WEBVTT - Why Global Supply Chains Have Become So Snarled 0:00:06.040 --> 0:00:09.320 Hello, and welcome back to Stephanomics, the podcast that is 0:00:09.360 --> 0:00:12.160 once again bring the global economy to you with help 0:00:12.240 --> 0:00:16.119 from a global team of reporters, economists and experts, and 0:00:16.280 --> 0:00:20.639 me Stephanie Flanders, head of Bloomberg Economics. Now, I don't 0:00:20.680 --> 0:00:22.720 think you have to be an economist who have noticed 0:00:22.760 --> 0:00:25.560 that large parts of the economy are out of sync. 0:00:26.320 --> 0:00:29.160 On the one hand, people are going back to offices again, 0:00:29.280 --> 0:00:31.680 at least in Europe and the US. We're going to 0:00:31.760 --> 0:00:35.440 crowded parties again, or the movies. We stopped living eight 0:00:35.920 --> 0:00:39.400 of our lives online at least for over sixteen But 0:00:39.479 --> 0:00:41.720 when you go to that restaurant, you might find it's 0:00:41.760 --> 0:00:45.480 open shorter hours, there's a smaller menu, or you're told 0:00:45.520 --> 0:00:48.839 that machine part you need is going to take six months. 0:00:49.479 --> 0:00:52.599 Here in Britain, we're even seeing empty shelves for some 0:00:52.680 --> 0:00:56.000 goods in the supermarkets. And as I record this, I 0:00:56.000 --> 0:00:58.120 don't actually know where I'm going to get my next 0:00:58.160 --> 0:01:01.840 tank of fuel. Our local station in West London hasn't 0:01:01.880 --> 0:01:05.760 had any for a week. In short demand has come 0:01:05.840 --> 0:01:10.200 roaring back, but supply has not. What that means for 0:01:10.240 --> 0:01:13.280 the shape of the global recovery and inflation will probably 0:01:13.319 --> 0:01:15.000 be talking about a lot in the weeks to come. 0:01:15.400 --> 0:01:18.080 But first I wanted to get up close and personal 0:01:18.319 --> 0:01:21.880 with this great supply chain snarl up, get a sense 0:01:21.880 --> 0:01:24.720 of what it looks like feels like in different parts 0:01:24.760 --> 0:01:27.400 of the world. So later we have a report from 0:01:27.480 --> 0:01:30.640 Lizzie Burden in London with angry drivers lining up for 0:01:30.680 --> 0:01:33.199 petrol in the street where she lives. And a chat 0:01:33.240 --> 0:01:37.479 about staff shortages with restaurant our and TV star Willie Dagel, 0:01:37.959 --> 0:01:42.680 and an expert take from a trade economist Chanela remya jam. 0:01:42.680 --> 0:01:46.240 But to kick things off, here's Bloomberg senior reporter and 0:01:46.480 --> 0:02:06.560 a current in Hong Kong. What was supposed to be 0:02:06.720 --> 0:02:10.640 a temporary shortage of goods has morphed into something much bigger, 0:02:11.000 --> 0:02:14.560 with warnings that supply chain disruption will now last well 0:02:14.639 --> 0:02:17.680 into next year. That's why I've come back to the 0:02:17.720 --> 0:02:21.040 waterfront of Hong Kong's Port, one of the world's biggest. 0:02:21.440 --> 0:02:24.560 Across from me are stacks of containers that will bring 0:02:24.600 --> 0:02:27.960 goods to every corner of the globe. Since I last 0:02:28.080 --> 0:02:31.799 visited here in January, costs for shipping containers and raw 0:02:31.880 --> 0:02:35.519 materials have continued to soar and energy crunch in China 0:02:35.680 --> 0:02:39.519 is just the latest complication. I caught up with manufacturing 0:02:39.560 --> 0:02:42.760 and shipping executives to gauge where things go from here. 0:02:47.040 --> 0:02:49.640 For my first visit, I went to meet Daniel Yip, 0:02:50.000 --> 0:02:55.200 managing director of gew International Corporation, who makes electronics products 0:02:55.240 --> 0:02:59.280 like coffee machines, coffee grinders and toasters from major markets 0:02:59.280 --> 0:03:03.480 in Europe as actually Germany. Shortages of integrated circuits or 0:03:03.560 --> 0:03:07.960 i C, along with expensive shipping, have hit YIPS operations hard. 0:03:08.480 --> 0:03:12.000 Even if he can get the integrated circuits and other components, 0:03:12.000 --> 0:03:15.400 he will pay several times with their ordinary price. Yip 0:03:15.440 --> 0:03:18.000 explained to me that the cost to make a household 0:03:18.040 --> 0:03:21.560 coffee machine is up ten percent over pre pandemic times. 0:03:22.320 --> 0:03:25.639 The single biggest problem that we are facing this year 0:03:25.760 --> 0:03:29.280 is the shortage of IC. Before you know, we when 0:03:29.280 --> 0:03:31.840 we buy the I see it, we only need about 0:03:31.880 --> 0:03:36.120 three months orderly time. Now we are facing from changing 0:03:36.120 --> 0:03:38.960 from six to nine months of orderly time, you know. 0:03:39.600 --> 0:03:42.560 And then because the supply of the i C is 0:03:42.600 --> 0:03:45.760 not very stable, so now we will keep a bit 0:03:45.760 --> 0:03:48.040 more infantry than normal, you know, So we are keeping 0:03:48.440 --> 0:03:51.760 free four months of icy you know, of supply you 0:03:51.760 --> 0:03:55.160 know inside my factory. But it's not just chips that 0:03:55.200 --> 0:03:58.240 are in short supply. The other area is that all 0:03:58.280 --> 0:04:00.640 the copper past. You know, as you can agent in 0:04:00.640 --> 0:04:03.880 a coffee machine in the boiler area, in the in 0:04:03.920 --> 0:04:07.480 all these accessory and the components area, we use a 0:04:07.480 --> 0:04:10.760 lot of copper. And the copper price has been up 0:04:11.440 --> 0:04:14.240 significantly because again you can imagine, you know, most of 0:04:14.280 --> 0:04:17.400 the copper is coming from South America. The shipping cause 0:04:17.480 --> 0:04:20.360 and the availability of the shipment has driven the cause 0:04:20.600 --> 0:04:30.960 up dramatically. The shortage of semiconductors is hurting a range 0:04:30.960 --> 0:04:34.280 of manufacturers. The work from home Boom is part of 0:04:34.320 --> 0:04:37.120 that story. So I went along to the launch of 0:04:37.160 --> 0:04:40.760 new headphones by Sole Nation, a company whose products in 0:04:40.760 --> 0:04:43.919 the past have been promoted by celebrities such as athletes 0:04:44.000 --> 0:04:55.640 Usain Bolt and the rapper Ludicrous. Today at our events 0:04:55.640 --> 0:04:59.719 here today we're launching one of our latest products called 0:04:59.720 --> 0:05:03.880 the Ocean Series. That's Gary so, chief executive of Sole Nation. 0:05:04.320 --> 0:05:09.720 The main design concept um behind this series is that 0:05:09.720 --> 0:05:14.719 they're able to handle calls very well. Um it's got 0:05:15.040 --> 0:05:18.080 very good microphones inside, so you can actually just take 0:05:18.120 --> 0:05:21.440 conference calls zoom calls with these headphones. The company is 0:05:21.480 --> 0:05:24.320 adapting to the supply chain issues by making sure it 0:05:24.360 --> 0:05:27.520 has enough inventory. We have the play safe. Um. So 0:05:27.640 --> 0:05:29.440 what what we have to do is we do have 0:05:29.520 --> 0:05:33.880 to risk by certain long lead time materials such as 0:05:34.040 --> 0:05:36.839 chip sets and semi conductors, just in case. But we 0:05:36.880 --> 0:05:41.680 won't necessarily over purchase the entire the product. That that's 0:05:41.760 --> 0:05:44.839 kind of how we control the cost. Even when products 0:05:44.839 --> 0:05:47.640 are made, getting them to a shelf near you has 0:05:47.680 --> 0:05:51.599 become an expensive endeavor. While the cost of shipping containers 0:05:51.600 --> 0:05:55.159 has soared. The alternative of air freight isn't cheap either. 0:05:55.560 --> 0:05:57.960 You just get pushed back, right, it's as a domino effect. 0:05:58.240 --> 0:06:02.359 If they're behind on one shipment, then yours is going 0:06:02.400 --> 0:06:04.440 to be behind as well. Right. There is only a 0:06:04.440 --> 0:06:06.760 certain amount of production mines in the in the at 0:06:06.760 --> 0:06:10.280 the factory. So I would say that this year, um, 0:06:10.279 --> 0:06:12.920 more so than ever, we have been doing a lot 0:06:12.920 --> 0:06:23.440 of air freight, which is not ideal. Next, I met 0:06:23.480 --> 0:06:27.080 Tim Huxley, the chief executive of Mandarin Shipping, who has 0:06:27.120 --> 0:06:30.200 been in the industry for over forty years. Well, here 0:06:30.279 --> 0:06:32.520 are on the waterfront at the entrance to Hong Kong 0:06:32.560 --> 0:06:35.960 Harbor near Green Islands, Lama Channel in front of us, 0:06:36.279 --> 0:06:38.880 and the Lama Channel is really the access point for 0:06:39.160 --> 0:06:42.560 all of shipping that comes into Hong Kong. We can 0:06:42.600 --> 0:06:45.560 see that over to our right, uh, and that is 0:06:45.600 --> 0:06:49.920 absolutely running flat out at the moment it's running. It's 0:06:49.920 --> 0:06:52.320 one of the most efficient ports in the world. A 0:06:52.320 --> 0:06:55.520 lot of cargo comes in here from around the region 0:06:55.800 --> 0:06:58.760 and then gets unloaded and put on onto bigger ships 0:06:58.880 --> 0:07:01.760 that then go across the cific. So this is a 0:07:01.800 --> 0:07:07.920 crucial artery for world trade. Ships waiting to unloaded ports 0:07:07.920 --> 0:07:11.200 have not gone consequences delaying goods getting to your local 0:07:11.240 --> 0:07:15.240 shopping center. While Hong Kong has avoided those delays, other 0:07:15.360 --> 0:07:18.520 ports are log jammed. The cost of moving a container 0:07:18.600 --> 0:07:21.320 from Asia to the US, I mean a year or 0:07:21.360 --> 0:07:25.280 so ago, when COVID first struck and there was the 0:07:25.560 --> 0:07:28.720 economy ground to halt, that cost dropped to about just 0:07:28.840 --> 0:07:31.640 over two thousand U S dollars. Now it is over 0:07:31.720 --> 0:07:34.720 twenty tho U S dollars to move that container. Now 0:07:34.840 --> 0:07:39.640 that's all going to feed through with ultimately inflation to consumers. 0:07:39.840 --> 0:07:42.960 So that's really where we are. It's not just shipping. 0:07:42.960 --> 0:07:45.000 It's not just that we've got a shortage of ships. 0:07:45.240 --> 0:07:48.000 We have that we will probably resolve. I mean there's 0:07:48.000 --> 0:07:50.720 been a huge raft of new ships ordered. I mean, 0:07:50.720 --> 0:07:54.320 and you've now got about of the world to container 0:07:54.320 --> 0:07:57.480 fleet is actually sitting in shipyards being built, but they 0:07:57.520 --> 0:08:01.880 won't come out until five. In a sign of how 0:08:01.920 --> 0:08:04.960 far this crunch has to run, chartered chips are now 0:08:05.000 --> 0:08:08.320 being rented for years at a time. According to Huxley, 0:08:08.840 --> 0:08:12.320 that there doesn't really seem to be any any prospect 0:08:12.360 --> 0:08:16.080 of at easing much into first half the next year, 0:08:16.120 --> 0:08:17.560 which is about as far ahead as I can look. 0:08:18.160 --> 0:08:20.960 I mean, you've got a sort of peak season Christmas season. 0:08:21.080 --> 0:08:24.240 We're now well into that, and that has really compounded 0:08:24.280 --> 0:08:27.320 the problem. But even when that easy is around Chinese 0:08:27.400 --> 0:08:30.640 New Year time, it doesn't look like there's much chance 0:08:30.720 --> 0:08:33.960 of there being a surplus of capacity. I think this 0:08:34.040 --> 0:08:37.200 is with us for quite a while to come. For 0:08:37.280 --> 0:08:40.520 the final award on this, here's Daniel yep Agan, who 0:08:40.559 --> 0:08:43.160 hopes for a circuit breaker in the supply crunch. Soon, 0:08:43.360 --> 0:08:45.160 when you're during a couple of coffee, think about you 0:08:45.200 --> 0:08:49.520 know what happened to the supply chain in in Asia 0:08:50.320 --> 0:09:04.320 and the current Bloomberg news. Now I promised to bring 0:09:04.360 --> 0:09:07.000 you a sense of what this bumpy road to recovery 0:09:07.080 --> 0:09:10.000 looks like from different parts of the world. So that's 0:09:10.040 --> 0:09:12.679 why we're heading from Hong Kong to the US now 0:09:12.800 --> 0:09:15.000 to talk to Willie Davil. You may have seen him 0:09:15.080 --> 0:09:17.440 on the Food Network. He's the owner of the Uncle 0:09:17.520 --> 0:09:20.720 Jack Steakhouse chain, which has four restaurants in Georgia and 0:09:20.760 --> 0:09:23.520 two in New York, as well as being a TV star. 0:09:24.520 --> 0:09:27.400 Mr Daviel, Uh, Willie, you've asked me to call you. 0:09:27.800 --> 0:09:30.360 Thanks very much for joining us on stephonomics. But we 0:09:30.440 --> 0:09:33.760 hear a lot about shortages and supply chain issues. How 0:09:33.840 --> 0:09:36.680 difficult are you finding it to get the stuff you need? 0:09:37.320 --> 0:09:42.200 You know, New York and Georgia, great States. We're getting things. 0:09:42.640 --> 0:09:45.160 A lot of stuff is back ordered, a lot of 0:09:45.200 --> 0:09:47.640 stuff is out. We're building a new restaurant right now 0:09:47.640 --> 0:09:52.400 in Lawrenceville. It's a small city in Georgia. Walking boxes, 0:09:52.840 --> 0:09:57.800 different pieces of equipment, furniture, tables, chairs, you name it. 0:09:57.880 --> 0:10:02.240 Things have extended lead times. What's you have to adapt? 0:10:02.480 --> 0:10:04.360 If you thought you were gonna go with this chair 0:10:04.720 --> 0:10:07.400 and it was a special order, maybe you gotta go 0:10:07.440 --> 0:10:10.760 with a simple chair that's in the States and it's 0:10:10.800 --> 0:10:14.480 simplified and it's a bulk style chair. You have to 0:10:14.600 --> 0:10:18.040 keep adapting. You have to keep adjusting. You can't quit. 0:10:18.320 --> 0:10:20.440 You gotta do. What you can do is get open 0:10:20.840 --> 0:10:24.079 and execute. But it's hard. And what about getting people 0:10:24.120 --> 0:10:26.839 to what about people getting to work in the restaurants. 0:10:26.880 --> 0:10:30.720 So during COVID, the restaurant industry got really hurt because 0:10:30.760 --> 0:10:34.480 so many staff members found other jobs. So many kitchen 0:10:34.600 --> 0:10:40.000 staff members found other type of jobs, whether it be landscaping, construction. 0:10:40.400 --> 0:10:42.680 A lot of people moved out of the state of 0:10:42.760 --> 0:10:46.400 New York to find new jobs, new careers. So it 0:10:46.559 --> 0:10:50.199 was like I call it the life changing moment. Everyone 0:10:50.240 --> 0:10:52.240 had to look in the mirror. They had to say, 0:10:52.280 --> 0:10:55.320 what am I doing? This is an opportunity now for 0:10:55.440 --> 0:10:58.920 me to rethink. So a lot of people think they're 0:10:58.920 --> 0:11:02.400 gonna be a boss, and they're gonna become entrepreneurs and 0:11:02.440 --> 0:11:05.040 they're going to go to start their own business. There's 0:11:05.080 --> 0:11:08.200 nothing wrong with that, but you're gonna go through this process. 0:11:08.320 --> 0:11:12.200 Then now in September, a lot more people are looking 0:11:12.240 --> 0:11:15.079 to come back. And then people are coming back and 0:11:15.120 --> 0:11:19.800 wanting these huge packages like oh my god, I'm worth 0:11:19.920 --> 0:11:23.719 way more, show me the money, show me how you're 0:11:23.720 --> 0:11:27.400 gonna set me up thinking they're like NBA players. And 0:11:27.480 --> 0:11:30.200 are you paying people more? What kind of wage growth 0:11:30.200 --> 0:11:34.240 of you know, yes, in all in steady positions, in 0:11:34.440 --> 0:11:39.160 management and chef and salary employees, people across the board 0:11:39.200 --> 0:11:42.679 got more money in the last two years. In you know, 0:11:42.760 --> 0:11:45.560 in New York, all the labor rates got increased in 0:11:45.600 --> 0:11:49.040 the last five years, which it's almost put us out 0:11:49.040 --> 0:11:53.320 of business. So food prices are up, menu prices are up. 0:11:54.240 --> 0:11:57.760 What's available, what's not. But to keep the business open 0:11:58.240 --> 0:12:00.760 when you're or to open this the new restaurant that 0:12:00.760 --> 0:12:03.200 you're talking about, are you having to you know, is 0:12:03.200 --> 0:12:07.160 your sort of start starter base pay as a waiter? 0:12:07.880 --> 0:12:10.000 How much higher is that now than it would have been, 0:12:10.040 --> 0:12:13.120 say a year ago? So just the COVID effect you no, 0:12:13.520 --> 0:12:17.760 for where's with tipped employees and my restaurants, the base 0:12:17.840 --> 0:12:20.280 pay in New York is ten dollars an hour. In 0:12:20.400 --> 0:12:23.960 Georgia it's almost three dollars an hour, big difference. But 0:12:24.040 --> 0:12:26.120 if you're really good in Georgia, we give you five 0:12:26.160 --> 0:12:29.200 hours an hour base and we move you up from there. 0:12:29.520 --> 0:12:32.160 So yes, all the base past have gone up a 0:12:32.160 --> 0:12:35.160 little bit, not too much in New York for tipped 0:12:35.160 --> 0:12:39.560 employees because our restaurants running with a minimal staff and 0:12:39.679 --> 0:12:42.640 control in the hours, Actually the staff is making more 0:12:42.679 --> 0:12:46.240 money right now than they ever did before. So every 0:12:46.320 --> 0:12:50.120 state is a little different, every operation is a little different. 0:12:54.920 --> 0:12:58.640 And just I guess finally we're all wondering whether these 0:12:58.720 --> 0:13:01.200 kind of supply chair in issues are going to get better. 0:13:01.240 --> 0:13:03.800 I mean, if you step back, you know, forget about 0:13:03.800 --> 0:13:06.000 COVID for a minute, there's just a sort of feeling 0:13:06.040 --> 0:13:09.439 that we're recovering. We the sort of our social lives 0:13:09.440 --> 0:13:12.280 are recovering faster than the real economy, you know, and 0:13:12.320 --> 0:13:14.920 there's this sort of catch up process where the supply 0:13:15.120 --> 0:13:18.440 everywhere and the container ships and all of that has 0:13:18.480 --> 0:13:21.040 to kind of catch up with where people are in 0:13:21.120 --> 0:13:22.600 terms of how much they want to go back out 0:13:22.640 --> 0:13:25.199 to restaurants and things like that. So I just if 0:13:25.240 --> 0:13:27.600 we think of it in that kind of economist type 0:13:27.600 --> 0:13:30.120 way that we've got too much demand and not enough supply, 0:13:30.760 --> 0:13:33.160 does it feel to you like some of those kinks 0:13:33.160 --> 0:13:35.840 are getting worked out, that things are getting smoother, or 0:13:35.880 --> 0:13:39.000 with the fuel prices going up, do you feel like, 0:13:39.040 --> 0:13:41.199 actually we could be in for quite a difficult winter. 0:13:42.320 --> 0:13:45.319 You know, I feel it's going to get caught up. 0:13:45.679 --> 0:13:49.280 We know that all the supply lines and everything got 0:13:49.320 --> 0:13:51.640 backed up because they didn't have a lot of employees. 0:13:52.040 --> 0:13:55.360 Trucking went through the roof. I built houses in Anton's 0:13:55.559 --> 0:13:59.839 are bring up from North Carolina, Georgia, Florida, trees and 0:14:00.120 --> 0:14:04.440 plants and direct and all of your trucking tripled. Why 0:14:04.840 --> 0:14:08.560 because they were in such demand. There wasn't that many truckers. 0:14:08.600 --> 0:14:11.960 So as everyone comes back to the workforce and you 0:14:12.080 --> 0:14:16.839 have the manpower to regulate, it's it's it's capitalism and 0:14:16.920 --> 0:14:20.240 it's fine, is right if it's what people are willing 0:14:20.280 --> 0:14:24.120 to pay. So it will slowly trickle down. The more 0:14:24.240 --> 0:14:26.960 people come back to work, we will catch up. Will 0:14:26.960 --> 0:14:30.280 it take time? Yes, you know you've got You've given 0:14:30.320 --> 0:14:33.200 us such an interesting perspective and quite a lot of 0:14:33.240 --> 0:14:35.520 economic theories in there, which we're going to be testing 0:14:35.560 --> 0:14:38.680 out with an economist later in the show. But Willie Dago, 0:14:38.720 --> 0:14:48.040 thanks very much, so I want to move quickly to 0:14:48.080 --> 0:14:50.320 our next item. If only for the change of accent. 0:14:50.720 --> 0:14:54.560 The UK has had its own special cocktail of supply 0:14:54.720 --> 0:14:58.360 chain snarl ups, made all the more challenging by Brexit. 0:14:59.160 --> 0:15:07.200 Here's Lizzie Burn outside my window in London. A line 0:15:07.240 --> 0:15:10.360 of angry drivers is queuing for the gas station a 0:15:10.520 --> 0:15:15.480 mile away. Across the country, grocery staples are out of stock. 0:15:16.080 --> 0:15:19.240 Charities are warning that a million households will have to 0:15:19.280 --> 0:15:22.760 rely on extra blankets to keep warm this winter as 0:15:22.800 --> 0:15:26.040 heating bills double. This was supposed to be the year 0:15:26.080 --> 0:15:29.320 the UK broke free of the European Union and forged 0:15:29.360 --> 0:15:33.720 ahead as a buccaneering free trader. Instead, a confluence of 0:15:33.800 --> 0:15:37.360 crises has forced the government to deploy soldiers to drive 0:15:37.480 --> 0:15:41.840 fuel trucks, energy suppliers to go bust, and panicked shoppers 0:15:41.920 --> 0:15:47.080 to stockpile, all while COVID nineteen is still rife. Governor 0:15:47.080 --> 0:15:49.840 of the Bank of England Andrew Bailey jokes that perhaps 0:15:49.960 --> 0:15:55.520 next he should expect a plague of locusts. The immediate 0:15:55.600 --> 0:15:58.520 challenges facing the UK stem from the loss of a 0:15:58.680 --> 0:16:02.720 vital pool of labor after Brexit. A dearth of truckers 0:16:02.760 --> 0:16:06.840 is raising fears not just about toys or turkeys for Christmas, 0:16:06.840 --> 0:16:09.840 but whether people have enough food and fuel this winter. 0:16:10.680 --> 0:16:13.160 At the route of the UK's troubles, though, is its 0:16:13.160 --> 0:16:17.560 dependence on trade an asset before the pandemic that now 0:16:17.720 --> 0:16:21.480 magnifies the damage from leaving the EU and COVID disruption. 0:16:22.240 --> 0:16:25.880 Here's Shane Brennan, chief executive of the Cold Chain Federation, 0:16:26.160 --> 0:16:30.440 which represents businesses along the UK's food supply chain. We 0:16:30.520 --> 0:16:32.800 spent too much time worrying about who's to blame, and 0:16:32.840 --> 0:16:35.400 not enough just accepting the reality that our supply chain 0:16:35.440 --> 0:16:37.680 does not have the capacity that it needs to do 0:16:37.720 --> 0:16:40.960 the job right now, and it won't for some weeks, 0:16:41.000 --> 0:16:43.520 if not months to come. As we think about that, 0:16:43.560 --> 0:16:44.960 we need to be thinking how do we take the 0:16:45.000 --> 0:16:46.920 pressure off the people trying to do the job today, 0:16:47.320 --> 0:16:49.160 because if we don't, we're just gonna make the problem 0:16:49.160 --> 0:16:52.200 worse as more and more people leave the industry. So, 0:16:52.360 --> 0:16:55.600 whether it's the Brexit red tape, whether it's the pandemic, 0:16:56.720 --> 0:17:00.200 ending a furlough, whether it's the issue of immigration visa as, 0:17:00.200 --> 0:17:02.720 we need to be thinking about how we relieve the 0:17:02.720 --> 0:17:05.359 pressure in the short term to give business the time 0:17:05.400 --> 0:17:10.679 to readjust for the next phase of our economy. The 0:17:10.800 --> 0:17:14.080 narrative in the first half of one was how the 0:17:14.200 --> 0:17:18.679 UK's world beating vaccination program allowed the government to unshackle 0:17:18.800 --> 0:17:24.040 the economy from COVID restrictions. Since then, though, Britain's vulnerabilities 0:17:24.040 --> 0:17:28.480 have become clearer with fewer people to choose from. Wages 0:17:28.520 --> 0:17:32.960 have already risen. Supermarkets such as Waitrose have hiked pay 0:17:33.080 --> 0:17:37.800 for new hauliers and are dangling bonuses to lure recruits, 0:17:37.800 --> 0:17:41.600 but the structural changes in the economy approving more painful 0:17:41.640 --> 0:17:46.159 than expected. I spoke to James Withers, chief executive of 0:17:46.200 --> 0:17:50.080 Scottish Food and Drink. We've now got a crisis of 0:17:50.240 --> 0:17:53.920 labor shortages right through our food supply chain, from gaps 0:17:53.960 --> 0:17:57.920 and jobs on farm through to the manufacturing sector, whether 0:17:58.000 --> 0:18:00.760 that is seafood or red meat or deer re We 0:18:00.800 --> 0:18:04.399 are seeing shortages in retail and the hospitality genera. Obviously 0:18:04.440 --> 0:18:07.040 we're seeing a shortage and drivers the wheels that we 0:18:07.080 --> 0:18:09.480 need to get our products from farms and factories onto 0:18:09.760 --> 0:18:13.720 supermarket shells and onto into restaurants and hotels. So huge 0:18:13.720 --> 0:18:16.119 amount of pressure and I don't think anything that's been 0:18:16.160 --> 0:18:18.800 done thus far is going to make any real difference 0:18:18.800 --> 0:18:20.920 to the crisis that we've got. And we're heading towards 0:18:21.119 --> 0:18:23.919 peak Christmas trading period and the fear is that some 0:18:23.960 --> 0:18:25.919 of the gaps, who've seen the supermarket shells that just 0:18:25.960 --> 0:18:32.360 aren't going to get any better. To be sure, pockets 0:18:32.359 --> 0:18:35.560 of workers shortages are cropping up across Europe, and the 0:18:35.600 --> 0:18:39.600 whole continent will feel the pinch of record energy prices, 0:18:39.600 --> 0:18:44.360 But Britain's also paying for its exceptionalism. Take the truckers. 0:18:44.920 --> 0:18:48.639 A quarter of Europe's estimated four hundred thousand shortfall for 0:18:48.680 --> 0:18:53.399 lorry drivers affects the UK alone. That's partly because tougher 0:18:53.520 --> 0:18:56.159 visa rules have meant that those who left during the 0:18:56.200 --> 0:19:01.240 pandemic have struggled to return after Brexit. In response, the 0:19:01.280 --> 0:19:05.320 Department for Transport pulled a U turn after months of 0:19:05.359 --> 0:19:09.359 pressure from lobby groups. It made five thousand visas available 0:19:09.600 --> 0:19:12.920 to EU drivers of food and fuel for three months. 0:19:13.760 --> 0:19:17.280 Ruby McGregor smith, president of the British Chambers of Commerce, 0:19:17.760 --> 0:19:21.879 says that's a feeble solution. The supply of EU labor 0:19:22.240 --> 0:19:24.640 was turned off with no clear roadmap as to how 0:19:24.680 --> 0:19:28.879 this transition would be managed without any disruption to services 0:19:28.920 --> 0:19:33.560 and to supply chains. The government's announcement of temporary visas 0:19:33.600 --> 0:19:37.480 for lorry drivers and food workers is the equivalent of 0:19:37.520 --> 0:19:41.399 throwing a thimble of water on a bonfire. With food 0:19:41.400 --> 0:19:45.080 and energy prices climbing, the Bank of England's Andrew Bailey 0:19:45.200 --> 0:19:48.600 has the unenviable task of figuring out how to keep 0:19:48.600 --> 0:19:53.120 a lid on inflation without choking off the recovery. Here's 0:19:53.119 --> 0:19:56.280 Bloomberg Economics Dan Hansen. I think it's fair to say 0:19:56.320 --> 0:19:58.320 that bank has a really tough balancing act over the 0:19:58.359 --> 0:20:00.879 next few months. On the one hand, the economy faces 0:20:00.880 --> 0:20:04.240 a number of headwinds from ongoing supply disruption and reduce 0:20:04.280 --> 0:20:08.199 fiscal support, and on the other inflation is surprised almost 0:20:08.200 --> 0:20:11.720 everyone with how quickly it's picked up. Now, the key 0:20:11.800 --> 0:20:14.280 thing for the timing of any rate rise will be 0:20:14.320 --> 0:20:16.280 how the labor market responds to the end of the 0:20:16.320 --> 0:20:20.240 furlough scheme. If the unemployment rate stays steady, then a 0:20:20.359 --> 0:20:23.479 rate hike is likely to follow quite quickly. But if 0:20:23.520 --> 0:20:25.760 there are signs the jobless rates on the rise, then 0:20:25.840 --> 0:20:29.080 expect the bank's cool expectations around any tightening in the 0:20:29.119 --> 0:20:33.240 near term. But now that leaves the Brexit dream looking 0:20:33.280 --> 0:20:47.239 more like a nightmare. So we're going to pull all 0:20:47.280 --> 0:20:50.400 the different pieces of this supply chain disaster together now 0:20:50.600 --> 0:20:54.359 with Shanella Rajanaya jam a trade economist who keeps close 0:20:54.400 --> 0:20:58.160 tabs on all of us for HSBC in London. Shanella, 0:20:58.560 --> 0:21:02.520 welcome to Stephanois. We've we've had a taste of what's 0:21:02.520 --> 0:21:06.000 happening in practice in different parts of the world, what's 0:21:06.000 --> 0:21:08.399 happening in theory. I mean, how do you explain these 0:21:08.760 --> 0:21:12.280 supply chain issues apparently getting worse at a time And 0:21:12.359 --> 0:21:14.040 we might have all thought, you know, we've becoming out 0:21:14.040 --> 0:21:16.080 of the wood by now, yeah, well, thank you for 0:21:16.119 --> 0:21:19.280 having me, and yes, over the past year, there's been 0:21:19.320 --> 0:21:23.720 a lot of issues around container availability, around port congestions, 0:21:23.760 --> 0:21:27.439 surging freight rates, and this is due to a combination 0:21:27.480 --> 0:21:31.520 of factors. First, there was really strong demand from Western 0:21:31.560 --> 0:21:36.080 economies for goods during the pandemic and that's still continuing today. 0:21:36.840 --> 0:21:39.560 And then that's coupled with all the movement and lockdown 0:21:39.560 --> 0:21:42.200 restrictions due to COVID, which is leading to the congestion 0:21:42.320 --> 0:21:45.320 at major ports. And so the key issue at the 0:21:45.400 --> 0:21:47.880 moment is that we're in the midst of peak container 0:21:47.920 --> 0:21:52.240 shipping season, so demand for goods still remains elevated. Plus 0:21:52.280 --> 0:21:55.560 there's limited capacity, so containers are not really in the 0:21:55.640 --> 0:21:59.719 right place. Air freight capacity is quite restricted, and so 0:22:00.000 --> 0:22:03.679 all of these are really contributing to ongoing supply chain disruptions. 0:22:04.200 --> 0:22:06.960 People who listen to seconomics a lot, God help them, 0:22:07.359 --> 0:22:09.480 would have heard quite a lot of conversations at various 0:22:09.520 --> 0:22:13.240 times about supply chain issues and certainly about containers waiting 0:22:13.240 --> 0:22:16.480 in line outside l A port and other ports. I 0:22:16.560 --> 0:22:18.920 just would have thought maybe that this would have been 0:22:18.920 --> 0:22:21.959 starting to decline. So so why is it getting worse? 0:22:22.000 --> 0:22:27.119 Why is it still going on? So previously the volume 0:22:27.119 --> 0:22:29.760 of goods trade was quite high. This has been exacerbated 0:22:29.760 --> 0:22:33.119 by the current peak container shipping season. But as you 0:22:33.200 --> 0:22:36.600 mentioned that rotation away from spending on goods and to 0:22:36.720 --> 0:22:40.520 spending on services is well underway. There's evidence to suggest 0:22:40.560 --> 0:22:43.280 in the UK and also in the US that consumers 0:22:43.320 --> 0:22:45.480 are starting to spend a little bit more on services 0:22:45.560 --> 0:22:50.199 and including on services exports and imports. But really the 0:22:50.240 --> 0:22:55.320 issue remains the COVID restrictions and the factors restricting the 0:22:55.400 --> 0:22:59.399 movement off workers, but also the labor and equipment shortages. 0:23:00.320 --> 0:23:03.120 And when you think of the mean inflation effect, we're 0:23:03.160 --> 0:23:07.520 certainly seeing it in the cost of freight and shipping. 0:23:07.520 --> 0:23:09.560 Costs just seem to keep going up. And that will 0:23:09.880 --> 0:23:12.440 I'm sure feed into I mean that we can see 0:23:12.480 --> 0:23:15.439 it's already feeding into input prices and maybe ultimately the 0:23:15.480 --> 0:23:18.119 prices that we pay in the shots. Is that something 0:23:18.160 --> 0:23:22.000 that you'd expect to last. Yes, So, supply chains challenges 0:23:22.040 --> 0:23:26.760 are certainly impacting the price of consumer goods. However, the 0:23:26.840 --> 0:23:29.840 conventional view, and largely our view as well, is that 0:23:29.920 --> 0:23:33.399 inflation will prove to be transitory, because if you think 0:23:33.440 --> 0:23:35.960 about some of these supply chain disruptions, it's unlikely that 0:23:36.000 --> 0:23:38.640 they will continue to keep prices high and say one 0:23:38.800 --> 0:23:42.280 or two years time, so that certainly should come off 0:23:42.359 --> 0:23:45.760 the boiler a little bit. The issue really is if 0:23:45.920 --> 0:23:48.480 these high spot rates start to feed through into the 0:23:48.520 --> 0:23:51.800 longer term contain a contract rates, end of supply chain 0:23:51.840 --> 0:23:54.760 disruptions persis, then we might see a bit more inflationary 0:23:54.760 --> 0:23:58.239 pressure and that could last for a while. Yet. So, 0:23:58.359 --> 0:24:02.440 right at the beginning of the Panda, when businesses were 0:24:02.440 --> 0:24:04.560 discovering that it was actually quite bad news to be 0:24:04.640 --> 0:24:07.800 heavily dependent on China for their production, we had lots 0:24:07.800 --> 0:24:10.959 of conversations about people bringing production back home, about how 0:24:11.000 --> 0:24:13.360 this was going to change supply chains forever, and then 0:24:13.400 --> 0:24:16.240 that kind of went away a bit because I we 0:24:16.320 --> 0:24:18.080 certainly talked to a lot of business. As you said, 0:24:18.119 --> 0:24:20.520