Action over supply chain

A discussion document aimed at future-proofing New Zealand’s supply chain and freight system has been published following disruptions caused by the coronavirus pandemic.

Michael Wood, Minister of Transport, describes the issues paper as the first step in developing a 30-year strategy.

He says: “Through Covid, we saw how major international disruptions can disrupt businesses, limit the availability of key goods and services, and increase the price of everyday goods and services. 

“We’re taking action to future-proof our supply chain, limiting the impact of the next global shock on our businesses.”

The paper reports a global oversupply of shipping capacity after the 2008 global financial crisis has kept sea-freight rates to this country low, with international freight costs making up 4.2 per cent of the value of imports in 2019. However, the pandemic has impacted on that.

There has been a significant decline in air-freight capacity with demand for sea freight outpacing capacity. This has led to port congestion.

The disruptions have resulted in fewer services to New Zealand, sea-freight costs jumping to six per cent of the value of imports in the first nine months of this year and empty containers being marooned in the wrong places.

Despite this, export and import values climbed by 5.5 and 7.2 per cent respectively during last year’s first 11 months when compared to the same period in 2019.

Wood notes: “However, other impacts have been harder to quantify, such as those associated with foregone economic activity, falling or negative profit margins, and the loss of business confidence to invest or overseas market share.”

The issues paper states small and medium-sized enterprises have been the worst affected by the disruption and dependence on international shipping is now described as challenging.

This country is geographically distant from major markets and not the most profitable trade lane. New Zealand also relies on Singapore and Malaysia as transhipment hubs.

The report adds international lines move about 75 per cent of domestic cargo, which is susceptible to operating decisions of international operators.

It says some stakeholders have suggested ports could be better co-ordinated, and could achieve economies of scale through better co-operation and specialisation.

Other issues include the just-in-time approach, which means there’s little “fat” in the system to cope with disruptions, it’s hard to switch between freight options and limited data exists in the freight sector.

In addition, there’s a need for a long-term plan for government investment and regulation, which is reliable, evidence-based, transparent and non-politicised.

Also, accessing labour is difficult because the industry is seen to involve anti-social working hours and poor career prospects thanks to automation.

According to Statistics NZ, labour productivity in the transport sector has been declining over the past five years and capital productivity dropping since 2002.

It notes the pre-coronavirus operating environment is unlikely to return, so systems have to be positioned for the future. Another issue is the supply of labour. 

The report states: “The need for labour is likely to become more acute in the future as freight volumes increase. 

“Big changes facing our system, particularly new technologies and demographic changes, will reshape the future of work.

“There’s a need for more collaborative and longer-term planning across industry, unions and government to ensure the right conditions are in place to enable a sustainable labour force.”

The issues paper proposes four key outcomes. New Zealand’s freight and supply-chain system should be low emissions, it should be resilient, reliable and prepared for potential disruptions, be productive and innovative, and be safe and equitable.

“To achieve the proposed outcomes, the market will need to co-operate and co-ordinate, but this will be hard for the market to achieve by itself. 

“The high costs and long timeframes of investment in an environment of uncertainty require longer-term planning from all players, including the government.”

The Ministry of Transport is already implementing a new generational investment approach (GIA) and taking a 30 to 50-year view of investments in the system. The GIA will be used to prioritise, evaluate and implement options for change.

“This should result in clear, long-term planning based on transparent evidence that makes it more likely organisations will invest in good ideas.”

Wood says the performance of the supply chain affects all Kiwis. “The system is complex. We need industry and government working together so we have a high-performing freight sector and supply chain into the future.”

The report outlines the main issues and opportunities in coming decades, and has based on discussions with more than 100 stakeholders. Submissions close on June 3.