The Nightmare Before Christmas: why we need to take supply chain shortages seriously

World trade in toys is a highly cyclical business. Every year, just as everyone is putting their Halloween masks away, China’s exports of toys drop back and, by March the following year will typically be nearly 61% lower. For the last four years, October’s peak has been getting progressively softer and post-Covid, the drop is particularly sharp. China accounts for over half of all toy exports globally, so unless, like Jack Skellington[1], we kidnap the Chinese Santa, there will be a lot of disappointment this Christmas.

Toys are a microcosm of a much bigger problem affecting supply chains globally. Several factors are driving it: the pandemic’s sustained impact on production, misallocated containers and shipping caused by the pandemic, the Suez Canal accident, driver shortages globally and disruption to the transport documentation, tariffs, certification, product labelling and VAT post-Brexit for good travelling to the EU via the UK. But while these are all important, if we focus our attention on a more extended time period, then the events of the last 18 months are just highlighting patterns that pre-existed the pandemic.

Take computer games, for example. Chinese exports have fallen by 33% since October 2017. They rely heavily on semi-conductor imports and, in July 2018, the US imposed its 25% tariffs on Chinese semi-conductor exports. Between December 2017 and December 2018, Chinese imports of semi-conductors halved as it started to accelerate self-sufficiency in production. It was less reliant on semi-conductors imports from elsewhere. Small wonder that toy exports have slowed.

Computer games themselves were a symbol of the pandemic – as the world locked down, individuals were thrown online for work and leisure purposes. Demand for semi-conductors soared, exacerbating pre-existing shortages, but so too did the demand for delivery meals, online shopping, online meetings and even online exercise classes.

All of this is well-documented but represents another fundamental shift in the global labour market that was accelerated by the pandemic: alternative ways of working enabled by technology, automation and the internet of things. This shift has long been recognised and formed the basis of Germany’s Industrie 4.0[2] industrial strategy and, perhaps ironically, China’s Made In China 2025[3] strategy as well. Both approaches recognise the threats to mid-tier jobs, the balance between leisure and work time, the increasing importance of distributed supply chains and self-sufficiency and cyber security threats as we move to a more connected existence.

What is happening now is the impact on the labour market unfolding. There are new types of skills shortages – where we used to talk about shortages of engineers and scientists; we are now talking about global labour shortages in sectors like hospitality, health care, distribution and construction. Where we used to talk about education and training for life-long learning, we are now talking about re-training to take jobs as lorry drivers. Where we used to promote the free movement of people across borders globally, we are now talking about “levelling up” within countries.

Nowhere is this clearer than in the UK, of course. Nando’s, Kentucky Fried Chicken and Greggs say that there aren’t enough lorry drivers to deliver peri-peri sauce and processed chicken. Logistics UK is asking for changes to the post-Brexit migration laws to cope with an estimated 90,000-100,000 person shortfall in the number of lorry drivers. The ONS estimates that there are around 364,000 fewer EU nationals in the UK by the third quarter of 2020 compared to a year earlier[4] , contributing at least in part to the current problems that the country faces.

But like elsewhere, the evidence suggests that this has been going on for longer than just the period since Brexit. The average age of a lorry driver is getting older, the benefits of overseas workers taking these roles has diminished because of changes in taxation for agency workers, and a backlog of driving tests waiting to be completed all make a rapid solution to the problem hard to find.

The Covid pandemic was the point where these more significant shifts in our lives were made evident. By way of example, the UK’s imports of chicken and peri-peri sauce more than doubled between January 2020 and May 2020. There is no sign of the growth slowing after that. We want our food delivered to our door already cooked – the pandemic finally made us realise.

We are witnessing a recalibration of the way in which the world trades. This change is driven by technology and geopolitics; it was made evident by the pandemic. We need to take this change seriously and adapt quickly if this year’s supply chain nightmare before Christmas is not to cause real long term hardship for ordinary people as prices rise and jobs disappear without a plan to turn this into an opportunity rather than the threat it currently is.

[1] Tim Burton’s “The Nighmare Before Christmas” (1993) https://www.imdb.com/title/tt0107688/

[2] https://www.plattform-i40.de/PI40/Navigation/EN/Industrie40/WhatIsIndustrie40/what-is-industrie40.html

[3] https://nhglobalpartners.com/made-in-china-2025/

[4] https://www.ft.com/content/8a5104c7-82ba-4e81-ba10-a7238e40bdc6