The Government’s plans for a new supply chain strategy place an emphasis on zero-carbon commitments, but there is also clear concern about the potential impacts of global instability
Thanks to the Covid-19 pandemic, supply chains – or more specifically, disruptions to them – have been in the headlines like never before.
With marked delays in, and skyrocketing costs for, the transport of freight, some officials have warned that pre-Covid normality may never return.
The Government is attempting to plan for the new normal, with the release of an issues paper last week – one of the first steps in the development of a 30-year supply chain strategy.
There has seemed little public interest in the release, perhaps in part because of the relatively open-ended nature of the document at present.
But there is still plenty to chew over, as Transport Minister Michael Wood made clear in a foreword to the paper.
“The pandemic has also highlighted just how complex, extensive, and interdependent the whole system is – when something goes wrong in one part of the system, it has ripple effects on the rest of the system.”
Among the key vulnerabilities raised by stakeholders and outlined in the report are the prioritisation of ‘just-in-time’ logistics over spare capacity, a reliance on international shipping lines unlikely to prioritise New Zealand given its distance and small value, an ageing freight workforce, and ports set up to compete rather than cooperate.
But the impacts of climate change, and the role of the freight sector in reducing emissions, are given a heavy emphasis by the officials who developed the paper.
The word ‘emissions’ appears 109 times, compared with 37 references to ‘resilient’ or ‘resilience’ and six uses of ‘geopolitics’.
That is not to say that emphasis is inappropriate, given the report notes the disproportionate amount of emissions from heavy trucks and the increased risk of damage to infrastructure and supply chains, as well as the Government’s net-zero commitment.
“Meeting these goals will require a drastic transformation of how our supply chain operates. This transformation will include the decarbonisation of all freight modes and the operations of the infrastructure that supports them (such as ports and airports).”
Changing geopolitics ‘could increase supply chain disruption’
Further into the document, an outline of international developments and their potential ramifications for New Zealand makes for grim reading.
“Changing geopolitics could increase the risk of supply chain disruption,” readers are warned, possibly in the form of “more frequent trade wars, an uncertain trajectory for globalisation, or rising competition for resources amid climate change-driven shortages”.
While Russia’s invasion of Ukraine is left unmentioned – understandably so, given officials would have been working on the document for some months before the conflict began – the flow-on effects of that war are already being felt by Kiwi exporters, as foreign affairs officials noted in a market briefing this month.
“Despite most New Zealand exports to the UK and the EU not passing directly through the most disrupted trade routes, disruptions to these routes have had flow-on effects to ports across Europe due to the interconnected nature of global and regional freight…
“Given the disruptions, rising costs and ongoing uncertainty, re-shoring … may become more attractive for some markets. This could have implications for export opportunities for New Zealand businesses.”
But it is another world power whose actions could have a marked impact on the maritime sea lanes which carry 99 percent of the country’s trade.
The document makes specific reference to the South China Sea, which carries roughly a third of international shipping trade each year and had almost a fifth of New Zealand’s trade go through it in 2016 (a number likely to have grown since then).
“New Zealand businesses will have to diversify and build redundancy and flexibility into their supply chains to hedge against increasing geopolitical and economic changes.”
– Supply chain issues paper
“This waterway is at the heart of an international territorial dispute between several Asian countries,” it says, somewhat brushing over the fact that it is China’s militarisation of man-made islands and refusal to adhere to an international tribunal’s rulings which have exacerbated the situation.
But the comments nonetheless explain the Government’s diplomatic note last year raising concerns about the situation in the South China Sea, given our “direct interests in the region’s peace and security and the maintenance of freedom of navigation and overflight” as officials put it.
Change may not be all bad: the document raises the possibility of a shift in exports from traditional Western markets to the likes of Asia, Africa and South America as “emerging economies … grow and lift their standards of living”.
But the warning from officials is clear nonetheless: “New Zealand businesses will have to diversify and build redundancy and flexibility into their supply chains to hedge against increasing geopolitical and economic changes.”
Exactly how much the Government can do to address some of the bigger picture problems is unclear, given that Ministry of Transport officials have previously noted they can only help different industry players to work together rather than getting involved in operational intricacies.
But as the paper notes, longer-term issues like climate change and infrastructure investment will need decisions to be made in the near future – meaning there is little time to waste.