New Zealand’s location ‘at the end of the road’ and the rising threat of climate change are both factors at play as the Government works on a supply chain strategy to combat disruption which may become a new normal
The world’s pandemic-hit supply chains may never return to their pre-Covid state, a government official helping develop a new nationwide supply chain strategy has warned.
The state of the world’s supply chains was among the topics of discussion at the Auckland Trade and Policy School on Wednesday, hosted by the University of Auckland’s Public Policy Institute.
University of Waikato economics professor Anna Strutt said the pandemic had brought “waves of supply shocks”, with the proportion of ships arriving within eight hours of schedule cut in half and the cost of shipping a box from China to the United States increasing tenfold.
There was also a sizeable mismatch between supply and sharply rebounding consumer demand, while rising inflation brought its own set of challenges.
Strutt said Covid-19 had merely accelerated pre-existing trends towards shorter and faster supply chains, with a greater diversity of suppliers, and global trade had in fact proved more resilient through the pandemic than during the global financial crisis.
Ministry of Transport supply chain manager Harriet Shelton said government officials had been working to provide businesses with a “bird’s eye view” of the supply chain problems since first becoming aware of disruptions in August last year.
“It’s fair to say it took us by surprise, and I think it probably took quite a lot of people in the industry by surprise. Everyone should have been expecting a recession and in fact, the opposite happened – demand skyrocketed at a time when capacity was limited in many parts of the supply chains.”
Shelton said supply chains all over the world were optimised for efficiency so were not always well placed to cope with shocks and instability, making the challenge to build in greater resilience and adaptability in a way which didn’t create “excess insufficient capacity and redundancy in the system”.
The role of government in the market-driven system was not to become involved at an operational level, but to bring together industry players like ports, shipping lines and trucking firms and help them find solutions by working together.
“Costs may come down, but they may not necessarily ever go back to being as low as they were before, and there’ll be all sorts of other factors that are probably going to stay in an unstable situation, for example, geopolitical issues and so on.”
– Harriet Shelton, Ministry of Transport
“That can be sometimes quite difficult in what is a very competitive market, a very competitive sector, and that competition needs to stay… but we also recognise and I think all the participants recognise that actually some coordination and cooperation can really help at a time like this.”
Commercial sensitivities had also made it difficult for government officials to collect and share information about the state of the system, but the ministry had run a series of data workshops in recent weeks to provide businesses with some assistance.
It had also held some broader workshops on the problems at play and potential solutions, although it was likely the supply chain would never return to its pre-pandemic state.
“Costs may come down, but they may not necessarily ever go back to being as low as they were before, and there’ll be all sorts of other factors that are probably going to stay in an unstable situation, for example, geopolitical issues and so on.
“So what we think our short-term response really needs to be for New Zealand is about alleviating rather than eliminating disruption.”
Shelton said the Government was working on a national supply chain strategy to prepare for an increasingly volatile and uncertain world, further exacerbated by New Zealand’s location “at the end of the road”.
“We are at the mercy of some very large, global shipping lines, we don’t have very much ability to influence a lot of the global issues because of the size of our country and position, so the best thing we can do is to join together with others [and] we’re working quite closely with Australia for that very reason.”
The supply chain strategy would also need to anticipate the likely impact of climate change, including climate policies from other countries (such as carbon taxes or buy-local campaigns) which could affect exporters, as well as the effects of sea-level rise on freight infrastructure.
Shelton said a supply chain issues paper would be released for consultation early next year, with a draft strategy hopefully completed by the end of 2022.
‘Driving through the fog’
Air New Zealand’s global sales cargo manager Alex Larsen said the pandemic had presented a supply chain challenge unlike any other for the airline.
Larsen said tourism and trade were inextricably linked, with around 80 percent of New Zealand’s air freight traditionally carried in the belly of passenger aircraft, and international visitor arrivals “dropped off a cliff” as the country’s borders closed in response to Covid-19’s spread.
Previous disruption to the aviation industry from viruses like SARS and MERS had generally subsided within six months, while non-epidemiological events like the global financial crisis and September 11 terror attacks had lasted longer but had a less dramatic impact on travel.
Air New Zealand had pivoted swiftly to cargo-only flights which still made up the mainstay of its international network, a change in approach which required significant adjustments in operating costs and anticipating demand.
“All of this at a time where at any one point there was no real surety as to what the next week ahead would hold, let alone how much demand there would be in three months’ time and supply chains were being disrupted left, right and centre.”
Larsen likened the last 18 months to driving down the Central Plateau in the fog: “At any one time you can only see the next 100 metres that’s in front of you and for navigating that stretch of road … but at any moment in time beyond the immediate 100 metres in front of you it’s really anyone’s guess as to which way the road turns.”
Trust and collaboration had been critical during the pandemic, and supply chains would need to be based on such partnerships in future “rather than a series of transactional, arm’s length relationships”, he said.