The past two years have seen massive disruption to supply chains globally and as businesses tried to manage uncertainty, destabilisation hit with full force. The knock-on effects of this have been wide ranging, creating fluctuation in demand and forecasting difficulties. This, combined with a slowdown in production due to the spread of COVID created a perfect storm.
As the global supply chain took hits from all angles, the delicate balance between parties operating across the global supply chain became apparent. Some cracks in the supply chained turned to crevasses, and nearly two years later, the rebalancing of the supply chain pendulum may still be some months away.
Despite the ongoing challenges lessons have been learnt. Businesses are realising the benefits that come with scenario planning and future proofing their supply chain networks and are putting in place mechanisms to manage disruption. As we head into 2022, more disruption is likely, but businesses are now better equipped to minimise the impact on their operations.
Surges in demand for ocean freight
The surge in demand for air freight coupled with the loss of passenger planes has put incredible strain on shipping supply lines, with more than 90% of global fleet being utilised to service current demand.
Many containers are being shipped at huge premiums, which is significantly impacting New Zealand businesses, given our reliance on imports and dependence on efficient supply lines from Europe, Middle East and within Asia Pacific.
Businesses that can afford to ship are passing on additional costs to their customers or absorbing losses just to stay afloat. Businesses that cannot sustain the losses are reducing shipping frequency and are at risk of losing valuable market share.
The undersupply in the ocean freight market is set to continue, with new ship builds in the pipeline not expected to come onto the market until 2023. This will keep upward pressure on freight rates.
While shipping lines have been beneficiaries of this constrained market generating high rates and using this opportunity to diversify their service offering, it is putting a strain on their commercial relationships. Businesses in New Zealand must seek better contracts and partnerships with their logistics service providers to secure space and prioritisation in a hotly contested market.
If we’ve learnt anything in 2021, it’s that future-proofing is paramount. Businesses need to invest in integrated technology solutions that enable more effective planning and management of their supply chain and optimisation of cost, service and compliance across their international and domestic value chain.
Pressures on local infrastructure
The sporadic timing of inbound freight to our shores is, causing an imbalance of empty containers and issues with refrigerated positioning for outbound cargo in New Zealand. This is putting upward pressure on facility and land availability and property costs for cargo owners and third-party logistics providers.
The increased transport of containers has led to greater inefficiencies and increased carbon emissions by New Zealand businesses in their supply chains. Long term, greater investment in intermodal terminals is needed, enabling freight to be processed more efficiently between wharf terminals and end to end customers. Developments at Auckland Port and Ruakura in Hamilton are positive signs of progress.
Additionally, the availability of serviced industrial zoned land in Auckland has been scarce which has put upward pressure on property costs. However, the outlook for 2022 is more promising. Earthworks are beginning on 150 hectares of industrially zoned land east of Auckland airport and there are still some major blocks of land available. A number of businesses are also considering industrial land outside of Auckland.
When in the market for industrial property, it is critical that businesses do their due diligence and understand their long-term supply chain and operational requirements. Seeking external advice can also of great assistance, helping businesses to incorporate future operational demand into their leasing decisions and helping to secure a competitive lease.
Last mile logistics and the role of technology
The increased demand in online sales has put incredible strain on last mile logistics networks, although positively many businesses have risen to the challenge during the pandemic. We’ve seen an increase in businesses investing in automating and digitalising their processes to optimise operations, reduce costs, improve compliance and more effectively service customers. Automation is being viewed as a solution to wage rate inflation and labour shortages, two issues which we are set to see more of in 2022.
Many businesses have made advancements in their Transport Management Systems (TMS), Warehouse Management Systems (WMS) and general process automation solutions to enable improved end-to-end visibility in their supply chains. These evolving technologies enable businesses to make informed data-backed decisions based on real-time analytics. Customers are kept happy too, provided with real time information and updates on their product throughout the journey from warehouse to doorstep. Similarly, automation can also reduce exposure to labour shortages and a way to reduce land requirements, building up rather than out, with automation able to be incorporated in warehouses up to 32 metres high.
The upfront investment required to incorporate these technologies is much more accessible than it has been in the past and we expect to see greater uptake of these technologies in 2022.
Despite the persistent supply chain issues and the as yet unknown impacts of the Omicron COVID-19 variant, businesses are better prepared than before. Many have made investments in technology and digital enablement in their supply chains, enabling greater flexibility and agility across their operations. Further disruptions are likely but through futureproofing, scenario planning, and incorporating automation solutions, businesses can expect a better 2022.
*Caleb Nicolson is NZ general manager of supply chain consultancy TMX.
