There’s no disputing Covid-19’s global impact. While New Zealand’s Government is managing its Covid response better than many, there are a raft of issues affecting global trade and shipping that have the potential to constrain growth.
Over time, the success of the global supply chain has relied on a “just in time” approach to deliver goods; saving time, money and space. Covid-19 has blown that model out of the water.
Both imports and exports are affected by disruptions that could take the shine off our local economy. The flow of goods has been impacted by shutdowns, social distancing, reduced capacity and a global shortage of empty containers. When you factor in congestion issues at Ports of Auckland and the ripple effect this is having at other ports around the country, then New Zealand Shipping Gazette’s recent comment that “there are long wait lines to get things in” comes as no surprise.
MPI is now actively monitoring air and sea freight disruptions impacting New Zealand’s supply chains; a key concern for the Government as nearly all of our goods import/export by volume, move by sea.
What does this all mean? For a start, it means that we will have to become accustomed to waiting longer for the things we want, and we can all expect to pay more for everything we buy in the coming weeks and months.
What follows is a snapshot of how the supply chain issues are playing out in our region.
Gateway or bottleneck?
Napier Port, the gateway to world trade for Hawke’s Bay exporters is at the centre of disruption to shipping and global supply chains.
Port CEO Todd Dawson says that more than 30 export and import commodity products are handled through the primarily export-focused port.
“There is disruption to global shipping leading to challenges with supply chain movements. New Zealand and Napier Port need empty containers to be available to take exports out.
“Shipping capacity and schedules are being disrupted and container supply is constrained and concentrated into the highest-yielding global trade routes, which has the potential to dilute positive regional economic activity and overall growth in containerised cargo volumes.
“Securing more empty containers has been an area of focus for us as we approach our peak produce export season; in February we have 26 container vessels scheduled to come in which is more than the same period last year, which is very positive.
“Covid-19 has highlighted the fragility of New Zealand’s supply chain network, with lots of factors in play in addition to the pandemic. What we need is a joined up, New Zealand Inc approach to supply chain network and infrastructure planning with fresh thinking to solve these issues.
“The briefings to incoming ministers indicate an openness to this and at the start of February I met with the Minister of Transport, Michael Wood, and the Prime Minister’s Office to discuss some of these issues – especially as Napier Port has the infrastructure and capability in place already to provide some solutions,” says Dawson.
Local freight and warehousing company Tomoana Logistics delivers and collects freight from North Island ports and has a significant third party warehousing operation. Stewart Taylor, executive director, says a number of factors – consumer trade out of China into Europe/USA absorbing all capacity, and regional hotspots such as union action in Australian ports and capacity issues at Ports of Auckland – have created a perfect storm in shipping, accelerating daily freight volumes.
“Vessels delayed in Auckland try to make up time by skipping regional port calls. Hawke’s Bay is at the tail end of all of this. The system is less efficient than normal because of all of the pressures. The volatility and delays in shipping are so dynamic that Tomoana’s freight coordinators are updating their planning schedules every 15 minutes to keep up with changes. It’s really challenging.
“We’ve hired more people, are working longer hours and will be adding additional capacity to our fleet. We’ve also added buffers to mitigate the volatility, such as MPI-certified storage to help our customers. At every point there are backlogs and bottlenecks.
“Coastal shipping around New Zealand is impacted as well, resulting in more freight travelling by road. We’re seeing extreme levels of demand since August last year and it hasn’t stopped. It’s increased demand in New Zealand and also overflow from other shipping options. We have 30% more load from Auckland to travel south than we have had capacity available. Packaging and ingredients come into New Zealand via Auckland on a just-in-time-basis. The challenge is to get those ingredients into production in the same timeframe as pre-Covid.
“There is a real interconnectedness between what happens in Auckland and what happens here. We’re not isolated. The delays and pressures are extreme, and that’s being felt in regulatory processing as well; we had an email from our customs agent to tell us our shipment was ‘785th in the queue’ before it could be uplifted. That says it all,” Taylor concludes.
HB business impacts
Craig Salter, director at Big Save Furniture, headquartered in Napier that has a large New Zealand supply chain and also imports where it can’t get the volume it needs locally, says that the travel dollar is the biggest competitor to retail of large ticket items inside of New Zealand.
“People can’t travel so that discretionary dollar has come back to retail and spend on people’s homes, with retail spend spiking around the world. Normally with supply and demand, you’ll see different parts of the world boom, while others are in recession. But that’s not the case with Covid. Retail is booming everywhere, and online businesses have grown rapidly. People might not be walking into a store to purchase, but they are still buying, and that’s been good for us.
“The offshore factories we deal with are operating at maximum capacity which leads to longer lead times, and my understanding is that shipping into New Zealand is at 140% capacity. That means that containers aren’t getting on ships.
“It’s affecting raw materials, finished product, containers and space on ships. Covid-19 stretched last year’s Chinese New Year shutdown from two weeks to seven. It is unknown how long it will take things to get back after Chinese New Year, this year.
“The current situation requires a lot of forward planning and communication with suppliers. We’re working a lot further ahead now – six to 12 months out – because we can’t go and see our suppliers like we used to. It’s a challenge as we’re trying to guess trends and what the volumes in the market place will be.
“Things were very consistent pre-Covid. There was certainty in the supply chain. There are so many factors moving around that never really moved before. The amount of residual inventory held across the retail sector, the buffer stock, that enabled fast delivery to the consumer has all but gone. This means that people might have to wait for their items.
“Because demand is so high, the cost of raw material costs will go up. For example, the cost of foam is expected to increase by 30% to 40%. In shipping, we’ve seen increases of between 500% to 1000%. Consumers should expect price increases whether it’s food, sofas or cars. No business can absorb price increases like that,” says Salter.
Hawke’s Bay’s food processors are affected and adapting to the supply chain issues, says Mike Pretty, non-executive chairman, Kraft Heinz Company Australia and New Zealand.
“In our case we are not immune to the impact of shipping delays, both incoming and outgoing. To manage this, we have adjusted our planning horizons with the intention of avoiding production shortfalls wherever possible.
“Where appropriate, we have also built greater stock buffers for key imported ingredients and packaging items. As you would appreciate, many of our key ingredients such as tomatoes, corn, peas, beetroots to name a few, are locally grown and at this stage, we are optimistic about a great growing summer season,” says Mike Pretty.
Wood products importer BBI has seen its market “go crazy” post lockdown. Rowe McGregor, general manager says that demand is very strong.
“When lockdown hit, we made a strategic decision to increase our normal orders and hold more stock. As a result, we have been able to respond to the surge in demand for building products.
“Stock from China is the worst affected, with increased retail demand, demand for product and container shortages all coming into play.
“Ocean freight times from China are lengthening and freight prices, skyrocketing. We’ve had to pass those price increases on, which means the end customer is paying more, but the strengthening of the Kiwi dollar has minimised the impact of price increases to this point.
“We have good inventory levels, but managing freight in and out is our biggest challenge and is taking a lot more time than it used to. We have had to make changes, such as increasing the number of shifts, which has increased our workforce. Our customers, the big hardware/DIY chains, have to plan and forward order more to manage things through. It requires good communication.”
Rowe McGregor says he can’t see things improving this year.
“Especially when you have new outbreaks around the world. There’s nothing certain in the world today. The big change to 12 months ago is the impact on logistics. Getting product on and off the wharf and then around New Zealand. There’s so much uncertainty about when product is arriving. There’s more demand out there, but there is only so many trucks on the road. This means there could be delays in getting product to where it needs to be,” says McGregor.
Anecdotally, the plumbing supplies sector has been affected with lead times stretched, especially for offshore product. The big lesson for all involved is “patience”. New Zealand suppliers are busy and under-resourced and shippers under pressure. It is taking a long time to get goods delivered from regional freight hubs to local outlets. To cope, wholesalers are holding more stock and trying to manage both trade and retail customer expectations. If customers are willing to be flexible or very early in their product selections, they will avoid disappointment. Wide ranging price increases for both goods and freight are expected for this sector in the coming months.
Ross Hill-Rennie, owner of Tile Shed, Hastings says that the biggest impact on his business has been in shipping delays.
“In pre-pandemic times, indent orders would take around 12 weeks to land in New Zealand, and that was timing that we could rely on. That has ballooned to more than double. We’re saying to our customers, to get the tiles you want, make your choices early, as we can’t guarantee that your first choice will be in the country when you need them, if you delay.
“The tile business is very used to working with long shutdowns such as for Chinese New Year and the Italian summer, and plans accordingly. But the delays we’re currently experiencing are new,” says Ross Hill-Rennie.
What can we make of all of this? It all adds up to a big wait for freight. There won’t be a solution to the global supply chain problem anytime soon, and price increases seem certain. New Zealand Shipping Federation executive director Annabel Young recently said “delay equals dollars and ultimately the consumer pays.”