How the global supply chain broke down and what it means for Canada

Jordan Hey, have you started your Christmas shopping yet? No, that wasn’t the beginning of an ad. It is is a warning, and it’s not me sounding this warning. It’s a lot of people.

News Clip 1 Well, it is only October, experts say it may be a good time to get started on your holiday shopping.

White House Press Conference Clip

Reporter Can this administration guarantee that holiday packages will arrive on time?

Jen Psaki We are not the postal service or UPS or FedEx. We cannot guarantee.

News Clip 2 …buy your Christmas trees now before Thanksgiving, because otherwise the shelves will be bare and there’ll be lots of out of stocks.

End Clip

Jordan In case you haven’t heard, the global supply chain has been under strain since the beginning of the pandemic and smaller cracks have turned into larger and larger holes, making all kinds of goods take longer to arrive if they arrive at all. So what were those cracks? How did they grow? What factors are working together to grind down global shipping? What does it mean for Canadians doing their holiday shopping online or in person? How does a shortage of goods impact the economy at large? Will I ever get my hands on a PS5? And finally, could this be the push that countries like Canada need to repatriate some of their manufacturing from overseas? Or has that ship—loaded with shipping containers that cost five times as much as they used to—already sailed?

I’m Jordan Heath-Rawlings. This is The Big Story. Michael LeBlanc is the founder and principal of M.E. LeBlanc and Company. He’s a veteran retailer, a keynote speaker, host of a podcast focused on retail called Voice of Retail . Also, he is the senior retail advisor at the Retail Council of Canada, which is, I guess, not in the capacity you join us in today. Am I correct, Michael?

Michael Yeah, that’s correct. Some days I speak on RCC’s behalf, in this context more as a retail expert and podcast host and all those other great things.

Jordan Well, let’s start with the obvious question then, as a retailer or as somebody who uses retail, which is everybody, how worried should Canadians be about these supply chain issues right now?

Michael Well, they’re certainly front of mind, can you imagine, 18 months ago the word supply chain being part of the popular vernacular? Listen, the short answer is not so worried. I mean, when you think of the scale of issues that we’ve had lately, there’s food on the shelves, there’s plenty of goods on the shelves. You may not get exactly the one you’re looking for. You may need to start shopping a little early, but it is something you pay a little more attention to than you might in the before time or precovid. We’ll talk about that. But it is something that is on the minds of both retailers and consumers.

And it’s been on the minds of retailers, by the way, for 18 months. It may be coming front and forward today, but retailers have been working and thinking about supply chain since the beginning of Covid, understanding the disruptions. I don’t think we anticipated the scale and scope, but we all knew in the industry that this would be a tumultuous time in the supply chain. And by the way, supply chains to begin with, people who work in the supply chain, their DNA is reacting to change and crisis. I mean, it’s not new, right? Whether it’s a boat lodged in the Suez Canal or it’s a rail car that comes off the tracks or a boat that sinks. These things happen all the time. The supply chain professionals in retail and other industries, their DNA is to react and respond and to plan. So Canadians should be confident that the necessities are going to be on the shelves. But maybe a little more thoughtful as to what they’re buying. Maybe shopping early and maybe just maybe they might need a substitute. Maybe it’s not the green shirt, it’s the red shirt. Maybe it’s a different brand. Maybe it’s just putting it off. Maybe all those things kind of come into play.

Jordan Well, I know that it’s not just one thing causing this, but also to your point, I think most Canadians, myself included, never would have imagined going this in depth on the supply chain 18 months ago. So maybe you can explain that to people who don’t understand the supply chain from your perspective where the problems began and how they kind of compounded.

Michael Well, the problem began in March 2020. Covid is the short answer. Now below that, we can get into a very interesting description as to why there is such an impact. Globalization, efficiency. But Covid has disrupted the supply chain in three huge ways. Probably 30 big ways.

One is very unusual demand patterns, the ways our lives changed in the Covid era. We’re staying at home more often. Maybe we’re buying more product. Maybe we’re working from home. And then the kitchen table isn’t so great anymore, we need a desk. And we must continue to keep in mind this happened globally, like you and I are sitting here in Canada. But the people in Venezuela are thinking the same thing. The people in Europe are thinking the same thing. I was reading in the paper today, 17% of Canadians did landscaping. We sometimes get immune to these big numbers. 17% of Canadians all doing the same thing all at the same time is going to create unusual product demands.

And if we cast our minds back to the very early days of Covid, those first couple of months were really frightening for everyone, and for retailers they were just very concerned. And they started cutting purchase orders, like stopping buying because we weren’t sure what was going to happen. I mean, it’s easy to look back and say, look at this stockpile of cash that Canadians have to spend. It wasn’t always thought to be the case. And it is true that the supply chain is easier to stop than it is to start. So these caused ripples globally.

Now, that gets us to this whole why and how does product move around the world. It is a global society. Lots of product is made from very far away from Canada. That is because there’s massive manufacturing capabilities in places like China and Vietnam and Indonesia. It is also because of cost. There is a great efficiency of cost.

Now, when we think about the impact of Covid, A. you’ve got keeping your people safe. So that’s important. That goes without saying that when you have ports and infrastructure, these are people too, right. These are humans. These aren’t robots. You got to keep them safe, which means different rules. It’s not as efficient. It’s a little slower. Recently in the south of China, they had a bit of an outbreak. So they shut the whole Port down for a week. That’s massive at this time of the year. So these things are still happening on a global basis. If you scan your mind around the world to where products are made. Vietnam, for example, is in a bit of an outbreak. They’re in the single digits in term of vaccinations. They’re well behind where some of the other nations are. So they’re more cautious and the plants are shut down when they have an outbreak and they have less vaccine. So Covid brings with it a lot of these things.

Behind Covid. And true in the before time, was a drive for efficiency. So how do we get the most products over here, at the right place, at the right time, at the lowest cost? Well, what does that mean? It meant bigger boats. It meant driving out cost and creating efficiencies. It meant more just in time. So I didn’t have to bring stuff over months and months ahead and store it in a warehouse.

Jordan I want to stop you right there because I think this would be great context if you could quickly explain what just in time is.

Michael Yeah, it’s a great question. Just in time basically says, well, I’m not going to bring in inventory months and months ahead. I’m going to time the inventory so precisely that it’s made in the factory, gets loaded, gets on a boat and arrives at my dock so I can practically move it from the dock to the store shelves. That’s just in time. In other words, I’m not going to warehouse it months and months ahead because that creates cost and inefficiencies. And you saw a little bit of that impact in the very early days at the grocery store where you had some empty shelves, which is a bit jarring for us. We weren’t used to seeing that.

Well, that’s just in time. In other words, let’s not build a giant stockhouse of goods in the back of your local grocery store that we make basically a bet that we know what consumers are going to come in and buy. Let’s move all those goods to a centralized warehouse, build a process that efficiently can move them to the store in days. And then we’ll move the right products at the right time. This is just in time. Car makers are famous for this. They work it to the hour in that industry. But it is very common. And it was the driving philosophy as well, again, to drive more savings and to bring more value to customers.

Now the third thing again, is this unusual demand. I come back to it. I guess I kind of began with it, but just unusual demand patterns. Early in the Covid era, we saw things like espresso makers and bread makers and electronics and office desks. We still see these unusual patterns as people kind of adjust their lives to living in the Covid era. What we don’t understand today quite clearly is what’s going to stick. What parts of that are going to stay and what parts are just an accommodation or an adjustment by all of us to a very unusual time.

Jordan I think a lot of our listeners will have heard some of the reports from the United States about the chaos at the ports and how difficult it is to get things off of boats, how difficult it can be to even get a shipping container to bring things over here. Is Canada in a similar shape at our ports, or are we a little better or worse off?

Michael I think we’re a little better off. Now, for context, the US is forecasting an increase of between 9% to 11% year over year growth in holiday spending. This is a multi trillion dollar industry. That kind of growth basically is more than Canadians spend on retail just on growth. The imagination stretches when you think about the amount of product and the product that’s coming in early, there’s a bunch of bottlenecks happening. So Canadian ports are impacted 100% for sure. They have some other issues where they’re trying to get boxes off. They’ve got a lot of empty boxes because the whole system has just been disrupted.

So yeah, I think we’re in marginally better shape, but there’s probably less volume, like order of magnitude, but there’s still challenges, for sure. And it is still fair to say the supply chain is kind of jammed up at every single node, whether that’s getting a box loaded, getting it onto a boat in China, Vietnam or Indonesia or South Africa or Australia or wherever and getting it on the water and then getting it on and off and loaded. These issues are not just Canada, not just US, but global issues.

Jordan Why are so many of these containers empty?

Michael Well, it’s a great question. Some of it is because the containers that came over here are very, very big because a lot of the products we’re buying are large, and a lot of it is just sunk cost. So the providers are just saying, I just rather shoot that stuff over here. And the natural efficiency of sending empty containers back, it’s all just been disrupted. So it’s a very unusual pattern.

There’s a bit of gamesmanship, I think, going on in the shipping industry when you see the cost of a container go from $7,000 to $34,000 per container as an expense to retailers, you know, that there’s something going on there, that industry is taking advantage, I think, as well of the situation.

Jordan Well, it’s supply and demand, right?

Michael Yeah. It’s supply and demand. And there’s just a ton of demand. Now, this probably won’t last forever. This kind of demand. And that gets to capacity and ports. You might ask as well the question, why don’t you just build bigger ports? Well, as you can imagine, these are huge infrastructure projects. And the old saying, you don’t build a Church for Christmas. You’ve got a lot of ports who are saying, yes, we could have more infrastructure. But do we build infrastructure to accommodate the amount that’s coming in today? Well, we know it’s not going to last. In other words, the flow will be more level in the future. So we might wind up building a bunch of capacity that will just go unused. So these are some of the things that are happening below the covers in the supply chain.

Jordan What’s being done to try to fix the supply chain? Is there even anything we can do?

Michael I’ll give you the retailer’s perspective, there’s a couple of things you can do. First of all, you got a lot of options. So if it’s not on the water, can you get it on an airplane, by the way, that’s even challenging, because before time, there is actually a lot of freight that moved in the belly of these airplanes that were carrying people back and forth. There’s a lot of flights back and forth. And the often case, there would be freight on those. That’s hard to come by.

Second is, are there near sourcing options now near sourcing kind of one of those fancy terms saying, well, if I can’t get it in China, is there a source where I can get it in Canada, the US or Mexico somewhere I can put it into a truck. So you look for different vendors, different sourcing opportunities. That’s really not easy. You quickly find that you might be able to get one part of it, but it’s often the case that the components are made somewhere else. Maybe it’s the label, maybe it’s the cap, maybe it’s the box. Sometimes you get a product that’s near source that’s not quite the same. And maybe it’s an ingredient, and you got to adjust, so that’s complex. Do you go to different vendors who are making different things in different ways?

And then do you start bringing in product earlier? In other words, going back to the beginning of our conversation, this just in time, where you now start thinking, well, maybe if I get a purchase order and the vendor says they can ship it, but they got to ship it early, I’ll take it. Whereas before you said no, I don’t want it. I don’t want it until I need it. So you’ve got retailers coast to coast around the world, really, who are bringing in products early as an adaptation to uncertainty. So I’d rather have it early, then be uncertain about it.

Because these things trigger a lot of knock on effects. If you’re running a print flyer program, which likely is on your listeners doorsteps in one way, shape or another, those things take 26 weeks from start to finish. You’re circulating millions of Flyers. You’d rather be sure than have an item on the front page of the flyer that didn’t arrive. That’s not a great outcome for anybody. So retailers are adjusting their buying patterns. And if the vendor calls you up and says, hey, that thing I promised you, it didn’t get made because there’s no Silicon chips or something happened to the plant. You call up vendor B and vendor C or vendor D.

As I said again at the beginning, supply chain is never one of those places where you want to be, where you want a calm day. That’s just not the world of supply chain now or in the before time. And the people who work in it. I have so much respect for them because they can adapt to anything. Because they get a lot of stuff thrown at them on a regular day that would kind of throw me into a tailspin. They’re like, yeah, normal day. Have another cup of coffee. Let’s figure it out.

Jordan In terms of the big picture, what kind of impact beyond the kind of selfish consumer based like, man, I’m not getting a PS5 for Christmas, or I really wanted to get my hands on fancy Gadget X. What kind of impact does this have on the economy as a whole, when I imagine costs are through the roof for stuff you can get here?

Michael Yeah, it’s a great question because there are inflationary pressures. Now, keep in mind that shipping is a component of the cost. It’s not the exact entire cost. And there’s ways for retailers to mitigate those things. Volume, for example, is actually very helpful. Like the volumes are selling now, in some ways, mitigate a higher cost. So these cost pressures are real. So that’s a thing. And it may be the case that these cost pressures continue well through 2022. I mean, this isn’t a 2021 issue. This could be an issue for years, literally years to come. If we think about the world and the world’s status around vaccinations. For example, there are parts of the world that won’t be fully vaccinated for years. They may not be where you source your good, but it may have this globally interconnected knock on supply.

So I think what we’re going through today, it’s an unusual time because consumers have pretty much heretofore, without the unusual PS5 you’ve got to hunt around ten stores to find it, very high demand. That’s kind of more common now. So I think that’s an adjustment we’ll make. We don’t know. I don’t know. Very hard to predict how long this is going to last. It’s like a traffic jam. It’s going to last for a while. It doesn’t in some ways, take a lot of things for a traffic jam to happen. Maybe it’s rubber neckers on one side or a Fender Bender on the other, in this case, like a 50 car pile up, but it will resolve.

The roads are there, and over the course of time, smoothing of demand and the Covid era starts to ebb. Fortunately, we can see the end zone. But as these things start to resolve themselves, things return to whatever the new normal is going to look like.

Jordan If we know that this is something that regardless of a few months here or there is going to last years to recover from, what could we be doing now then, that would have long term implications for how we come out of this and to steal it from Joe Biden, build back better?

Michael Yeah, it is about near source and can products be made here? There’s entire industries that have disappeared from North America. I don’t think there’s any TVs made on this continent. Does it make sense to begin manufacturing? Sometimes yes, and sometimes no. They’re gone for a reason. And the reason is they’re more expensive to make here. And will customers want to pay more? But at the same time, many manufacturers are moving product domestically. Near sourcing, as I said, whether it’s Canada, the US or Mexico, and it could be the case if we cast our minds to thoughtfulness about efficiency, that we maybe made the supply chain too efficient. So it snapped when under this kind of pressure. And maybe there wasn’t enough give in the supply chain.

And we saw that, for example, in PPE, right. We had none. And maybe a few million dollars in a warehouse of PPE would have saved us a billion dollars of the economy. Who knows? But that’s a good example of maybe we might start to think about bringing things in earlier. Maybe we might have, and there are two schools of thought on this from a retailer perspective. Maybe we have less vendors and better relationships with the existing vendors. So when these discussions, we call allocation discussions. Hey, I’ve got ten units or something. I got to figure out who gets the ten units because I got demand for 20 or you get more vendors, because then I can turn to vendor A, B or C or D. All these things are in play all the same time. But there are some categories that it’s just hard to imagine ever being made again in North America at a price point.

So you can go out today and buy a made in North America Barbecue. I have a Yoder barbecue made in Kansas. Listen, it’s a $5,000 barbecue. If I want a $199 barbecue, I’m not sure you’re going to be able to get that made for that price in North America. That’s probably a product that’s going to be made at scale overseas.

Jordan That kind of leads to my last question, which is is there a world in which the supply chain didn’t crack? As you say that it was robust and it was able to kind of weather the initial shortages and outbreaks at major ports and that kind of stuff? Or is that just an impossibility given the chase for efficiency in retail that we’ve seen?

Michael I think the industry will learn lessons from the Covid era. I don’t think the supply chain is going to be transmogrified into something very different than it was before. Like I said, maybe there’s a little more give left in the supply chain. Maybe the boats are going to get bigger, maybe there’s more people involved. This was such an unusual event from a whole bunch of reasons, obviously, that even if you plan for this, at some point, it doesn’t make sense. It’s back to that, do you build a Church for Christmas? Do you build a second Port in case your first Port gets filled? It’s hard to imagine that that would ever make sense. Now, in some places, does it make sense to build more inventory than you did in the before time? Yes, it just might in anticipation of the unexpected.

So I think the driving lesson for many retailers is a focus on agility and in the before time, pre-COVID, I think the focus would have been yes, we need to be agile, but we need to be planned out right to the minute. And I think that was the driving ethos, whereas now we don’t know what’s coming at us next. Who does? But if we build an organization, if we build our people, if we build our systems, if we build our technologies more agile, then we can react to whatever is thrown at us even better than we did pre Covid. And I think that’s going to be the lasting impact and lasting lesson in the supply chain to the Covid era.

Jordan That was great context and information. I really appreciate it. Last one before you go. Are you doing your Christmas shopping right now?

Michael Yeah. I’m an inimitable shopper. I shop all the time.

Jordan That’s exactly what a retailer would say

Michael Exactly. No, listen, I love shopping. I shop all the time. I am doing it a bit early, but I’m also very much open and maybe more so than I was before to substituting. There’s a product I was going to buy and the brand was out of stock. So I just switched to a brand I never bought before. By the way, 45% of Canadians said they bought from a store or a brand that they’d never bought before. This is a jump ball moment. Let’s look at the bread fell off your table and landed butter side up moment of this. This is both risk and opportunity for brands and retailers. People are more open to change now than probably they’ve ever been open to change since, like the last big, huge shock, like, I don’t know, the Second World War, of this magnitude.

So it’s a fascinating time and people are open to change. And that’s exciting and the terrible way that Covid is upon us or what we went through, consumers and retailers alike are thinking about what comes next and what the new normal looks like.

Jordan So now it’s less what’s my brand and more just like, who can get it to me?

Michael Yeah, I think that’s short term. What do I believe in? What do I need and what’s my lifestyle going to look like? And I think brands still matter. Physical stores still matter. E-commerce has moved ahead, probably three to five years, but it was heading that direction anyway, so that’s something we knew was coming anyway, the transformation of retail is real. The retail apocalypse is not and never was never will be. But the transformation of retail and consumer behavior is absolutely real.

Jordan Michael, thank you so much for this. It was a pleasure.

Michael Yeah, my pleasure as well. Thanks for having me on.

Jordan Michael LeBlanc, founder and principal of M.E. LeBlanc and Company, a veteran retailer and, of course, the host of The Voice of Retail Podcast , wherever you get your podcasts, just like this one, which is The Big Story. And you can also find it at thebigstorypodcast.ca on Twitter, at @TheBigStoryFPN and via email at thebigstorypodcast@rci.rogers.com [click here!].

If you are in a podcast player, throw us a rating. Throw us a review. We’ll be very appreciative. I’m Jordan Heath-Rawlings. Thanks for listening. We’ll talk tomorrow.

Back to top of page