down inventories so that every cent of savings could be pocketed.
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