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Sorting Out Our Supply Chain Woes – Expert Reaction
Major challenges facing New Zealand’s freight and supply chain system are laid out in a paper released today for public consultation.
The government paper says we’re unlikely to return to a pre-pandemic working environment, and suggests various solutions such as a low-emissions freight transport system. Meanwhile, the nation’s current supply chain problems are predicted to worsen, given lockdowns in China and their effect on Shanghai’s supply systems in particular.
The SMC asked experts to comment on the paper.
Professor Tava Olsen, University of Auckland Business School, comments:
“The government issues paper is a comprehensive piece of work and has done an excellent job of explaining the current situation and challenges.
“However, it does have some significant flaws when it talks about strategy going forward. For example, it makes frequent reference to “our supply chain” but NZ doesn’t have one supply chain – it has many. And supply chains are, by definition, heterogeneous. Indeed, learning how to target the right supply chain strategy for a given product is ‘Supply Chain 101’.
“A country-wide one-size-fits-all strategy independent of product type seems destined to fail. In particular, there is usually a trade-off between productivity and resilience, yet the proposed strategy seeks both with no acknowledgement of this trade-off.
“The paper outlines the roles of government, which are all OK as written, but it does not acknowledge that if we want commercial enterprises to invest in resilience, then government will need to play a role in that as well. To re-rebrand lean supply chains as ‘just-in-time’ does not change the fact that lean is cost-efficient.
“The paper explicitly suggests “building surplus capacity” to improve resilience – this may well be warranted for areas of strategic importance to the country, but the government is going to have to put forward investment if it wants it to occur – which is nowhere acknowledged in the paper that I can see.”
No conflict of interest declared.
Dr Bill Wang, Senior Lecturer in Supply Chain Management, Auckland University of Technology (AUT) Business School, comments:
“This paper is good to focus on low emissions, resilience, productivity and innovation, and equity and safety, but it overlooks the international freight and supply chain challenges. New Zealand heavily relies on international trade, so this paper should not confine itself to the domestic issues. Even so, the four main areas of focus should be in a better balance rather than simply a parallel listing – their priority should be made clear.”
What are the likely implications of China’s COVID-19 crisis for NZ’s supply chains?
“China is our largest trading partner and contributes the biggest trade surplus for us, with two-way trade (exports and imports of goods and services) exceeding NZ$33 billion. The COVID-19 pandemic is putting global supply chains under intense pressure and disrupting trade. Thus, it is significant for NZ to work with China to keep the physical flow efficient and effective.
“China’s Covid crisis has been badly affecting NZ’s supply chains since 2020, e.g. causing shortage of the supply, increasing the lead time from production, transition, and through to delivery (partly because of the low efficiency in the ports in NZ). The situation will continue for a while because China adopts a cautious conservative policy to control Covid. The improvement needs efforts from both China and NZ, influenced by the updated restrictions and policies on Covid around the world.
“In my view, the worst thing is that the Covid crisis has significantly damaged our confidence on globalisation, and the global supply chain, including the China-NZ supply chain. Businesses are seeking local, regional cooperation, but I am positive about globalisation and would like to think it is a kind of spirally-rising self-restoration and development opportunity. Consequently, the global supply chain will improve its resilience to manage bigger challenges in the future.
“Lastly, we should have confidence in the NZ-China supply chain recovery capacity. Both parties, especially China, have experts, advanced technology, infrastructure, and mature supply chain management systems. China has regarded NZ as one of the most friendly and reliable trading partners in the Five Eyes and in the world, so this is our advantage.”
No conflict of interest declared.
Dr John de Pont, Director, TERNZ Transport Research Ltd, comments:
“The table showing “How goods are moved into, out of, and around New Zealand” is somewhat misleading. The percentages by transport mode are based on tonnes of freight moved and do not take into account the distances travelled. If, instead, we consider tonne-kms of freight, the figures for 2017/18 show 75.1% by road, 13.4% by coastal shipping and 11.5% by rail. The reason for the large differences is that road freight movements include large numbers of local deliveries with short travel distances while rail and coastal shipping are primarily used for longer distance trips.
“If we are concerned with reducing the environmental impact of freight movements, then tonne kms is more relevant than tonnes. With current technologies both rail and coastal shipping are less carbon-intensive than road. For long-distance freight, decarbonising rail through electrification is already partially in place and is widely-used internationally.
“Electrification of the long-distance road vehicle fleet is challenging. Batteries are heavy and therefore reduce payload capacity, i.e., more trips will be required, while green hydrogen is only about 30% efficient. For short trips such as local deliveries, road transport is usually the only option, but electrification of these vehicles is achievable because their daily travel distances are modest.
“Currently road transport has the largest market share even though it has the worst emissions performance. This is primarily because of its efficiency, reliability, and relatively low cost. For most freight tasks, using the other modes (rail or coastal shipping) requires a road transport connection at one or both ends of the trip. The costs of these modal transfers means that only quite long rail or coastal shipping legs are economically viable. Exceptions do occur when no truck trip is required, such as container movements by rail from the Port of Auckland to their inland port facility in Wiri.
“Improving the efficiency and reducing the cost of modal transfers would make shorter distance freight movements by rail and coastal shipping more economically viable. The Ministry of Transport proposal in part 4 of the issues paper does talk about improving modal options including rail and coastal shipping but does not explicitly consider inter-modal transfers.”
No conflict of interest declared. Note: TERNZ is an independent research organisation that specialises in transport-related issues.
Dr Mesbahuddin Chowdhury, Senior Lecturer of Operations and Supply Chain Management, UC Business School, University of Canterbury, comments:
“I think this is a very good initiative by government to address the climate change issue of the existing logistics and supply chain system of NZ. In particular, the government’s aim to achieve net zero emissions by 2050 is an ideal target. Building resilience of logistics system through decarbonisation is also a good initiative.
“I hope the government will provide a clearer plan how to achieve these targets. I think these initiatives are one way to look at the current supply chain problems caused by this pandemic from a long-term perspective. However, some of the other key challenges for the global supply chain during this pandemic time are to find alternative supply sourcing, alternative distribution channels, to enhance the visibility of supply chains so that firms can rapidly assess any disruptive situation, and most importantly how to make the supply chain short (from global sourcing to local/regional sourcing). I hope the government will pay attention to how these issues can be addressed gradually in the NZ context. Otherwise, building a resilience supply chain will be a difficult task in future if another novel pandemic hits this world.
What are the likely implications of China’s COVID-19 crisis for NZ’s supply chains?
“It is obvious that China’s new lockdown will create a stress on NZ supply chains as we are highly dependent on China. We have seen this issue in 2020 when lockdowns in China created a chaotic environment for many countries across the globe. Reducing dependency on China is a way to address this problem but certainly not all countries across the globe are able to do that, except the USA. For example, the USA aims to get China out of their supply chain. This is a recent initiative taken by the Biden administration to reduce their dependency on China. Replicating this strategy may not be feasible for NZ considering the amount of existing businesses, but NZ may need to think of alternative sourcing in the coming days.”
No conflict of interest declared.
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