UK supply chain problems

This is a fast-moving issue and should be read as correct as at the time of publication.

Queues at petrol stations in September 2021 were a very visible consequence of disruption caused to supply chains during the pandemic. The disruption to supply chains has affected businesses, due to a myriad of issues from shortages of materials and/or workers, transport disruptions and price rises.

Here we look at some of the cross-cutting themes that are causing these pinch points, how UK businesses are being affected, and the Government’s response.

Why are there supply chain problems?

Broadly, the UK’s current supply chain issues stem from global shortages of materials, staff shortages and transport delays occurring at the same time as sharp spikes in demand, particularly for consumer goods and construction materials.

Supply chain disruptions have been exacerbated in the last few months as major shipping ports and manufacturing facilities in Asia have been affected by outbreaks of the Delta coronavirus variant, either closing or reducing capacity. The disruption to global supply chains has led to longer supplier delivery times for some businesses, particularly in the manufacturing and construction sectors.

As the labour market recovers from the pandemic, several sectors are seeing temporary and persistent staff shortages. On a temporary level, some businesses are affected by staff having to isolate due to Covid-19 infection. Some sectors are having persistent labour supply issues and difficulty filling vacancies. A shortage of Heavy Goods Vehicle drivers is an acute issue significantly affecting goods shortages.

While the UK is not unique in experiencing shortages of materials and workers, commentators have noted that new immigration rules post-Brexit may have exacerbated the situation. There are different views on the extent to which Brexit-related factors are contributing to supply chain issues in the UK.

Supply chain problems are leading to price rises

The imbalance of (strong) demand and (disrupted) supply is leading to rising prices and higher transport costs. For example, shipping costs were at record highs in September 2021, according to the Drewry World Container Index. Rising energy prices are affecting energy-intensive manufacturing sectors, which are important inputs to supply chains, and consumer bills. The construction industry is particularly affected by rising materials costs.

These inflationary pressures are a global issue and have filtered through into rising consumer price inflation, raising concerns about the cost of living.

Government response

The Government has appointed Sir David Lewis (former CEO of Tesco) as its expert advisor on supply chains, until the end of 2021. This was welcomed by business groups as a “positive development”.

The Government has intervened in industries that are particularly affected. For example, measures aimed at easing pressure from the shortage of HGV drivers include changes to the HGV testing and licencing regimes, and proposed changes to how many times foreign HGV drivers can stop in Great Britain. In some limited cases, the Government has stepped in and provided financial support to specific companies that support critical industries, for example to support the fertiliser company, CF Fertilisers to ensure CO2 supplies get to businesses.

In September and October, the Government introduced temporary visas for HGV drivers to transport food and fuel, as well as for poultry workers and pork butchers. The Government says these changes are time-limited and do not detract from its aims to “build a high-wage, high-skill economy”.

Industry leaders in the food and haulage sectors told the BEIS committee that the temporary visas lasting only a few months would be ineffective to fix shortages that are a long-term and structural issue in their sectors, arguing that more emphasis was needed on training and skills. Along with manufacturing and business leaders they said that the Government needed better coordination with businesses and more strategic planning to encourage investment.