Prior to 2020, the world was experiencing the benefits of globalisation with free trade agreements, swift transportation via air or sea, and a booming import/export business, and Australia was successfully operating under a distribution model, and not a manufacturing model. However, the ramifications of COVID-19 have had lasting and drastic effects. These effects have only been compounded by countries around the world responding by increasing their domestic infrastructure and construction projects to boost their economies and keep businesses running throughout COVID-19 lockdowns.
As a result of COVID-19, international supply chain issues are now affecting businesses across all industries on a scale not seen in the last 50 years. Businesses may have been hopeful supply chain pressures would ease as the world begins to learn to live with COVID-19, however external factors such as conflicts between countries, rising commodity prices, and new variants have translated to further disruptions with no short term relief.
In addition, the Russian war in the Ukraine and subsequent sanctions on trade have presented ever-increasing challenges, both for the frequency of shipping lines and on the price of fuel both here and across the globe.
Currently, Australia only has nine privately owned freight ships that would provide some sort of guarantee bringing goods into the country, but compared with other nations in our region we are under resourced. There is also a high priority need to get certain items through the supply chain and into Australia. The Government has identified these items as semiconductors, agricultural chemicals, water treatment chemicals, telecommunications equipment, plastics, pharmaceuticals and personal protective equipment (PPE).
Managing product shortages and changing consumer demand
Prior to COVID-19, shipping companies were operating under very different conditions but the cost of berthing vessels was still expensive. To balance their running costs, the shipping companies reduced capacity and cancelled lines. In just two years, the cost to ship a container from Shanghai to Sydney has increased up to tenfold, and prices have compounded with rising port terminal service charges and congestion surcharges due to backlogs.
From supermarket to textiles to building materials and health, the difficulty in getting products into Australia has caused a ripple effect across all industries to almost every aspect of business. The exorbitant increase to freight costs have spiraled out of control. Businesses and consumers are bearing the brunt of the supply chain delays and disruptions, having to absorb rising costs and manage consumer disappointment.
While private industries and Governments are lobbying the shipping companies to create more capacity to increase shipping runs around the world, these groups are also looking for additional solutions including improving domestic infrastructure and manufacturing more goods and materials here in Australia.
Overcoming challenges through government incentives
Federal and State Governments have implemented infrastructure initiatives to assist goods moving around the country more swiftly. In this year’s Budget, the Government has announced new measures under its $120 billion infrastructure pipeline to increase domestic supply chain. This includes more than $500 million for local councils to deliver priority projects; $880 million to better connect regional Australia with ports, airports and other transport hubs; as well as increasing the efficiency of the national freight network with the Melbourne Intermodal Terminals.
The Federal Government has promised to improve its road and rail projects and allocated $678 million to seal another 1000km of the Outback Way in Queensland, Northern Territory and Western Australia. They have also dedicated $2.26 billion to complete the final stage of Adelaide’s North-South Corridor motorway.
The Government has made the SMART Projects and Supply Chains service available to prepare Australian businesses for possible future challenges. The initiative is designed to provide businesses across all industries with various tools to increase business capability and encourage growth, including access to a Growth Grant worth up to $20,000.
Expanding sovereign manufacturing capability is another focus area for Government to rectify the supply chain issues. The Government is implementing incentives to increase manufacturing in strategic areas like semiconductors, pharmaceuticals and telecommunications equipment.
Due to the number of Bilateral and Multi-lateral free trade agreements the Government currently has in place, raw materials or finished goods can be imported free of duty. In light of the ongoing inbound supply chain issues around increasing freight rates, vessel capacities, lack of empty containers overseas, and port congestion, which is resulting in a surplus of empty containers in depots around Australia, perhaps it is time the Government reviewed the nature of free trade agreements.
Similar to some of our key trading partners like the USA and China, Australia could look to apply additional tariffs or quotas on goods that we can manufacture locally, with the intention to increase domestic capacity or encourage investment in capabilities. Furthermore, the Government could increase incentives to allow for more value-add manufacturing using Australia’s minerals and resources, such as lithium, which are currently all exported overseas for further manufacturing.
Attacking the problem head on
At both State and Federal levels, Governments have created independent commissions to investigate where the issues are most commonly experienced in the supply chain. In 2021, the Government launched its Australian Competition and Consumer Commission’s stevedoring report which discovered Australia’s largest ports were operating far below international best practice. The Productivity Commission also found there needed to be more efficiencies in our port’s work practices and the need for improved infrastructure settings, which would result in lower freight costs for businesses.
From State Government, the NSW Minister for Regional Transport and Roads, Sam Farraway launched the new NSW Freight Transport Advisory Council (FTAC) in March 2022 to streamline domestic freight travel. It would be wise for the other State Governments to take these steps too, and for the Federal Government to act now and address the issues that were uncovered from their own investigations.
In the UK, stevedores and warehouse employees have more relaxed COVID-19 isolation rules than other industries allowing close contacts to work. If this policy was implemented locally in Australia, this could significantly reduce delays in moving goods through the supply chain once they arrive in our ports.
Export key to Australia’s recovery
On the other end of the supply chain, Australian businesses have been looking to exports to encourage more frequent shipping runs. There is a surplus of empty containers residing in Australia creating congestions in our ports, and shipping lines are positioning vessels in Australia just to pick up empty containers. Due to the imbalance of containers being imported to those being exported, the export freight costs for moving containers should be cheap, making Australian exports more competitive. This is a great opportunity for Australia to develop its export markets which will in turn lower export freight rates and encourage more shipping lines to deliver imports.
Niche Australian products such as fragrances, candles and cosmetics have been experiencing strong demand from export markets and are set to experience further growth. The Government has also identified sustainable minerals; and battery components, particularly for charging electric vehicles; as well as pharmaceuticals as high growth export sectors for Australian businesses.
Australian wine exports have always performed strongly, however when China increased their tariffs last year it saw this market drop by 30 per cent in value. The latest figures from Wine Australia showed nearly $1 billion stripped out of wine exports to mainland China and this will take significant time to offset the impact.
Exemplary Global Citizens
Global stability and countries continuing to trade as good citizens will help ease supply chain pressures. The current conflict in the Ukraine has demonstrated how just one country, Russia, can undermine the global order that hundreds of countries across the world have worked so hard to achieve following the Second World War. The more recent issues experienced throughout the supply chain across the globe are just one small part of what could be to follow if Russia continues its aggression, and if any other countries follow suit. True globalisation and its benefits of a free market, improved trade and business growth can only be achieved in a safe environment where freight companies are encouraged to travel far and wide to move much-needed goods to all parts of the world.
