Australia tackles latest supply chain kink - missing pallets

Byron Kaye
Updated ·2 min read
FILE PHOTO: A woman walks in the fruit and vegetables section at a Coles supermarket (main Wesfarmers brand) in Sydney

By Byron Kaye

SYDNEY (Reuters) -Australia's supermarket industry has formed a task force to fix a shortage of delivery pallets that could impact availability of some goods, another knot in the global supply chain that is putting the brakes on economic recovery from the pandemic.

Woolworths Group Ltd and Coles Group Ltd, the top two 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.

Pallets join a growing list of products suffering raw material shortages. Consumer goods manufacturers and retailers have also flagged short supplies of plastics and other packaging material such as cans and glass, while a lack of computer chips is hurting carmakers around the world.

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. There are signs that some businesses are hanging on to pallets rather than recycling them.

Brambles Ltd, one of the world's largest pallet providers, said earlier this year that labor and transportation constraints, coupled with restricted access to manufacturing sites due to COVID, were deterring some manufacturers and retailers from returning pallets.

Robust housing construction and renovation markets, particularly in the United States, have also sapped lumber supplies and driven up prices.

PALLET GATE

Earlier this month, Corona beer maker Constellation Brands said increased raw material costs in the third quarter were predominantly driven by pallets, cartons and aluminum.

Coca-Cola said on Wednesday it was facing "tight" supplies of cans, while its rival Pepsico flagged difficulties in securing bottles for its Gatorade sports drink.

"Across the nation there is a bit of a 'pallet-gate' going on," said Coles Chief Executive Steven Cain on an earnings call. "The lack of wood means not many new ones are being produced."

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

At an earnings call a day earlier, Woolworths CEO Brad Banducci said his company, 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.

($1 = 1.3319 Australian dollars)

(Reporting by Byron Kaye and Siddharth Cavale; Editing by Stephen Coates, Keith Weir and Jan Harvey)