Image Credit: diamond geezer
When we order an item online, it’s easy to forget the enormous machine that ensures we can all get what we want. However, over the past couple of months, issues that were years in the making have come together with the disruption caused by Covid-19 to affect us all. At the national and global level, supply chains are not the most eye-catching of areas. Yet it is precisely this lack of attention that has caused the previously invisible sector to dominate the headlines and wreak havoc on our economy.
At the moment the UK is suffering from a severe lack of skilled workers across the logistics industry. For example the Road Haulage Association estimates the country to be short of 100,000 HGV drivers. The knock on effect is that the incredibly pressured just-in-time supply chain that many firms, from manufacturers to supermarkets, depend on are coming apart at the seams as they struggle to move the right goods in time. At a global level, Covid-19 has continued to disrupt the global economy, as an explosion in pent up demand has seen it outstrip supply and has led to dramatic rises in energy prices.
This crisis of course has come to a head because of the exceptional pressures caused by Covid-19. However, the UK has suffered particularly badly relative to other countries because of government and industry neglect that has left us particularly vulnerable to global shocks. In light of the UK’s experience, we must use this opportunity to launch economy-wide reform of the way our national supply structure works. At the start of 2021, Britain’s gas reserves were at their lowest capacity in years and are only enough to meet demand for 5 winter days. By contrast, Germany had a storage capacity 16 times the size. This has left us vulnerable to sudden rises and caused the National Grid to fire up coal generators in September as a stopgap. We must invest in critical national infrastructure projects, in particular nuclear power and boosting energy reserves, to ensure that businesses aren’t forced to close because of unsustainable energy costs and consumers don’t face the prospect of power outages and serious price rises in basic goods as companies pass on costs.
Investment in physical infrastructure is clearly essential to averting a repeat of this crisis and demonstrates that this can evidently only be resolved with proactive government collaboration with business. Part of the reason why we’ve ended up in the current mess is because of the conditions that are necessary for just-in-time supply chains to function. Low wages and poor conditions are integral as the model requires costs to be kept to an absolute minimum and goods have to be moved as quickly as possible to keep storage costs low. It’s no wonder then why the logistics and transport industries have been haemorrhaging workers, as people refuse to carry on working in such a way when better alternatives exist.
So how can we avoid a situation like this arising again? The government’s response of standing by and hoping that an exponential rise in wages will simply attract workers back into key industries is woefully inadequate. This is partly because wage growth without economic growth simply increases inflation, but also because the issue goes much deeper than simply a question of pay.
The government must work with business to significantly increase the importance attached to skills and invest in developing a skilled workforce. Currently the average cost of an HGV license is £3,000, which most companies expect workers to have paid for themselves, and so is it any wonder why we’re suffering from such a shortage? Furthermore, businesses need to reevaluate the risks they are taking in continuing to operate a just-in-time supply chain. Such a lean model leaves them dependent upon cheap labour and highly vulnerable to shocks, something which has been well demonstrated by Covid-19. When these factors come together in a crisis, whole supply chains come under enormous stress and this leads to businesses passing on significant costs to consumers. This has been facilitated by decades of government deregulation and tax subsidies for workers, which enable companies to get away with underpaying working people.
We need to move away from the current risk-based model and instead integrate resilience into supply chains. This involves the government working to shore up energy reserves and production and equally working with business to invest in skills training and providing better regulation to prevent a corporate cost race to the bottom based on exploitation. This is certainly no mean feat; however we must focus our attention squarely on this invisible sector if we are to avoid a similar crisis.