Australian supermarkets form task force to tackle pallet shortage

Australia’s supermarket industry has formed a task force to fix a shortage of delivery pallets that could impact availabilty of some goods, a sign that supply chain problems gripping the world have entered the retail heart of the country’s economy.

Woolworths Group Ltd and Coles Group Ltd, the No. 1 and No. 2 grocers, joined pallet makers and smaller chains to address a scarcity of the wooden crates resulting from COVID-19 lockdowns and timber shortages, said the Australian Food and Grocery Council (AFGC) which is running the project.

Though the two grocers said they would avoid empty shelves in the end-of-year holiday period, the coordinated measure shows how a mix of unusual factors stemming from the COVID-19 pandemic has put strain on the A$120-billion ($90-billion) industry.

Without pallets, manufacturers cannot ship goods into warehouses, potentially leading to production stoppages and fewer goods for sale.

Nearly two years of stop-start coronavirus lockdowns have effectively shut down some sectors of Australia’s economy, leaving loaded pallets in storage for extended periods – and unavailable for new deliveries.

The global housing construction boom has hobbled efforts to build new pallets, as people under movement restrictions splashed out on bigger homes or renovations, sapping timber supplies and driving up prices.

“Across the nation there is a bit of a ‘pallet-gate’ going on,” said Coles chief executive officer Steven Cain on an earnings call. “The lack of wood means not many new ones are being produced.”

AFGC CEO Tanya Barden said the pallet shortage had in some cases caused temporary production freezes of certain goods.

“Many companies are currently building stock ahead of the peak Christmas period,” she said in an email.

“The importance of making sure production is optimized across the industry is a key reason for the AFGC bringing stakeholders together to ensure pallet availability impacts are minimized.”

A Woolworths spokesman said the company was working with suppliers to “help them get access to pallets and minimize any impacts within their distribution networks.”

At an earnings call a day earlier, Woolworths CEO Brad Banducci said Woolworths, which together with Coles accounts for two-thirds of Australian supermarket sales, may have to swap out some brands of certain items due to supply problems, although it would not drop entire product categories.

“They’re probably feeling this bullwhip effect, where there’s a shock in one node of the supply chain and that causes amplified reactions in every other node,” said Shanaka Jayasinghe, director of GRA Supply Chain, a logistics consulting firm.

The supply issues add to headwinds for Australian grocers, among the main beneficiaries of the pandemic-led shift to working and entertaining at home, as the easing of movement restrictions undercuts nearly two years of heightened demand. – Rappler.com

$1 = 1.3319 Australian dollars