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Localisation, higher prices and digital tracking: our new supply chain

By Amy Hamilton Chadwick |

Supply chain issues continue to cause problems for our economy and across the world. What will our supply chain look like in the future?

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Getting goods from New Zealand to the rest of the world – and vice versa – presents some unique problems. We’re geographically remote, split onto two sparsely populated islands separated by the expensive-to-navigate Cook Strait. Internally, our topography doesn’t help either, with winding roads. Added to those natural challenges are the latest problems with global supply chains, and it’s no wonder our supply chain is “vulnerable and at potential risk”.

Taking all that into account, what changes are we likely to see in our supply chain.

Prices will probably never be the same

The cost of transporting a container across some of the world’s major shipping lines has quadrupled in the past year, and although prices will probably drop back somewhat, they’re unlikely to ever fall back to their 2019 levels, says David Robb, Professor of Operations and Supply Chain Management at the University of Auckland.

“Prices will depend a lot on how much shipping trade there is in the future,” he says. “I think there’s going to be less intercontinental movement, and instead we’ll see smaller ships and more regionalisation. We may not need the same number of ships, either.”

Robb believes there will be a push toward local hubs to replace long-distance shipping. Australia could become more of a hub into New Zealand, but it’s also possible New Zealand could itself be a hub between Asia-Pacific and South America. A hub could be like a distribution centre on a larger scale, allowing businesses to be more flexible with their delivery to meet rapidly-changing demand. We can also expect to see more dual sourcing, collaboration and onshoring. Taken together, these changes should create a more energy-efficient supply chain: goods will travel shorter distances to reach their destination; there will be less waste; reduced damage to goods; and a lower carbon footprint.

Information will deliver improvements

Digitisation for supply chains is already increasing – the Internet of Things means goods can be tracked individually, monitored for temperature and movement. With more information will come improved forecasting, which will increase predictability and accuracy, making life far easier for our ports.

Better data should also help Kiwi businesses make their supply chains more adaptable. Robb says New Zealand small to medium-sized businesses often have a ‘one size fits all’ supply chain: “The usual one month of inventory, 95% service level, goods by air and running very lean. It’s a bugbear of mine. We need to tailor and customise things better.” Instead, businesses should run an efficient supply chain for their established products, but consider a more responsive, demand-driven supply chain for new-to-market products.

Data will make all the difference: “You need analytics – that secret sauce stuff from software and analysts which takes into account customers who hoard and suppliers who are unreliable. That’s the algebra of the supply chain and it’s what will help us make better decisions.”

Supply chains are strangled the world over

The Covid-19 pandemic has convulsed global supply chains on such a scale that few industries, socio-economic classes or countries are immune. The upheaval caused has some suggesting it may even lead to reshoring.

DHL Supply Chain President, Jim Monkmeyer, told Bloomberg the current situation is the perfect storm, “We have prices going up. We have congestion. We have capacity issues around labour.”

“I think in the international markets you're looking at least through to February March before anything will change at all and personally, I think it will go long after that. Just getting the backlog resolved. We are going to have challenges for another year at least. I don't think you're going to see things change and prices come down. I think that they might come down a bit but not to the levels they were before because we just don't have the workforce to meet current demands.”

China’s energy crisis is now adding to the havoc

Another issue making it’s presence felt more is the growing energy crisis in China as factories in the world’s biggest exporter are forced to conserve energy by curbing production. China’s problems are partially due to its new environmental agenda and the push to reduce greenhouse gases and go “carbon neutral” by 2060.

China is facing energy issues on two fronts. Some provinces have ordered industrial cuts in order to meet emissions and energy intensity goals, while others are facing an actual lack of electricity as sky-high coal and natural gas costs cause generators to slow output amid high demand. China’s coal production grew by 6% in the first eight months this year, but the power output from coal fire generators surged 14%. Some provinces are suffering blackouts while generators are also looking worryingly at the coming winter when demand will increase further.

The energy disruption comes as producers and shippers race to meet demand for everything from clothing to toys for the year-end holiday shopping season, grappling with supply lines that have been upended by rising raw material costs, long delays at ports and shortages of shipping containers.

The energy crunch will weigh on China’s economy at a time when it’s already slowing because of stringent virus control measures and tighter restrictions to rein in the property market. The strangled supply chain and its impacts may mean this is the ‘new normal.’

Whether it’s a shortage of silicon chips or flour bags, empty shipping containers piled up in the wrong place or port congestion, we still have a long way to go to iron out the issues.

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