From chartering ships to increasing inventory, businesses have quickly made operational adjustments to keep momentum going.
Businesses are being forced to stockpile inventory — placing pressure on working capital — to overcome the global supply disruption that has seen freight rates soar and deliveries delayed.
In the Herald's 2021 CEOs survey, the country's CEOs cited shipping delays, including delays at New Zealand ports, rising freight costs and price escalation for imported products as the main constraints on the chain supply.
Most shipping trade lanes are affected by the delay in getting freight out of ports, the worst being the Trans-Pacific eastbound, and air freight space is limited because of the lack of passenger flights.
The constraints have particularly affected the primary exporters, dairy, meat, fruit and seafood; and the suppliers of imported goods such as new vehicles, electronics and appliances, liquor, farm machinery and office equipment; the port companies through congestion; construction companies needing vital materials from overseas; and transport and logistics operators.
They have found ways around the supply disruption with forward planning — ordering important components, ingredients and stock in advance; and in the case of global kiwifruit marketer Zespri chartering their own container vessels to get the produce to markets on time.
The agile businesses have had to soak up the additional costs and some may eventually be able to pass them on through price increases.
Don Braid, managing director of global transport firm Mainfreight, said procurement of available air and sea freight is a key priority, and pricing is at levels never experienced in the past.
"We remain concerned for our customers' supply chains and are working hard to reduce these effects wherever possible. But expect demand/shortages and pricing issues to continue to at least early 2022," he said.
In providing a market update, Sanford said it has faced increased costs and delays shipping frozen seafood products to key markets such as the United States and Asia because of the wider issues around global supply chains.
Total supply chain costs were up by $5 million on the previous corresponding period, which represented a 17 per cent increase on a cost per tonne basis. Sanford is seeking to recover these additional costs through pricing increases, albeit with a lag between these cost increases and pricing recoveries.
The recent Eboss construction supply chain report said the struggle to get goods to New Zealand has resulted in freight costs increasing almost 100 per cent in the last six months.;
The report said supplies of building materials were at the mercy of imported products, and even New Zealand manufacturers were heavily reliant on imported materials. "Given the situation with freight and staffing, lead times are likely to continue to increase."
One chief executive said in the Mood of Boardroom survey that freight rates have returned to pre-global financial crisis levels following 10 years of downward pressure, but the correction has been swift and continues to escalate.
Cos Bruyn, Fulton Hogan managing director in New Zealand, said his company needs to plan well ahead to secure plant and equipment, and costs and delays are growing by the day.
Another construction boss said quotation validity of shipping costs was 48 hours and "you have to order ahead of need and cash flow and develop 'a store' mentality".
The New Zealand chief of a multi-national technology company said lead times have increased from eight weeks to five months.
So, businesses are keeping a close eye on inventory to continue operating at an optimum level.
Jolie Hodson, Spark chief executive, said lead times are increasing for products across networks and IT including handsets and modems, and constrained products are being allocated.
"We are lengthening our forecasting periods with our key suppliers and customers to better manage future product demand, we are increasing onshore inventory, and we are identifying alternative products or suppliers where it is necessary and possible to do so," she said.
Ben Camrie, director, Bunnings NZ, said "we have to predict future demand further out, and we are doing this to ensure raw materials and production times". Timothy Myers, chief executive of farm machinery supplier Norwood, said: "Longer lead times, longer cash cycle, more in-transit inventory, and lack of visibility into logistics detail/arrival."
Colin Henderson, managing director of Hewlett Packard Enterprise New Zealand, said his firm was unable to fulfil major clients' requirements in the IT industry. A specialist food retailer said it was unable to supply customers with certain products and this was reducing sales.
Tony Carter, chair of Datacom, "we previously only ordered computer hardware against confirmed customer orders. Now we are ordering on spec on the basis that we need to be able to respond to customer orders in a more timely manner."
The boss of one of New Zealand's leading manufacturers in the health sector, said he had no choice but to carry more stock/raw materials and finished goods.
A dairy company executive said "we are diversifying on sources of inbound ingredients to better secure ongoing availability — it is less about price now. We are holding higher stocks of raw materials, as are our customers, and this has a funding cost."
A property management leader said "anything we need which has an important component — such as furniture, appliances, technology, electrical cables — we are ordering months in advance and arranging to store. This ties up capital and logistically challenging but preferable to being caught short."
The chief executive of a wholesale food distributor said he has factored uncertainty and increased lead times into significantly higher inventory levels to provide a buffer against delays.
A multi-national based in New Zealand said it was looking at carrying lower stock to reduce costs of capital and change distribution based on orders. A local timber exporter has changed from freighting products in containers to break bulk — which was less efficient but more affordable.
A pulp and paper operator can't get major projects done because of the delay in equipment deliveries and lack of managed isolation and quarantine spots.
Jimmy Higgins, chief executive of Suncorp New Zealand, said supply chain disruption will impact input costs for insurance claims. Consumers will wait longer for cars to be repaired; and disrupted supply of building materials will push up prices, making home repairs more expensive or take longer for us to repair homes following increased natural disasters.
Another insurance boss said "all of this inherent construction and supply chain inflation will ultimately increase costs for New Zealand consumers and reduce our competitiveness."
A professional director had the final say: "It has brought renewed focus on the benefits of local manufacturing. The Government and New Zealand business need to recognise the value of local manufacturing from a security of supply perspective as well as job creation and benefit to the economy."
Richard Wyeth, chief executive of Westland Milk Products says: "We are holding more packaging and ingredients for our finished goods. For example, in a normal year when shipping channels are reliable, we may have two months of ingredients or packaging in the warehouse at any one time.
"Given the current challenges, most companies will be trying to have at least double their normal safety stock.
"We work together as an industry to shift common ingredients between plants.
"However, for specific packaging you cannot afford to run out.
"These types of costs cannot be passed through to the customer.
"The current supply chain has been manageable for us, but the challenge will be leading into the free trade window for China post our peak production months of September to November, and trying to get that product into market."
Westland Milk, owned by Chinese dairy company Yili Group, exports Westgold butter, milk powders, UHT milk and cream, and infant nutrition products to more than 40 countries.
Peter Reidy, co-chair of the NZ Construction Accord and Fletcher Construction chief executive, says any materials manufactured offshore are experiencing delays but particularly long-lead items such as pipes, electrical cable and structural steel.
"Our New Zealand construction industry manufacturers have very good just-in-time supply systems in place, but it is imported product and specific items which are having an impact.
"This won't hold back the industry's momentum, but there will undoubtedly be an impact on project programmes and cost for both large and small projects."
Reidy says to manage risk at a contracting level, the industry has to limit the period of time they can commit price certainty. For smaller companies in particular, delays in long-lead items can have cash flow impacts and it requires fair risk allocation from all parties to ensure the industry remains strong.
"Fair risk allocation is a core principle of the Construction Accord partnership with Government."
Significant skills shortage in the industry due to border closures and strong market demand is also having an impact on projects, says Reidy.
"The Government is working collaboratively with the industry through the accord to align immigration processes with skills required and managed isolation and quarantine availability (MIQ).
"An example of this is that 60 MIQ places are allocated to construction each month for highly skilled workers.
"It is also pleasing to see the big increase in apprenticeships in the industry, but this won't replace the skilled labour needed for some time to come."
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