The low point for Matt Gammell, co-founder of Pickering’s Gin, came last spring when he tackled his latest palette of glass bottles.
A long-standing order with a European glassmaker was canceled at short notice, and the Edinburgh-based spirits maker feared it would have to halt production.
After surveying many different suppliers, Gammell managed to find enough bottles. He bought the lot, depleting most of the company’s dwindling cash reserves in the process.
“It’s your brand’s DNA, it’s in a specific bottle, the label is designed to fit. You can’t just take another bottle, that’s not how it works,” Gammell said. “It was exceptionally difficult.”
Pickering’s Gin imports some of the glass bottles it sells some of its gins in from China and has suffered during Covid, paying high costs and dealing with unreliable shipping. Shipments from China which took an average of 36 days sometimes took almost double that to arrive.
Pickering’s Gin’s setbacks illustrate the struggles faced by many small businesses struggling to continue operations during Covid, buffeted by headwinds including product shortages, supply chain disruptions, rising costs and blockages.
And their struggles have brought to light a critical link in supply chains that was sometimes stretched to the breaking point: the shipping industry. Despite recent falls in freight prices, the world’s largest shipping lines have recorded extraordinary increases in annual profits in recent months. Logistics analysts predict that average shipping costs could reach levels never seen before as disruptions to international shipping continue.
For Pickering’s Gin, the price of transporting a shipping container from China rose from $2,500 to $3,000 (£1,845 to £2,213) before Covid, to a high of around 18,000 $. The price has fallen in recent weeks, but Gammell said it’s been hovering around $10,000, four times the pre-pandemic cost.
Businesses have been warning for some time of the impact of soaring freight costs. MakeUK, which represents the manufacturing industry, and the British Chambers of Commerce, wrote to Britain’s competition watchdog the Competition and Markets Authority (CMA) last autumn, asking it to look into the biggest shipping companies around the world and to determine whether the surge in costs could be justified. .
The CMA told the groups it would monitor the situation, but informed them that it was not in a position to unilaterally deal with the price hike, as shipping costs were “the product of multiple factors, often international in nature.
The complaint from the business groups came as shipping industry analysts predicted the world’s biggest shipping companies to make extraordinary profits in 2021.
Danish company AP Moller-Maersk, the world’s largest container shipping company, announced on Wednesday that its 2021 pre-tax profits tripled $24 billion over the previous year.
Søren Skou, chief executive of Maersk, said it had experienced “record growth and profitability” due to “exceptional market conditions”. However, the company said it had “made tremendous efforts to alleviate bottlenecks” by increasing capacity and working to improve productivity.
Maersk’s rival Hapag-Lloyd, a German container shipping company, also reported a huge increase in profits in its 2021 resultswith pre-tax profits reaching $12.8 billion, nearly $10 billion more than a year earlier.
The average cost of shipping a 40ft container from Asia to Northern Europe has remained high since last summer and currently stands at $14,483, according to Freightos, an online marketplace that tracks freight shipping prices, which are about 10 times higher than 2019 levels.
Freight transport prices had fallen since late September, when businesses rushed to transport goods ahead of Black Friday and the Christmas trading period, but have risen again in recent weeks.
Small businesses believe they are often the hardest hit by higher transportation costs and disruptions to shipping. MakeUK has warned that prices are getting unmanageable for some manufacturers.
“While the pot may not be at the boiling point it was last year, logistics costs remain a big part of the high cost temperature businesses face,” said Verity Davidge, director of policy at MakeUK, adding that it was difficult to predict when the costs and disruptions would be resolved.
At the time of its complaint to the CMA, the UK Chamber of Shipping said the rise in prices was due to increased demand for goods and container lines responded with more capacity. Hapag-Lloyd said its costs – including fuel, vessel charter and storage – have increased significantly. The company added that the shipping industry has not been able to cover its investment costs over the past 10 to 15 years.
Pickering’s Gin produces several hundred thousand bottles of gin each year, but Gammell said unlike larger companies, it doesn’t have fixed-price deals in its supply chain.
“We’re at the bottom of the pecking order,” Gammell said. “We cannot commit to huge volumes; we don’t have that purchasing power.
Even as container shipping companies reap the rewards of higher prices, the disruptions are expected to continue.
Delays in cargo shipments are expected to continue through 2022, according to the Logistics and Supply Chain Analysts Project44, as part of China’s “zero-Covid” strategy, which has resulted in repeated port closures.
The Covid lockdown in China’s Zhejiang province in December triggered restrictions on the number of trucks allowed into Ningbo port – China’s third busiest – slowing port operations.
As a result, the average shipping time for ships traveling from China to Europe rose to six days in December, according to Project44, in the face of strong demand.
Shipping companies are still forced to cancel departures and ships are stuck in congested ports in Asia, Europe, the Middle East and the United States, which has a ripple effect on supply chains , said project44.
Fluctuating costs and delivery schedules can make annual planning and forecasting extremely difficult for businesses.
“We are making decisions on what to do this year. Having visibility into the future is really hard,” said Laura Rudoe, founder of organic skincare company Evolve Beauty.
While the company tries to source raw materials and packaging from near its base in Hertfordshire, Rudoe said some parts – such as the spray pump components for its bottles – are not produced in the UK. or in Europe.
“We have to place the order now, and shipping costs will occur in the summer,” Rudoe said, adding that packaging for Evolve’s Christmas line had to be ordered months in advance.
“It’s really uncertain for us, we don’t know what to expect and it’s hard to make a decision.”