Supply chain pressure adds to Christmas stress

It may not matter if you were naughty or nice this year – though the opportunities to be naughty would have been limited – as Santa may not be able to fulfill your Christmas present wishes.

Even those well-organised people who have already started Christmas shopping, might find they can’t source the presents they want for under the tree if those products are coming from overseas.

The impacts of Covid-19 are wreaking havoc on global supply chains and New Zealand, being a long way from anywhere else and without the buying might of the bigger markets like Europe and the USA, is in danger of being left out in the cold.

I have been reading for weeks commentaries about global supply chains being near breaking point and containers being in short supply, and hearing in New Zealand that there are serious issues as shipping lines cancel sailings here to service more lucrative routes.

The nature of our export driven economy is if nothing is coming in, it’s going to make it hard for those wanting to send out the primary products and goods we sell around the world. While some companies can charter their own ships, not all our exporters are in that position.

Imports and exports come and go by sea and air, but with our border closed by the Government, there are only about one-sixth of the previous international flights servicing New Zealand.

Paying passengers are a trickle, and they used to subsidise the cost of freight on planes – the perishable goods like our seafood, flowers, and fruit. Air freight is significantly reduced and considerably more expensive. It is currently heavily subsidised by the Government, but that can’t go on forever.

Road freight is a critical part of the global supply chain and for our part, if imports and exports can’t come into the country or get out, our industry will take a hit.

We believe there are solutions and that those in the supply chain are better to find them than Government, which doesn’t seem to have a good grasp on the urgency of this issue, or how it will impact the country.

The Government can talk all they like about New Zealanders taking jobs and making things here; but that just isn’t going to happen at the pace required to meet market demands.

Also, much of our trading arrangements require that we take imported goods so that we can export goods – give and take.

We have asked the Government to urgently turn its attention to the supply chain, but we are not holding our breath. We have real concerns that without that understanding of the supply chain, we will be in the same position with any potential Covid-19 vaccines that we were with distribution of the flu vaccines earlier this year. Government pushed for people to get vaccinated but then found its own distribution network couldn’t match the demand. It is estimated flu kills about 500 people a year in New Zealand, which is about two percent of all deaths.

We suggest you be patient and creative with your Christmas shopping, and expect prices to reflect the stress on the supply chain. And don’t bank on Santa making it here – our border is closed after all.

– Nick Leggett, CEO, Road Transport Forum

New Minister of Transport, new opportunities

If you follow politics, either at home or internationally, the last few weeks have proven somewhat of a bonanza.

The New Zealand election result – and to a lesser degree the US one – will have a far-reaching impact on our road transport industry. The brewing international impact of COVID-19 could materialise via economic shocks, which will undoubtedly surprise us in 2021. As such, it will be vital that a strong supply chain is understood and supported by government to ensure the security of freight to reach its destination.

Prime Minister Jacinda Ardern announced her new cabinet at the start of the week. The RTF is very relieved to see that the Green Party will have no role in transport. In fact, former Associate Minister Julie-Anne Genter will not have any ministerial responsibility in the new government.

Phil Twyford is no longer the Minister of Transport and the portfolio has been passed to Michael Wood, a first-time minister and MP for Mt Roskill in Auckland. Minister Wood has given an early indication that he has a pragmatic view about roading projects (such as being open minded on the construction of a new Mount Victoria tunnel in Wellington, which was previously opposed by the Green Party).

If we look at the state of the nation from the Government’s perspective, they have to build infrastructure fast, and that will have to include roads.

On behalf of the industry, we have been in contact with the new minister this week. In our briefing paper we have outlined the contribution of the road transport industry to the New Zealand economy. We have pointed out that trucks are a key part of meeting the freight task, even if you are keen on trains, as the government has indicated it is. The convenience of door to door delivery, the resilience offered by road transport and the time sensitivity around the need to deliver many goods continues to put road transport in pole position.

We want the Government to work more closely with our industry in recognition of the contribution operators make keeping our economy moving. We would like the Government to prioritise development of a freight strategy for New Zealand. Such a strategy would recognise the importance of the supply chain and how to keep it secure by setting high level principles to guide transport investment. We must build “freight literacy” among the public and decision-makers. Developing a strategy could be a start to achieving this. 

We also want to see more transparency about where the National Land Transport Fund is spent.

Industry operators (heavy vehicles) contribute almost a $1 billion per annum through Road User Charges. It is obvious this fund has been “dipped into” by the Government for things other than road building and maintenance. We can only speculate about how much money has gone into light rail, KiwiRail and of course those cycle lanes. Meanwhile, our highways and roads have become more dilapidated, which has led to increased costs for operators via repairs and maintenance.

We have requested partnership with the Government on our driver shortage challenges. The RTF surveyed a statistically significant proportion of our industry this year (over 600 operators) about their experiences of a shortage of drivers. The survey found that 37% of operators had at least one truck parked up due to not having enough drivers. The industry is taking the initiative by starting our traineeship Te ara ki tua Road to success, but we do need support from Government to assist us with important components such as a more fit-for-purpose licensing system to ensure we maximise success.

– Nick Leggett, CE, Road Transport Forum

 

New Zealand urgently needs to focus on supply chain

The global effects of Covid-19 are putting real pressure on the New Zealand supply chain, economist Cameron Bagrie told the road freight transport industry this week.

Covid-19 meant no industry conference this year, so the Road Transport Forum invited Cameron to give us one of his popular industry updates via Zoom.

There was good news and bad news, and Cameron is pretty good at looking at how you can turn the bad news into good news. But there is no escaping there is pain ahead as we watch parts of Europe and the UK shut down again for a second autumn/winter wave of Covid.

What Cameron told us is what we are hearing across the board, and we are trying to get Government to listen. If for example, there is a Covid-19 vaccine and New Zealand is able to secure some, the supply chain is not in place to get it here and distribute it.

While exports are still working for New Zealand, imports are going down and sourcing goods is becoming a problem.

Cameron says people are talking about demand when they should be talking about supply – Covid is not supply friendly and “the Reserve Bank can’t fix supply chains”.

New Zealand is a small market to service and so is never going to be at the top of the queue. And while we can do a lot for ourselves, we are reliant on all manner of goods coming into the country to let us do that. When securing essential items becomes impossible, what’s the plan?

Some urgent thinking needs to go into managing this growing and critical risk and looking at how New Zealand can boost capability locally and fast.

Unfortunately, this doesn’t apply to goods only. Migration numbers have gone from booming to collapse which creates another point of vulnerability for New Zealand. There have been years of underinvestment in key skills and capability because we could always import them from overseas, Cameron says. But to get the economy moving in areas such as infrastructure, or to manufacture locally what we can no longer source from off shore, we are woefully short of expertise.

In the spirit of never letting a good disaster go to waste, Covid-19 presents opportunities for some.

“Think small to stand tall,” Cameron says. While the macro-economy is beyond the control of individual businesses, focus with a ruthless obsession on all the little business levers. Get up every day and make a small improvement and over a couple of months, the dial will start to move in the right direction.

While human instinct may be to hunker down in bad economic times, the people being rewarded in the Covid world are those taking risks and there is a growing wedge between firms that are adaptive and those that are not.

Covid-19 is a bit of a lightning rod for rapid changes that were already occurring. People working from home, for example, was starting to happen but became the only option during lockdown. The changes that have come with that means distribution moving from city centres to suburban areas as people start to buy in the suburbs where they are working, rather than the central business district where their company may have been located.

There is also pressure in an economic downturn to cut prices but if items are in short supply, or can’t be sourced, no sensible business is going to do that. The reverse is more likely.

Cameron wants to see both the Government and businesses take more risks and embrace technology and change. He would prefer the Government out there spending on critical infrastructure and the Reserve Bank doing a lot less. He is critical of the Reserve Bank driving down interest rates and says all this will do is widen the gaps between the “haves” and the “have-nots” in our society by making housing affordability worse.

He had some strong advice for the RTF too and that was to keep making some noise on the government front as there is not enough representation for small and medium sized businesses.

“You are going to be getting into a bit of a dog fight, but it will be needed,” he said.

As we wait for the new Government to be formed, we are certainly gearing up to represent our essential part of the supply chain that is going to keep New Zealand moving in any kind of Covid-19 response and recovery.

We recorded Cameron Bagrie’s presentation and as this is just a snapshot, it is well worth viewing here.

– Nick Leggett, CEO, Road Transport Forum

Free up freight to keep the economy moving

Week one of the Government’s lockdown has been a grim one for business. Air New Zealand is a shadow of its former koru, Bauer media shut its doors, and the forestry industry is in dire straits.

Most businesses are feeling the pain, with no end in sight. Even while the Government focuses on the health aspects of the global pandemic that is Covid-19, part of its enormous resources needs to be looking at economic recovery.

In a democracy, you can’t lock up a population and keep them terrified with mind-blowing numbers of fatalities for too long, without some serious questions being asked. Words like “unprecedented”, “we’re all in this together” and “the new normal” are carefully crafted to maintain control. But in the lounge rooms around New Zealand people are losing their livelihoods and there won’t be enough money to maintain that for too long.

The solution that has been mooted of a Depression-era road building gang under yet another government department’s control cannot be the only way out of this.

While we desperately need better roads, there have to be viable businesses using them and people who have jobs to go to. And this project is being headed by Transport Minister Phil Twyford who previously said, “there has been an over-investment in roads and motorways for decades in this country”.

Everyone is scrutinising the behaviour of our leaders, so when the Health Minister flouts the lockdown rules and the Transport Minister has a 360 degree change of heart, it feels like the recovery strategy might be a bit shaky.

Talk of an “institute” to train workers for the road building smacks of creating an even more bloated public service – there are already training programmes for this and what about the Reform of Vocational Education? The only people assured of jobs through this are public servants.

Trucking essential goods is an essential industry, but trucking companies are doing this at a loss because they cannot operate their businesses efficiently.

Supply chain links vital to getting essential supplies where they need to go must be allowed to work if trucking companies are to survive long enough to meet the demands of the Covid-19 response.

The Government needs to listen to business people and understand how business works. It is the private sector that will re-build the economy, not the public sector. The public sector spending on infrastructure won’t dig us out of a hole. New Zealand needs to generate wealth as the Government will need someone to tax. They have to keep people in business and that’s not just big business either. Small and medium businesses are the backbone of our country. The government can’t afford to forget that.

The decision to classify freight into two arbitrary groups – essential and non-essential – shows a lack of understanding of what is an integrated global system.

You take one link out, and the whole chain starts grinding to a halt.

As an importing and exporting nation, goods have to be able to come in and go out.

But at the moment, goods deemed “non-essential”, such as logs and processed wood products, are not allowed to go out. That means other countries that don’t have these restrictions are taking our market-share and we may never get it back. The longer this goes on the more people in the New Zealand provinces where forestry is a key employer will be out of work and the more businesses will fold.

The imperative to plant one billion trees is out the window and down the road.

We can’t export without importing. We must be able to move goods. Workers are already working in the “new normal” conditions of social distancing and strict hygiene, so this is doable under Alert Level 4.

We know that it is vital that items deemed essential move quickly through the supply chain, and priority should be given to them. However, for the supply chain to actually function now, and during our nation’s economic recovery, the classification to control its movement should be scrapped.
– Nick Leggett, CEO, Road Transport Forum