Petrol crisis: Could proactive planning have lessened the impact?by
A shortage of truck drivers, blamed on Brexit and coronavirus restrictions, has triggered long queues at petrol stations and fuel shortages in many areas of the UK. Combined with soaring gas prices, the failure of some smaller energy suppliers, and empty shelves at supermarkets, Britain’s crumbling supply chains are causing panic amongst businesses and consumers.
What started with KFC unable to source chickens has led to the prospect of Christmas without turkeys. The truck driver shortage that led to empty shelves and shortened menus earlier in the year has caused thousands of petrol stations across the UK to run dry as stations cannot get enough fuel to supply panicked motorists.
The government has said it will introduce emergency measures, including issuing temporary work visas for 5,000 foreign truck drivers and the suspension of competition law to allow suppliers to deliver fuel to rival operators as way of calming the public.
While motorists look further afield to fill up their vehicles, the government also this week called up army drivers to help operate tankers in a bid to avert further crisis, while the RAC reported a sharp increase in the number of stranded drivers who had run out of fuel.
Back in July, the Road Hauliers Association (RHA) warned Brexit-related paperwork, tax complications and visa restrictions had led to a significant drop in cross-border drivers, and that around 100,000 long-haul operators had left the industry. The lobby group has since been on a collision course with the government, with both accusing the other of whipping up fear for political ends.
Paging Michael Fish…
There is no fuel shortage, ministers have repeatedly expressed, however, only a depletion of common sense amongst a spooked population, reminiscent of the Great Toilet Roll Grab of 2020.
With Britain so reliant on road haulage; 98% of all food and agricultural products and 98% of all consumer products and machinery are transported by road freight, any disruption to that network was likely to cause severe supply chain problems. Industry forecasters, and many within the AccountingWEB community, saw it coming.
“A lot of the problems now being seen have stemmed from not valuing what is actually a critical part of a good economy enough, logistics,” said Rick Smith, managing director at business rescue firm Forbes Burton. “There have been many years of neglect towards the haulage industry, not just by government but by the general populace as well and now the potential lack of turkeys is coming home to roost.”
Smith, as many AccountingWEB commentators believe, said tabloid media headlines had inflamed the situation and made an already volatile issue much worse.
“The best the planners can do is anticipate worst case scenarios, such as bin lorries not being able to get fuel and collect rubbish, and work from there,” Smith added. “The key is, plan for different scenarios and be ready to shift trajectory at a moment's notice should something unexpected happen.”
Companies themselves must take their share of the blame, accounting experts believe. “I would expect organised clients to be in a position to sort this out,” said AccountingWEB commentator Paul Crawley. “If a client has drivers, then I would expect them to be more aware than most of us. This was so avoidable. There have been so many drivers complaining about conditions for so long.”
Long time coming
Some of the issues now flaring up have been decades, rather than months, in the making, added Nick Jackson, finance transformation leader at Oracle. “Lean, just-in-time supply chains have struggled in the face of global crisis,” he said. “To get back on track and plan ahead, spending big to ensure supply chains are robust and resilient, not overly lean, is critical.”
This means making the supply chain more agile and able to adapt quickly to any disruption, he said.
“Finance directors must work closely with supply chain managers to identify and prioritise changes that matter most,” Jackson told AccountingWEB. “This requires increased visibility across operations, not just in terms of product whereabouts, but into the partners and stakeholders that supply chains rely on.”
Increased transparency and awareness of the most business-critical elements are the main goals here, he said. Using automation and other efficiency-improving technologies could also help finance directors gather more information, analyse the supply chain, make predictions and act on insights, he said.
“Investment in this area is key to shoring up the supply chain and mitigating exposure to the ongoing disruption we’re seeing,” said Jackson.
The future of forecasting
Regardless of the current situation, it is becoming harder for finance teams to budget with any level of confidence about how the future may unfold and impact their businesses, added Jonathan Kipps, Chartered Accountant and founder of budgeting specialist software Forecast5.
He said some of the problems business are juggling cannot be resolved with Excel, which is better for cashflow and profit and loss, but not responsive enough to the constantly fluctuating demands of the present.
“How is a significant hike in the gas price going to affect input costs? What will be the effect of a fuel shortage be on deliveries and sales? And how will this translate through to the bottom line – and the balance sheet? What will be the knock-on effect on our business if energy load-sharing is introduced? Will my banking covenants be at risk? What new capital will need to be found to shore up the business?” Kipps said. “These are hugely important issues – and unfortunately possibly existential for some; solutions have to be found and time is – and will be – of the essence.”
The difficulties of scenario planning at group and corporate level are likely to increase over time, Kipps said, as even when the present situation blows over, the UK is committed to reducing its carbon levels which may further impact energy supply chains.
“Transitioning to carbon-free without taking great care to protect and ensure this reliability will inevitably lead to continuing (large) cost increases and disrupted supply lines,” he said.
“It falls to the corporate finance managers to try to prepare the directorate and management to ‘best guess’ how to cope and they need the finest tools available.”
“It is going to take a while to rebalance and there are known knock-on effects that need dealing with,” said Forbes Burton’s Smith. “Fluctuation and volatility will be likely for the foreseeable future, but it is likely that the second quarter of 2022 will give a bench mark as to how the year is going to pan out.”
All businesses are likely to be impacted one way or another so it's best to be prepared, he told AccountingWEB. “The best way to look at it is to review what happened in the past, what is happening now and what is likely to be on the way.” with that picture in place, firms will be able to better foresee the future, he said.
“You're best using strategic forecasting and taking a holistic view, forming an opinion on what is going to happen and ensuring you have factored in implementation,” said Smith.