Higher oil and commodity prices alongside ongoing shipping and manufacturing disruptions are among risks to New Zealand’s supply chain fueled by the war in Ukraine.
That’s according to a recent survey of local supply chain practitioners conducted by Massey University’s supply chain management school.
It points out that the current Omicron outbreak remains the one of the most significant risks and is occupying the time and energy of many in the freight industry. However, there is a risk that issues out of Europe are not being sufficiently considered.
“Pressures on the country’s supply chain practitioners are currently extremely high and little capacity exists to anticipate and prepare for new spill-over impacts originating out of Europe.
“Long delays in international shipping will buffer some of the impacts if supply chains were disrupted in Europe, but the same delays will make it difficult to implement alternative plans,” the report says.
It points out that New Zealand’s direct exposure to the Ukrainian and Russian economies is limited but exposed via several product categories and intermediate countries.
Ukraine and Russia are major global producers of sunflower products, barley and specialised minerals. Russia is also a major supplier of wheat, petroleum products and natural gas, urea, diamonds and sawn wood.
“Disruptions in the supply chains of these products driven by either sanctions or infrastructure damage are likely to create worldwide shortages. This will increase prices and may result in lower quality products available,” the report says.
In 2019, New Zealand imported more from Germany than any other country in Europe and this was also highlighted as a risk.
In terms of exports, Germany is Ukraine’s fourth largest trading partner (after China, Russia and Poland). Ukraine produces vast amounts of intermediate industrial products and parts that are used in assembly lines in Germany.
Likewise, Germany is Russia’s second largest customer (after China) with a strong focus on energy security, such as natural gas.
“Germany is highly vulnerable to the current tensions in the region, which poses direct supply chain risks for New Zealand.
“Several industries in New Zealand rely heavily on German equipment and the maintenance of equipment may become a significant issue if spare part supply chains were disrupted,” the report says.
This includes parts supplies for cars and trucks which are already reported to be slow in the current environment.
One survey participant commented: “I expect further delays in components. Some manufacturers have component factories in the Ukraine. These are being closed and staff relocated to Czech, Germany or Poland, depending on where the production can be moved. Moving production will create gaps, but it is unclear what they will be.”
Another responder commented that Ukraine has important resources of iron and titanium used in the German auto industry, which will be severely affected. This could impact the number of vehicles being produced and increase prices.
“Any supply chain disruptions between Germany, Ukraine and Russia are therefore likely to create flow-on effects into New Zealand.
“Currently the international shipping network is under strain and operating under long lead times. This implies that physical disruptions to German supply chains may take a considerable time before the impacts are felt in New Zealand.
However, because of shipping delays, corrective actions taken by New Zealand supply chain practitioners may also take a considerable time,” the report says.
*Click here to read the full report.
