Small Irish businesses are becoming the victims of a global supply-side emergency
It’s beginning to look a lot like Christmas. But disruption to the global supply chain means Barry Doyle from The Arboretum garden and lifestyle centres has struggled to deck the halls of his outlets in time for the festive season.
The retailer, which has outlets in Leighlinbridge, Co Carlow and Kilquade, Co Wicklow, typically receives its artificial Christmas trees in August from its Chinese supplier.
But this year, its order of 500 trees was stuck in two containers at Rotterdam port for three weeks, having already been delayed after it left a Chinese port.
“The issue in China is getting the containers loaded. And then, the feeder ports like Rotterdam are experiencing delays, because there is such a volume of containers going down the Suez Canal – and a lot of it is down to high demand,” says Doyle, whose family owns The Arboretum.
“Shipping and freight companies are using this time to up prices. We were getting surcharges on containers of our Christmas trees, and the cost of freight is four times higher than last year.
"We were paying up to €2,500 for a container – but freight on containers recently has been between €12,000 and €14,000.
"We have to sell the trees at sellable price or we would be stuck with them. So all of this is hitting our margins.”
When 2021 began with Britain’s split from the European Union, small Irish businesses like The Arboretum had to navigate the increased red tape, the shortage of UK lorry drivers, and the delays at ports to import products from Britain.
Doyle and other entrepreneurs responded by filtering out the UK companies that failed to prepare for Brexit, and switching to suppliers in continental Europe.
But as the year ends, Brexit has emerged as a mere “compounding factor” in a worldwide supply-chain bottleneck that may take some time to rectify.
Padraic McElwee chairs the national network of 31 local enterprise offices that support small businesses by offering workshops on customs paperwork, and by providing mentors.
He says that in order to avoid shipping delays, some small businesses have been compelled to order seasonal stock long before it is required, which hampers cashflow. Meanwhile, margins are affected when they have to absorb the spike in shipping costs.
Snarled supply chains have “the potential for a disproportionate impact on small businesses, because they are not able to get product in a timely manner to meet market demand and don’t have financial muscle that, say, Adidas or Nike have,” McElwee says.
The causes of the supply-chain issues facing businesses are myriad – from outbreaks of Covid at Asian factories and ports, cancelled sailings, and containers wrongly positioned in the US and Europe, to heightened demand for goods and a shortage of transport and factory workers as economies recover from prolonged lockdowns.
Pressure on the supply chain was heightened when the Ever Given container ship ran aground in the Suez Canal, leading to hundreds of ships getting stuck in a traffic jam at the narrowest part of the sea link between Asia and Europe.
“Covid highlighted how the supply chain is now so finely tuned that when a hiccup happens it amplifies everything,” McElwee says.
Áine Gleeson founded her online gifts shop WowWee.ie in 2004, when she started hand-stitching personalised Christmas stockings for customers.
These days, WowWee.ie sells some 1,000 gift items to 67 different countries from its distribution centre in Ennis – but it took 14 weeks for its order of Christmas stockings, ornaments and baubles to arrive from China this year.
“Normally, we ship our goods in May and they arrive four or five weeks later – but this time it took 14 weeks,” Gleeson says.
“We finally got all our stock – but our packaging didn’t arrive, and as an online gifts store, how we present our gifts is important. We are still waiting on a consignment of packaging that left China on June 8.
“We’re lucky that our items are small and you can fit a lot into a 40-foot container. But the price of that container went from €3,000 to €15,000. I haven’t experienced a cost increase like that in 17 years of business. There was also a port congestion charge in China of $50 (€44.1) and a peak season surcharge of $500.”
WowWee.ie had already reorganised its supply chain after Brexit.
Gleeson, wanting to capitalise on the popularity of sea-swimming during lockdowns, had been importing a beach poncho from the UK, but noticed increased customs paperwork and transport delays in January.
“Straight after Brexit, that first stock was taking longer to come in from the UK,” she says. “Goods coming inwards needed a lot more paperwork from us, and we had to go through an agency to bring the goods in.
"The duty rate on our popular beach ponchos, which were selling for €49, went up 12.5pc. That’s on top of an agent’s fee.
"So the retail price went to €60 with no extra value for customers. Then we were not able to replenish the stock – because while our supplier was in the UK, their supplier was in China.
The Local Enterprise Office in Clare provided Gleeson with a directory of suppliers in Europe that could manufacture WowWee’s own poncho brand, which helped improve margins and reduce shipping times.
“We were able to turn this into an advantage. Creating our own poncho was always something we wanted to do,” she says.
“I thought 2020 was a difficult year as a result of Covid – but from a trading point of view, 2021 was much more challenging. You don’t have to be Einstein to realise if you don’t have the stock, you can’t sell.”
For The Kick Company, a Co Monaghan startup that sells a ball rebounder to help players of all ages develop and improve their ball skills, a creaking supply chain means that it cannot scale its business.
It ordered its SkillMaster product for the Christmas market in June – but it didn’t receive stock until the end of September, due to delays in shipping from China, says Mark Kelly, co-founder of The Kick Company.
“The time it took to arrive doubled and the cost of the container – which used to be €2,900 – went up by 300pc,” he says.
“If we had known 11 months ago what we know now, we probably would have accessed funding and quadrupled our stockholding. But that holds up cashflow. The bigger companies have the ability to purchase big amounts of stock to cover any gaps in supply.
“When we got our product onto a truck and onto the port in China, we got a call saying: ‘Do you want to pay €2,500 to jump the queue and get it on the ship?’
"There’s gazumping going on like there used to be in the housing market. The bigger companies are doing that on a manufacturing level and on a shipping level.
“With the shipping prices where they are at today, we’re going to have to re-evaluate our manufacturing process.
"We’re looking at licencing, looking at Irish and English suppliers, and we’re getting help from the Local Enterprise Office and even InterTradeIreland to investigate other jurisdictions.
“As a small business, we are a little more agile. But these issues are preventing us from scaling, which is now our biggest challenge.
“We’ve even been looking at shipping from west to east. In the States, there is excellent manufacturing, shipping costs are lower than in China right now, and they have an abundance of empty containers over there.”
Buying materials upfront has also hindered cashflow at Lidan Designs, a Roscommon-based company that designs, manufactures and installs A-rated modular timber-framed buildings – mostly for local authorities and pu blic sector bodies.
Lidan Designs sources 98pc of its timber in Ireland, but timber prices have surged as a result of government delays issuing the forestry licences required to fell trees.
Price rises and a shortage of all materials have put the entire building industry under pressure, with input price inflation in the construction sector hitting a record in October.
Lidan Designs co-founder Dan O’Brien, a former consultant with Accenture, says: “The price increase in the timber we use was an average 85pc from March to October. OSB (oriented strand board) has gone up 190pc.
"There is a boom in construction in the US and across Europe, and because Ireland is exporting timber, we are having to compete for our timber at the same price.
“Because we work with the public sector, the prices have gone up during the lag time between being awarded the tender and starting the work. So our margin on a project is massively reduced or disappears.”