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Under Extreme Pressure, Australian And New Zealand Supply Chains Have Been Winners. But What Do We Need To Do To Ensure Future Resilience
By Chris Nixon, Principal Economist, NZIER
Nietzsche famously said: “what doesn’t kill you, makes you stronger”. Many working in supply chains in Australia and New Zealand must be thinking (hoping) that this is true.
Why have physical exports and imports held up under the most difficult logistical environment in living memory? A combination of fierce competition for market share by shipping companies, assistance by governments (subsidies, trade documentation adaption etc.), enduring relationships within supply chains between producers, logistics companies, and other supply chain participants, and strong demand for commodities all helped.
How can we ensure that supply chains thrive?
If we have weathered the storm – COVID willing – how can we ensure that our supply chains work harder? Here are three opportunities/challenges that could improve the resilience of supply chains even more.
- Full blown digital trade initiatives will produce significant benefits
The latest trade agreements have chapters that enable digital trade. The mooted Indo-Pacific Trade Economic Framework for Prosperity (IPEF) has digital trade as its economic centrepiece.
So much so, that the efficiency gains that can potentially be reaped from participation in digital trade are equivalent to a high-quality free trade agreement.
This will not be easy though since there are parties both on the export and import side of value chains that benefit from paper trade.
But the economics will prevail and the impact of dynamic gains over time should not be underestimated. The Figure below shows the impact when the European Union introduced e-certificates for perishable goods.
Figure 1 Export values increase after implementing SPS e-certificates[1]
- Carbon friendly supply chains
Supply chains will need to play their part in bringing carbon emissions down. This is especially important for Australia and New Zealand since we depend on trade. We face a big challenge and it is most likely that there will not be one big breakthrough that moves us toward our climate goals. It is likely to be hundreds of incremental steps that help us obtain the targets. We need to start now!
One issue is waste in the supply chain. As an example of how to mitigate waste, some kiwifruit can exhibit a temperature bounce once it enters the cool store. This fruit tends to ripen more quickly and can spoil or downgrade the fruit quality.
To overcome this problem PlantTech Research have developed algorithms that detect the bounce and built models that classify predicted causes, they could pinpoint where the impacts are likely to occur, i.e. mainly within the first few weeks in the cool store.
PlantTech were able to suggest cool store practices that minimise bounces occurring. The outcome was the first version of a temperature bounce detector.
All parts of the supply chain will have to incrementally improve their performance to meet climate change goals – something akin to a full court press. Innovation, such as the work undertaken by PlantTech, can assist in mitigating food waste – a small but significant part of that challenge in the supply chain.
- New trade routes
Technology is driving new trade opportunities. One such opportunity is the Southern Link. The Southern Link is a potential trade route that joins Asia, Oceania, and South America. It is an extension of a global value chain that involves routing multi-modal freight and passengers between North Asia and South America via Oceania.
The critical trade is e-commerce. The speed at which e-commerce has become a major trade has been dramatic. Around the world, e-commerce platforms are taking advantage of a gap in the market and providing services that customers are flocking to so that they can buy a whole range of consumer products. E-platforms such as Shopee have only been in operation for five years, and now they are the leading operators in ASEAN and regions such as Taiwan and Hong Kong. They have also started operations in Brazil. This significant development underpins the growing links between South America and Asia.
The traditional routes for e-commerce fulfilment to South America from Asia are through the Middle East and Europe, and these routes will continue to dominate e-commerce traffic. What Oceania offers is an alternative supply route diversifying risk and improving the efficiency and effectiveness of e-commerce platforms.
We are traders with the world
Supply chains have responded well to the COVID curve ball, and we need to capitalise on their success. We need to keep plugging away since exports and imports are the lifeblood of both economies. Our exposure to the world means that products and services we produce need to be world competitive – “born global” to succeed. No more highly protected car industries or subsidies for this and that. Supply chains must reflect that we are “traders with the world”. In many cases this is an incremental process which must be supported by the institutional settings set by governments, industry and society.
[1] Tongeren, Frank van, and Tom Baragwanath. 2021. “Digital Opportunities for SPS Systems and the Trade Facilitation Effects of SPS Electronic Certification.” Tongeren, Frank van, and Tom Baragwanath. 2021. “Digital Opportunities for SPS Systems and the Trade Facilitation Effects of SPS Electronic Certification.” https://www.standardsfacility.org/sites/default/files/OECD_Digital_opportunities_for_SPS_systems_Apr-21.pdf.
