On February 22, Martin McVicar and his forklift company Combilift were paying €1,030 per tonne of sheet metal. Days later, Russia invaded Ukraine, and by the end of March, a tonne of sheet metals was costing the Monahan company over €2,000.

“There’s a lot of steel slabs produced in Ukraine and Russia, so a lot of the European market was taking its steel slabs from Ukraine,” he said. “The war pretty much put an uncertainty about getting that supply.”

While the cost of steel has settled slightly, it is by no means back to normal. McVicar said he still pays around €1,700 per tonne of sheet metal, a 70 per cent increase from February when the price was already up significantly from pre-pandemic levels.

The forklift manufacturer exports 97 per cent of its product across 85 countries. Having already endured two years of severely stunted exports derived from supply chain woes, the conflict in eastern Europe is now pouring salt into the wound.

For the second time in as many years, Combilift has had to completely re-engineer many of its exporting strategies at the cost of time, revenue, and customers.

While the Covid health crisis is behind us, lingering supply chain issues, coupled with a new wave of shipping challenges posed by the outbreak of the war in Ukraine, remain a severe impediment to the livelihood of Irish exporters.

“I don’t think the supply chain is any better than it was a year ago,” said Simon McKeever, chief executive of the Irish Exporters Association (IEA). “If anything, shipping and exporting have become a little bit more difficult for companies.”

While the exorbitant prices of shipping containers have subsided in the past few months, McKeever said, the cost of exporting and importing in general has increased, mainly due to price hikes for raw materials and longer lead times for shipping.

“When I was chatting to companies last year, there were really three big issues I heard, which were Covid, Brexit and the supply chain clog,” the IEA chief executive said. “When I talk to companies now, the absolute number one thing on their agenda is the cost of inflation, cost of shipping, cost of moving goods, the continuing issues with the availability of containers, and supply chain constraints.”

What’s changed

One of the salient causes for the hiked cost of shipping containers last year was Covid outbreaks at ports around the world. Outbreaks would freeze virtually all shipping traffic through the port, and if that happened at a major international hub like Rotterdam or Shanghai, hundreds of thousands of containers could be held up for weeks. This made containers a scarce commodity, giving shipping companies the leverage to raise prices.

Now, with the exception of a couple of ports in China, most world ports are operating at full capacity, which has freed up the availability of containers and dropped the price, McKeever explained. The problem is that the easing of Covid restrictions has caused a surge in demand for consumer and industrial goods. Construction projects resumed around the world, factories and warehouses returned to full capacity, all of which require imported material to operate.

Even when firing on all cylinders, ports have struggled to bear the weight of the surge in demand, causing holdups.

“The issue is that everything is taking much longer than it used to,” McKeever said. “Connections between ports and the turnaround time with containers is prolonged. With a lot of these containers, they’re going from China, to Antwerp, to Southhampton, to Dublin; if there is congestion in any of those ports, there’s an issue.”

Another major cause of congestion is that ports are struggling to offload empty containers, which eat up vital capacity and restrict ports from moving through more shipments.

“International shipping containers travel like a conveyer belt,” McKeever said. “A container leaves one port full; it travels to its destination and then comes back empty. With this recycling, it is taking 20 per cent longer for a container to make a round trip compared to last year. Companies are struggling.”

Dublin Port chief executive Eamonn O’Reilly stressed how much empty containers have contributed to choking the system.

“We can no longer afford to have containers sitting in Dublin port for a long time,” he said. Dublin port has begun increasing its prices as a reaction to hiked demand.

O’Reilly highlighted, though, that Dublin Port’s shipping volume has almost entirely rebounded from its Covid lows. Through the first five months of 2022, the volume of containers passed through Dublin Port is 1.7 per cent below pre-Covid numbers, a minuscule difference and an illustration of a virtually full recovery, O’Reilly said.

“If you consider the disruption in the supply chain, Covid, all of the recessionary impacts that are obviously coming into the economy, 1.7 per cent is a remarkable figure,” he said.

But while volumes are restored, the port’s efficiency is not.

“We are cutting the laden time and increasing the charges; we’re trying to push all the empties out of port and into inland facilities,” O’Reilly said. “Our supply chain problems are particular to the capacity issue. We have a fixed footprint that can’t adapt to the hugely growing volume of trade.”

The capacity issue is not just localised to Ireland or even Europe. Some of the largest ports in the US, like Long Beach, have seen similar struggles with offloading empty containers.

American port capacity issues have put significant stress on Irish exports to the States for companies like Combilift.

“Our transit times, particularly for our more transatlantic containers, like shipping product to North America, Australia, and New Zealand, have all increased,” McVicar said. “It’s not that the boat is on the water longer, it’s because of delays at different ports. Congestion in a lot of ports has contributed to those increases in transit times.”

Cost to consumers

Delays have become such an issue for Combilift that it has been forced to drastically re-engineer its US export strategy.

Traditionally, Combilift would ship equipment to west coast buyers into Long Beach and then drive containers inland. West Coast ports have become so congested, though, that the company has begun shipping product into the east coast and hauling it all the way across the country to west coast buyers.

“You can imagine the increase in cost in road freight for that,” McVicar said, but he added that the process is still faster than shipping directly to the west coast. “The logistics and transportation effort for us to get finished products to customers is taking longer and costing more.”

The added cost of exporting has forced the company to raise the price of its products. “As a business, we can’t take that all on board ourselves,” McVicar said. “We have had to introduce price increases that minimise the rise in material cost and transportation cost.”

The dairy industry, one of Ireland’s most lucrative exporting industries, hasn’t fared any better with supply chain challenges.

“I would say things are probably more or less the same as they were last year. What has changed are the rates that we are paying; it costs you a lot more now to ship pretty much anywhere,” said Fiona O’Donovan, the transport and logistics manager at Carbery Cheese.

“If we’re shipping something to the US, those routes have more or less doubled in price these last 12 months.”

Fiona O’Donovan, Carbery

Based in Cork, Carbery, like most dairy producers in Ireland, exports almost 100 per cent of its products.

“Since last year, we are still seeing issues and delays with sipping due to congestions in ports,” she said.

Faced with having to pay more for exporting than its business model is built for, Carbery has also had to increase the price of its products.

“If we’re shipping something to the US, those routes have more or less doubled in price these last 12 months,” O’Donovan said. “But we are seeing increases across the board. We have a lot of goods going to Singapore and Japan, and all of those rates have significantly increased as well. We have had to offset that with what we charge our customers.”

Unlike Combilift, Carbery has no avenue to adjust or re-tool its export strategy to save time or money.

“In most cases, we have no choice, we just have to cough up and pay the extra freight,” O’Donovan said. “We deal with a number of freight companies and they’re dealing with shipping lines. If the shipping line increases rates, there’s nothing we can do about it.”

Not all industries seem to be affected by supply chain issues equally, though.

The pharmaceutical industry, which is historically one of Ireland’s most lucrative exporters alongside food, appears to have rebounded from last year’s supply chain struggles more so than its counterparts in other industries.

“Medicines supplies in the EU, including in regions neighbouring Ukraine, is continuing with no shortages reported or anticipated,” said a statement from the Irish Pharmaceutical Healthcare Association (IPHA).

Even while demand for pharmaceutical products rose with the outbreak of conflict in Eastern Europe, the IPHA reports that “the spike has been absorbed, and we do not anticipate problems ahead.”

The association did, however, mention that some companies are having issues with importing the necessary materials to make and package their products, a facet of last year’s supply chain challenges that the industry has yet to shake.

“There have been some reports of challenges in the provision of aluminium foil, paper and solvents,” the IPHA statement said.

The IEA’s McKeever highlighted how, no matter the industry, almost all exporters are dealing with challenges in some form because of the increased cost of packaging material, which is universally necessary for any company shipping products overseas.

Combilift’s McVicar spoke to how companies requiring both large volumes of metal and packaging material remain the most challenged of all.

“For manufacturers of physical goods, I see it as a bigger challenge at the moment than maybe in the software industry, or in small vehicles that can be air freighted. For big physical products, there is a lot more uncertainty there than there was 12 months or so ago.”

On top of the material cost, the time it takes to build and ship its products is compounding the supply-chain headache.

“For manufacturers like Combilift, our lead times are quite long for what we are producing,” he said. “For many manufacturers such as us, it’s a challenge out there because we are all taking orders from customers at a fixed price, even though our vehicle won’t be produced for a number of months. We are unsure what our material cost is going to be or what our transport cost is going to be.”

The long haul

McVicar added that he expects these challenges to be a part of his business for the near future. “Supply chain issues are not going to resolve themselves this year,” he said. “I’d say it will be a while, at least a year or two, before we get a breather.”

McKeever agreed that these supply chain issues have dropped roots, and won’t be going away anytime soon.

“As we get into the second half of the year, I do have concerns that we’re not through the worst of it,” he said. “Heading into September, with all the inflation pressure and increased interest rates, I expect this to be an embedded challenge for our companies through 2022 and 2023.”

Carbery’s O’Donovan expects the same.

“We only know what our hauliers are telling us, but my understanding is that we are in this until the end of 2023, maybe even 2024 before we see any improvements.”

Even when the global supply chain recovers, the past two years have exposed inefficiencies in the supply chain that will require significant reform beyond the short term, said Dublin Port’s chief executive.

“Underlying all of this is that we don’t have a lot of port capacity to accommodate for growing trade,” O’Reilly said.

Ireland’s steady population growth and the overall growth of e-commerce has thrust Dublin Port into breaking its own volume record every year since 1993, only seeing downturns in 2008 and 2020.

“Those are blips on an inevitable long-term trend of growth that we frankly are not equipped for and haven’t really been for several years. We have embedded inefficiencies which we have allowed for years, which we are only now trying to stop.”

Initiating the necessary changes are immensely challenging, not to mention costly, O’Reilly said, due to how many components of the supply chain would need to come together and agree on profound reform.

“We would have to get hauliers to change practices, and that requires customers to change their practices,” he said. “It would require warehouses to open at times when hauliers can take the boxes out at non-peak times. It would require ports to agree on surcharges for hauliers operating during surge times. How likely is that to happen? Not very.”

O’Reilly said he was frustrated considering that he had noticed and tried to improve these “embedded innefiencies” long before Covid exposed them.

“We saw a potential port capacity problem five years ago, just like we saw a potential housing problem years down the road, but ignored it,” he said. “The challenge is combining technology and economics to smooth out the process. If we do not succeed in that challenge, there will be a shortage of port capacity in Ireland, there is no doubt about that.”

Even with the rollercoaster of stress through the past two years and likely more ahead, McVicar said he has no choice but to remain optimistic.

“When you’re a business owner, you always have to look at the glass half full rather than half empty,” he said.

McVicar said he has to remind himself that one of the causes for this year’s new wave of supply chain issues is the increased demand for industrial equipment, which his company sells.

“The positivity is that we are seeing a high in demand, and the challenge is we can’t get the products to them, but that is better than nobody wanting it,” he said. “We are actually fortunate in that regard.”

Further reading

Official Ireland can’t comprehend how fast the country is growing. That’s a big problem