Recently companies like the National Flour Mills (NFM) and Nestle have attributed their price increases to issues along the ‘supply chain.’
It’s something the supermarkets have also been blaming for the sharp rise in food prices. But what does that mean? What is a supply chain?
“It’s basically the movement of material from a supplier to manufacturer who converts that raw product to a finished product and then distributing to a customer,” said Vishesh Supersad, Procurement Manager of Ramps Logistics.
And since the beginning of the pandemic, issues along this chain have been adding to the extra costs that the consumer is now burdened by.
And while it is now generally known that the cost of shipping goods has increased the figures are still quite alarming. According to Supersad, it has gotten to a point where the shipping now costs more than the product.
“A container was around US $3,100 to ship from China in 2019, now we are seeing prices between US$13,000 to US$15,000, that is a significant increase,” he said.
Supersad said things started to get more expensive when China came out of its first lockdown in 2020.
Because at the same time the rest of the world were beginning theirs. That meant other countries were looking to China to feed global demand which meant more exports. More exports meant more shipping containers had to be used. Eventually they ran out of them.
“So, what they are doing now is actually manufacturing containers and that cost is around US$20,000 roughly which is now being factored into the shipping cost,” he said.
Supersad said fuel for the vessels also increased with one barge now using about US$25,000 of fuel a day.
But even when the goods reach for example the United States of America, given the sheer volume, there are not enough truck drivers to deliver the goods meaning they sit on the port longer, further adding to the shipping cost.
Shipping aside, Supersad said the panic buying at the start of the pandemic has also added to the extra costs with suppliers struggling to meet global demand.
“Over the last two years the world has consumed more wheat than what can be produced,” Supersad said, “the dramatic shift in consumer spending caused a bull-whip effect because suppliers increased their demand to their suppliers.”
Supersad added that the shift in consumer spending has also created a need for certain types of materials.
“For instance, when people were in lockdown, they did a lot more online shopping so cardboard boxes and paper packaging increased substantially.”
Climate change has also contributed to the increase by creating a shortage of food products due to flooding, droughts and cold fronts.
Supersad said it was forecasted that the difficulties along supply chain would be lessened in late 2022 however with the emergence of new COVID-19 variants it has led to more lockdowns globally.
He said the solution in managing prices may be to shorten the supply chain.
“This country will probably want to focus more on growing crops to feed our own to reduce our international dependence.”