Monday, April 22, 2024

Rough seas ahead for supply chain

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Leading trade advisor Charles Finny is painting a bleak picture for global supply chains that he suspects will linger for the next two years. Speaking in an online webinar sponsored by Agcarm, Finny says until new ships were commissioned into the global container fleet, there would remain an imbalance that would keep isolated countries like NZ vulnerable to schedule changes and capacity issues.
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Leading trade advisor Charles Finny is painting a bleak picture for global supply chains that he suspects will linger for the next two years.

Speaking in an online webinar sponsored by Agcarm, Finny says until new ships were commissioned into the global container fleet, there would remain an imbalance that would keep isolated countries like NZ vulnerable to schedule changes and capacity issues.

Finny is a partner at Wellington government relations company Saunders Unsworth, where he is specialising in supply chain issues. He has spent years in international relations and oversaw the China-NZ free trade deal.

After the surge in global demand for goods post-2020 lockdowns, he says it was now clear shipping companies had got things very wrong when they anticipated a global retraction in trade.

“China came back up and running in only two months, there was an explosion in international trade and we are still catching up,” Finny said.

International ship building companies have had their order books for this year filled by June, with the first being completed by 2022 at the earliest.

Maersk, a regular shipping company servicing NZ, has ordered eight new container ships that will be carbon-neutral, due for 2024 delivery.

After a career in international relations, trade and diplomacy, Finny candidly admitted last year had been the worst in his working life.

“It seems now, every time I think things will get better, we are back to square one,” he said.

He referred particularly to the impact of the Ever Given container ship blocking the Suez Canal, just as supply lines appeared to be freeing up.

At that point estimates are 14% of the world’s cargo capacity was suspended mid-ocean until the Suez was reopened.

He attributed about a third of last year’s supply chain issues to domestic problems here in NZ, particularly productivity issues at Port of Auckland, with its automation and staffing problems.

“This year, however, it is largely globally driven,” he said.

He believed the big exporters who wielded some weight over shipping capacity were in a reasonable position. The likes of Fonterra and Silver Fern Farms with their Kotahi freight union were one example.

Interestingly, utilising bulk ships to freight containers is evolving as an option to avoid container ship shortages and accelerate access to ports that can have dozens of ships at anchor, awaiting a berth.

Maritime news sites are reporting more bulk carrier shippers switching to lucrative container charters, in some cases tripling their daily charter revenue.

Capacity on these ships is, however, relatively limited and subject to contract and safety issues.

Putting his trade analyst’s hat on, Finny says NZ should be thankful about our relationship with China today and this country’s plethora of other free trade agreements that meant NZ could shift products to other markets when China shut down earlier on.

He predicted a “new normal” rather than a “return to normal”, in a world that involved less people traveling for “quite some time.”

E-commerce would only grow and there would be some big questions asked about just-in-time inventory models, requiring more localised production and greater stock storage.

Shipping companies were now recouping some of the significant losses they had incurred prior to covid and only time would tell if they had got their increased capacity estimates right.

As part of the “new normal” he suspected NZ may see fewer bigger ships visiting fewer NZ ports, requiring sharper focus on a coastal shipping network to service those ports in a “hub and spoke” arrangement.

“A number of people are looking at this. If the Government were to intervene, they could accelerate what seems an inevitable trend,” he said.

“And inflation is a real concern for me. The global debate is around whether it is short term, or will it be longer-term?

“A lot of analysts and policymakers have not lived through high inflation like some of us have and do not recognise the danger signals like we do.”

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