With container ship supply to New Zealand at historic lows and freight prices skyrocketing, business leaders need to consider whether their pre-Covid supply chain is appropriate for the changing international market. By Paul Moreton.
Optimism is in the air. With more and more Covid-19 vaccines arriving and vaccination rates hitting higher levels in New Zealand, companies are rightly planning for the opening up of the economy and for international trade to rebound.
Unfortunately, things might not be that simple. New hotspots in export markets are causing production to be disrupted, whilst emerging variants of the virus make it hard to be confident that international trade will return back to normal any time soon.
The World Trade Organisation’s latest Goods Barometer suggests that world trade might start to lag again as these type of issues continue to arise.
Most immediately, international shipping, on which New Zealand businesses are so reliant, is suffering a major Covid hangover.
Shipping has always been a commodity – just like gold and oil, it has a specific supply. Now, with economies opening up, those at the top of the food chain are paying over the odds to secure container space.
Container ship supply to New Zealand has already hit historic lows, whilst over in Australia, prices have reached such a peak that a regulatory body is launching an investigation.
So how should businesses prepare for continued uncertainty, even as things at home start to look more positive?
This question is particularly pertinent for those with international supply chains. New Zealand businesses need to consider whether the pre-Covid supply chain is appropriate for these new circumstances.
Can international suppliers be relied upon to get the goods required, particularly with holiday season approaching?
To manage this, the first step is to take a detailed look at the companies already in your supply chain.
Unfortunately, many businesses have not weathered the coronavirus storm, and some of these businesses may be located within your supply chain.
If you need to replace a supplier, consider again whether your pre-coronavirus criteria are still fit-for-purpose.
When sourcing a new supplier, consider how to reduce risk and mitigate against potential future disruption.
For example, could you work with a higher volume of suppliers to spread the demand across multiple companies? Or is it worth re-thinking where the suppliers are located and building relationships with New Zealand-based firms?
For example, Zara’s owner, Inditex, has recently heralded the idea of ‘proximity sourcing’, whereby it has built up reliance on suppliers close to its headquarters and in a number of reliable regions.
This has enabled the business to weather the pandemic better than some of its counterparts.
A second step for procurement teams is to look again at supplier contracts and consider whether now is the right opportunity to renegotiate, especially if the arrival of goods is disrupted.
Pre-pandemic contracts have often proven insufficient – it is important to remember that not only has your business changed, but your suppliers’ businesses may well have changed too.
Depending on how fit-for-purpose the contract is, it might be necessary to re-negotiate a contract in its entirety.
This will not only protect your business but lead to stronger commercial relationships that support companies in your supply chain.
Business managers will (rightly) be concerned about the amount of work this could require in the run up to the busiest season for many businesses.
But technology exists to automate the evaluation and onboarding process for new suppliers, enabling companies to focus on getting their customer strategies in place instead.
Supplier qualification and selection tools can be integrated into the central supplier directory and companies can use automated supplier and contract monitoring technology, as well as supplier self-service tools, to cut down on the time they need to invest in maintaining their supply chain.
All of this also increases the level of visibility a business has into each supplier’s ability to perform, enabling problems to be spotted earlier. This reduces risk, which is crucial when certainty is hard to find.
Consumers and businesses alike in New Zealand may now be seeing the light at the end of the tunnel – a hugely exciting prospect following 18 months of closures and disruptions.
But this opportunity is not guaranteed, particularly for those reliant on weakened supply chains or international sellers.
A good evaluation of the supply chain now, with steps taken to minimise risk, will help prepare businesses for further uncertainties that will inevitably arise in the coming months.
Paul Moreton is the New Zealand solutions manager at Proactis, a procurement management and invoice automation platform.