Is Your Business Ready for “The Perfect Storm”?

Regular readers of my posts will recall I’ve written a fair bit about the need to keep strategy fresh, especially in these very changeable times, as well as about “The Great Resignation” and other leadership issues. Remember, too, that fear of Changing Economic Conditions and Unforeseen Risk is #4 in my “The 6 Biggest Fears of CEOs” article.

Although the MindBullet article is purportedly written 30 years in the future, when China has succumbed to a number of missteps which meant it never achieved the success it expected, there are far more immediate storms which are starting to affect almost every business around the world today, and likely to have serious ramifications over the next few years.

The need for these to be on your risk register and actively discussed in your board meetings is real. They include:

• Labour shortages – although automation is replacing many jobs, in most developed countries today there is a serious labour shortage, with shortages covering everything from unskilled to specialised, highly skilled areas.
• • • Consider, for example, that the UK is now having ships rerouted from its ports as it cannot handle the cargo volumes due to shortages of dock-workers and drivers of HGVs (this HGV driver shortage is impacting deliveries of everything and is being felt across Europe and the USA). Mind you, a shortage of supermarket workers means that if deliveries were reaching them without delay, the shelves couldn’t be stacked properly, anyway.
    • Farmers are having to slaughter livestock instead of sending them to abattoirs due to a shortage of butchers. This not only impacts consumers, but the very livelihood of farmers, too, who are already under great pressure as they cannot get enough labour to harvest crops.
    • Most countries are also facing skilled labour shortages across the board. These are expected to get considerably worse as the labour force shrinks with the retirement of the baby boomer generation, subsequent generations being smaller in number.
    • And, to add to this, as economies start to recover from the pandemic slow-down, people are resigning their jobs in huge numbers. Some, of course, are going to other jobs for better pay, but a large percentage are simply downscaling their lifestyles and looking to ‘welfare’ handouts to replace at least one family member’s income while reducing costs of commuting, childcare, etc.
    • Illustrating the extent of the problem, the US currently has 10.9 million vacancies with just 8.4 million people unemployed, while in the UK, the ratio of jobless people to vacancies is at its lowest in at least 40 years, at around 1.45. It really is a seller’s market as far as labour is concerned.
• Energy crisis – although South Africans are used to energy issues (“loadshedding” by our electricity utility, Eskom, being commonplace), the rest of the world is somewhat less used to this. Globally there is currently a shortage of coal and gas – used for electricity generation – pushing prices to record levels (gas is up some 280% so far this year in Europe, and coal is at almost 4x the price of a year ago), while oil is also rising rapidly and is currently at prices last seen in 2014.
  • • China, for example, is seeing factories being shut down and municipal services (such as water) restricted due to a lack of power.
    • The UK is experiencing the side effects – paradoxically in these times of global warming – of a lack of CO2 production due to energy costs making it uneconomic to produce, which is impacting the entire food supply chain (CO2 being used for cold storage amongst other things).
    • Rapidly rising energy costs will, of course, impact all areas of life and business, especially as we start to enter the Northern Hemisphere winter.
• Chip Shortages – although this is unlikely to last for very long, there is a global shortage of chips as factories scaled back for the pandemic and have not yet got back to full production. These shortages are impacting everything from computers to motor vehicles, appliances, toys and almost every facet of modern life. Almost 170 different industries, in fact, according to Goldman Sachs. The orders backlog across these industries is growing, but, as the shortage eases and manufacturing ramps up, the demand on already-constrained energy and supply chains will increase.

  Of course, the shortages have led to strong price increases for the available chips already, up 50% in many cases, and this trend is likely to continue.

• Shipping – the pandemic started to impact shipping very early on, with port closures due to lockdowns in various Chinese cities spreading through much of the world. Although this was not really felt for some time, due to a rapid drop in international trade, with the global economy now rebounding strongly in many parts of the world, shipping companies have been unable to keep up, while port delays have a ripple effect worldwide as ships are taking considerably longer to be turned around – all of which adds to costs.
  • China continues to have port closures in effect from time to time, and many other major ports around the world impacted by at least partial shutdowns due to pandemic-induced labour shortages.
  • Major shipping companies are, for example, rerouting ships to avoid having to unload at some of the UK’s major ports – such as Felixstowe (the country’s largest container terminal) – due to extreme delays from a shortage of labour and drivers. The giant container ships are being rerouted to other European ports, such as Rotterdam, unloaded and the loaded onto smaller vessels which can go to smaller UK ports. This adds considerable time to shipping and exacerbates the shortage of containers.
  • The ports of Los Angles and Long Beach in California are experiencing massive delays, too, with between 65 and 75 ships waiting for berths at any time during the past month.

  The result of all this is a very sharp increase in shipping rates – up 10-fold since last year for many classes / destinations. And, as the chip shortage eases and the affected industries can get back into full production, and try to fill the growing list of backorders, shipping problems are likely to increase.

• Inflation – the costs of the additional measures put in place by most governments around the world, be these support-schemes for business, payments for laid-off workers, additional public health costs and vaccination programs, and so on, are causing huge increases in public debt. Although interest rates were lowered to try to stimulate economies as the pandemic took hold, these will have to rise again in the near future, further impacting country budgets.
  • In the UK, debt-to-GDP ratios have risen to 60-year highs, currently running at almost 98% of GDP, up from levels below 80% pre-pandemic.
  • The USA has seen a massive jump, too, to record highs, with the debt-to-GDP ratio having shot up from pre-pandemic levels of around 107% to more than 133% today.

  And these ratios are not exaggerated by pandemic-depressed GDPs, as most economies are now back at, or very close to, pre-pandemic levels, so there’s no question that governments will need to soon start raising rates to control growth and inflation, which will add further to costs.

• Taxation – the money for all the government expenditure, be they vaccinations, business-support or infrastructure (job-creation) programs, as well as to service the increased borrowings associated with that spend will have to be found. This will inevitably mean tax rises – both for business and individuals. We saw agreement in principle at the OECD earlier this month when 136 countries agreed that multinational enterprises will be subject to a minimum tax rate of 15% from 2023, and this is likely just the first step to harmonising tax systems as countries seek to maximise tax revenues.

Higher costs for energy, shipping, chips and labour will inevitably add further to price rises and inflation. This, coupled with inevitable reductions in disposable income due to higher taxation and lower household incomes where people opt to give up their jobs and stay home, will all combine to make the sales environment in the next few years much more challenging.

Is your board discussing these issues, and have you put strategies in place to cope with them? Can your business not just survive, but continue to grow? Are you ready for this “Perfect Storm?”

#BusinessFitness#Business #Boards #CEO #Change #Disruption #Governance #Growth #Leadership #Pandemic #Planning #Resilience #Risk #Strategy #Unstoppable

Some other recent posts that might be of interest:

• • Leading Your Business Successfully in a VUCA World
  • Great News For Your Business – Growth Ahead
  • Pointers to a Successful Future for Your Business
  • Post-Pandemic Business Upturn – Give Your Board Real Muscle
  • Is Your Strategy Fit for Purpose?
  • Where is YOUR Next Major Competitor Coming From?
  • 3 Things You Must Do to Keep Your Top Performers and Your Company in Great Shape for the New World of Work