Why are there shortages on the shelves?

Over recent months, there have been reports of supply chain disruption resulting in delayed deliveries, increased prices and, in some cases, gaps on supermarket shelves. Nandos, Ikea and BP are just some of the companies reporting problems.

The causes of this disruption are complex.

The single biggest issue is staff shortages, with Brexit, covid and wider economic conditions all likely to be contributing to these. The haulage sector is particularly badly affected, with industry bodies estimating a shortage of 90,000 [1]-100,000 [2] drivers. Given so many businesses rely on the haulage sector to transport both components and finished goods, these staff shortages are having a widespread impact across the economy. But specific sectors are also facing a shortfall of workers. For example, the Association of Independent Meat Suppliers has reported 14,000 vacancies in the meat processing industry (representing around 15% of the total workforce), with the prison training programme set to be expanded to help bridge the shortfall. [3]

Why are there staff shortages?

Brexit

Brexit has made it harder for UK firms to recruit from the EU. At the end of the Brexit transition period, free movement of people ended and the government introduced a new points-based immigration system, whereby EU nationals are treated the same as citizens from the rest of the world and typically need to meet conditions such as salary thresholds and English language skills to obtain a work visa. Some sectors, such as the agriculture, food manufacturing and haulage sectors have historically employed high numbers of EU nationals and have found it difficult to replace EU workers.

The government has already increased the number of visas available to seasonal agricultural workers and is facing calls from the logistics industry to add HGV drivers to the list of ‘shortage occupations’ subject to more liberal immigration requirements. However, even these schemes are more bureaucratic for EU nationals and the UK firms that employ them than free movement rules, requiring them to engage with the Home Office, often for the first time. The government has so far resisted calls to expand the shortage occupation list, arguing that UK businesses should invest in the domestic workforce instead of relying on labour from abroad. [4] Critics of the calls to liberalise immigrations rules argue that allowing firms to make greater use of EU labour could reduce firms’ incentives to improve pay and working conditions. [5]

Covid

The pandemic has also played a role in driving staff shortages. Many EU nationals working in the UK before the end of the Brexit transition period – most of whom would have been entitled to remain in the UK after Brexit through the EU Settled Status Scheme – decided to move back to their home countries and have not returned. [6] Figures from the Office for National Statistics show that the number of EU nationals employed in the UK has fallen by 5% from the end of 2019 to the end of June 2021. The haulage sector is among those affected, with ONS figures showing that around 14,000 EU national HGV drivers have left the UK in the last year, a decrease of nearly 39%. [7] Significant disruption caused by the sudden closure of the French border due to covid concerns in December 2020, and subsequent testing requirements, may have also disincentivised EU drivers from visiting the UK.

The haulage sector has also been left vulnerable as the pandemic disrupted new driver training. During the first year of the crisis, the DVLA suspended many vocational driving tests, resulting in a loss of 30,000 test slots. [8] Logistics UK and the British Retail Consortium have recently called on the government to expand testing capacity to help clear the backlog, although the Road Haulage Association has said they expect it will take 18 months to address and have also called for the government to provide more support for firms to offer apprenticeships to new drivers. [9] To help alleviate pressure on the sector, the government has temporarily extended the limit on how long drivers may be at the wheel and plans to shorten the process to qualify as a lorry driver. [10]

Over summer, many firms also across the economy faced disruption caused by the ‘pingdemic’ as staff were required to self-isolate under covid rules. At its peak in July, just over 700,000 people in England and Wales had been instructed to self-isolate. [11] Supermarket Iceland reported that more than 3% of its workforce was self-isolating in July, leading the firm to reduce store hours and close some shops. [12]

Structural issues with the economy

While Covid and Brexit have both contributed to supply chain issues, they have also exposed long-standing structural labour problems in some sectors.  

According to the Road Haulage Association, there was a shortage of 60,000 HGV drivers even before the pandemic (although this number has been challenged). [13] The average age of an HGV driver is 55, with just 1% under the age of 25. Many drivers are beginning to reach retirement age, with insufficient numbers entering the sector to replace those leaving. Historically low wages are part of the problem. The Financial Times has reported that in 2010 the average lorry driver in the UK earned 51% more per hour than the average supermarket cashier, but this premium had fallen to 27% by 2020. [14] Recent changes to IR35 tax rules have also closed a loophole that allowed some – typically agency – drivers to pay less tax by working ‘off payroll’, partly offsetting the impact of lower wages. Working conditions can also be poor, with drivers expected to complete long shifts, work unsociable hours and spend long periods away from home. [15] The shortage of drivers is not just an issue in the UK, problems have also been reported in the EU and USA.

Long term shortages have also posed a problem in other sectors, such as the meat industry. [16]

What are the other causes of shortages?

Brexit paperwork and bureaucracy

The kind of Brexit the government pursued means the UK is no longer in the EU single market or customs union. This means that goods traded between Great Britain and the EU (and between Great Britain and Northern Ireland) now face extensive customs and regulatory checks, adding additional cost and complexity to cross-border trade.

Trade data published by the Office for National Statistics and surveys from business groups show that trade with the EU has fallen since the end of the Brexit transition period, with the food and drink sector particularly badly affected. [17] Small firms have been disproportionately hit, with some choosing to not trade with the EU at all.

The additional costs, complexity and risk of delay associated with new checks may make the UK a less attractive destination for EU drivers and haulage firms, especially given many drivers are paid based on the distance travelled and do not want to take the risk of being caught in border delays. [18]

Disruption to global supply chains

Covid has also put pressure on global supply chains, contributing to higher and more volatile commodity prices, higher transport costs and delays in shipping goods and big changes in the level of demand for certain products. [19] An example of this disruption is the shortage of microchips, affecting the supply of new cars, electronic devices and home appliances. [20] Covid disruption led to factories shutting and closed key Asian ports, making it harder for chip manufacturers to meet rising global demand, resulting in substantial backlogs.

There have been calls for Defra to re-establish its Food Resilience Industry Forum, which brings together key industry and government officials to discuss problems facing the food supply chain. The group was recently disbanded having been set up during the peak of the Covid crisis. [21]

Will supply chain problems get worse?

It is hard to predict if supply chain problems will get worse. The food and drink sector has already raised concerns about how well the sector will cope with the additional demands of the busy Christmas period [22], while some toy manufacturers [23] and wine producers [24] have also warned of possible shortages.

Winter could also bring a rise in Covid case numbers, resulting in more staff absences through illness or self-isolation, and subsequently more disruption to supply chains. Following the ‘pingdemic’ over summer, some firms have already recruited more staff to increase their resilience to future absences. [25]

Firms that trade with the EU also face the prospect of full import checks being introduced later this year, which will add new costs and complexity when moving goods from the EU to Great Britain. These changes could cause disruption if traders, the private customs sector and government infrastructure, staff and IT systems are not prepared. Although there have been reports that the government may further delay checks. Many businesses had also been preparing for the introduction of a range of new paperwork and checks on goods moving from Great Britain to Northern in October, although the government recently announced it was postponing these changes indefinitely.

There is no ‘silver bullet’ to resolve supply chain problems, with issues likely to be resolved at different speeds and in different ways between sectors.

Wage rises may play a role in resolving supply chain problems, as firms seek to fill vacancies. There is already evidence that wages are rising in the haulage sector, as firms increase rates of pay and offer sign up bonuses to encourage new recruits. Although industry experts have argued this may result in drivers being poached by competitors, rather than encouraging new entrants.[26] Other firms may be reluctant to increase wages and increase their costs (which will often have to be passed onto consumers) especially if they expect shortages to be short term or it will take a long time to train new staff.

The end of the furlough scheme in October may also have an impact. The end of wage support could see an increase in redundancies and an increase in the number of people looking for work. But there may be a mismatch between the location and types of jobs available and location and skills of those seeking work, leaving vacancies unfilled.

 

  1. https://logistics.org.uk/media/press-releases/2021/august/driver-shortage-crisis-uk-business-groups-demand-a
  2. https://www.rha.uk.net/Portals/0/News/Policy%20and%20Campaigning/Policy%20and%20Campaigning%20Documents/RHA%20letter%20to%20Prim…
  3. https://www.bbc.co.uk/news/business-58303679
  4. https://www.politicshome.com/news/article/greggs-chicken-bake-oval-bite-shortage-as-supply-chain-hgv-driver-crisis
  5. https://www.bloomberg.com/news/articles/2021-09-06/johnson-s-brexit-first-strategy-collides-with-empty-shop-shelves?sref=yMmXm5Iy
  6. https://www.ft.com/content/0231f4b2-a6e3-4e08-bbbc-ff0a6b791262?segmentId=bf7fa2fd-67ee-cdfa-8261-b2a3edbdf916
  7. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/13633hgvdriversbynationality
  8. https://www.rha.uk.net/Portals/0/News/Policy%20and%20Campaigning/Policy%20and%20Campaigning%20Documents/RHA%20letter%20to%20Prim…
  9. https://www.rha.uk.net/news/news-blogs-and-press-releases/news-updates/detail/-it-will-take-at-least-18-months-to-train-100-000-…
  10. https://www.gov.uk/government/publications/temporary-relaxation-of-the-enforcement-of-the-retained-eu-drivers-hours-rules-all-ro…  https://www.bbc.co.uk/news/business-58487347  
  11. https://www.bbc.co.uk/news/business-58228466
  12. https://www.ft.com/content/1bdef6b5-672d-46e0-9502-492a432a51af
  13. https://www.bbc.co.uk/programmes/m000z6cd
  14. https://www.ft.com/content/5f832d86-827e-4596-999d-e0618364dbe3
  15. https://www.theguardian.com/uk-news/2021/jul/24/lorry-drivers-plan-to-strike-over-low-pay-and-poor-working-conditions
  16. https://www.newfoodmagazine.com/article/154797/bmpa-labour-shortages/
  17. https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/articles/theimpactsofeuexitandthecoronavirusonuktradeingoods/…
  18. https://www.businessleader.co.uk/study-finds-brexit-causing-1-in-3-uk-hauliers-to-avoid-food-drinks-industry/129863/
  19. https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2021/august/monetary-policy-report-august-2021.pdf
  20. https://www.theweek.co.uk/news/technology/953451/there-is-no-end-in-sight-everything-to-know-about-the-great-microchip
  21. https://www.rha.uk.net/Portals/0/News/Policy%20and%20Campaigning/Policy%20and%20Campaigning%20Documents/RHA%20letter%20to%20Prim…, https://www.thegrocer.co.uk/supply-chain/covid-war-room-closure-short-sighted-warn-food-industry-members/654853.article
  22. https://www.thetimes.co.uk/article/why-supply-chain-woes-may-mean-christmas-is-cancelled-9tll8zwts
  23. https://www.theguardian.com/business/2021/aug/15/toys-could-be-in-short-supply-this-christmas-so-get-buying-now-industry-warns
  24. https://www.independent.co.uk/news/business/hardys-wine-shortage-drivers-christmas-b1914220.html
  25. https://www.retailgazette.co.uk/blog/2021/07/iceland-to-recruit-2000-staff-to-cover-shortages/
  26. https://www.theguardian.com/business/2021/aug/03/call-for-action-as-uk-driver-shortage-hits-supermarket-shelves https://www.ft.com/content/5f832d86-827e-4596-999d-e0618364dbe3

 

 

 

Update date: 
Friday, September 10, 2021

Original source – The Institute for Government

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