Delivery fears as Santa hit by #logistics challenges

Santa’s LinkedIn posts have been getting frantic.

His decision to centralise manufacturing in a single global hub in Northern Lapland previously seemed a wise choice, offering the economies of scale needed to fulfil over 100 million Christmas lists each year. And his co-located B2C global distribution centre guarantees overnight delivery to every customer worldwide (except the naughty ones).

However, amid the supply chain and other problems of late 2022, his business model is under strain.

To get an insight into his problems, some of his recent LinkedIn posts were analysed by two experts from Allianz Trade UK: Simon Etherington and Christine Brennan, who are assistant heads of risk underwriting and technical managers.

Simon notes that many businesses have been impacted by rising shipping costs and delays in accessing goods from ports. The shortage of HGV drivers has compounded the problem.

Leading supermarkets, such as Tesco, were already  offering sign-on bonuses for drivers of £1,000 or more. The UK government scheme to allow 5,000 foreign HGV drivers temporary visas has drawn just a handful of applicants.

There is no ready solution, but rigorous planning and, potentially, cooperation with other businesses to improve efficiency, helps. As an example, many retailers have cooperated in sharing space in containers.

The UK’s food and hospitality industries will empathise. In 2021, they  were short of 500,000 staff, according to the Food and Drink Federation. Some positions may now be filled by workers coming off furlough, however, shortages remain.
 

Santa may be struggling with his post-Brexit paperwork, but the UK’s importers and wholesalers have now had months to get it right. Christine says that despite supply chain challenges many well-organised and financially strong retailers built up their stockholding in September and October to mitigate any shortages in the run up to Christmas.

However, inflationary pressures may dampen consumer appetite for goods and services.

The domino effect is the  chain reaction that happens when a company becomes insolvent. It can severely affect your cash flow even if it is a firm you have no direct dealings with. For instance, your firm can be hit by the failure of a customer’s customer, a direct competitor, or a company deep in your supply chain.
 

The  credit risk iceberg is an illustration of the hidden risks  in the post-lockdown, post-Brexit UK trading environment, where apparently creditworthy firms have below-the-surface problems.

The domino effect and credit risk iceberg aren’t a serious threat to Santa’s working capital, because he doesn’t have any — he doesn’t get paid for the presents he delivers. However, unless you want your cash flow to resemble Santa’s, it is vital to understand both concepts — and how to insulate your firm from them.

 

While Santa enjoys his January holiday, firms in the UK will need to contend with further price rises. Consumer demand will be hit by a range of factors, including higher energy bills.

Santa will certainly be in business next December – but he pays his suppliers with Christmas magic and candy canes! For those with more conventional finances, see our resources on protecting cash flow below.