Air freight has been a broken link for several Club members. Photo / 123RF
COMMENT:
In a recent article I talked about how the eight business owners and leaders in The Colin Meads Club video beer group have been grappling with maintaining jobs and keeping their businesses afloat.
Another hot topic though has been managing disrupted supply chains. The Club have been sharing experiences and insights, both our own and those of other New Zealand businesses we've been connecting with.
Two related themes have been that innovation is key here and that businesses in Aotearoa need to have their eyes open for the opportunities a crisis like this can throw up.
'Feed the backs!' – Sir Colin would of course have ignored this age-old plea from the backline for the ball.
However, with forwards as suppliers and backs as finishers it's not a bad metaphor for talking about the supply chains that keep modern businesses fed with products and inputs.
The metaphor can also help remind us that everyone in the chain or team has a role to play and of what happens when links in the chain don't function.
Air freight has been a broken link for several Club members. You might think that with negligible passenger traffic, pilots being laid off, very low oil prices, and most planes being mothballed, air freight costs would have plummeted.
Not so. Club member Murray, owner of an engineering and fabrication firm in the food industry, told us the cost of air-freighting in a piece of kit from Europe had increased by an eye-watering 500 per cent. Murray opted instead for a six to eight week sea-freight option, and has his fingers crossed the client will accept the delay.
Roger, our Club's provincial airport boss, isn't thrilled by stories of freight being redirected from air to sea. He also explains why air-freight charges have rocketed: even though air freight is prioritised, there are still bottlenecks; second, it's easy to forget that a lot of freight used to be carried by those now parked-up passenger jets; and third, urgent medical and other supplies are being prioritised.
Len, the CEO of an Auckland factory in the construction industry, has experienced those bottlenecks that Roger mentioned. Len sources materials from Europe via the Philippines, but his last shipment was refused entry in Manila and so it winged its way back to Germany. It's now on a ship. But perversely that suits him because the factory is in lockdown of course, and it helps his cashflow.
The pandemic struck at a particularly bad time for companies like Len's. He imports engineered stone from China, and always arranges for a delivery before Christmas to avoid the closedown around Chinese New Year. His next delivery was then disrupted by Covid-19 hitting China.
Again perversely, this has actually helped Len's cashflow, but he reckons other companies would have been slammed by this. On the other hand, the disruption to exports to China has made it easier to source local products like logs and medium-density fibreboard.
New Zealand firms build buffers to manage the risk of late deliveries, but sea freight too became a real issue with many containers stuck in ports around the world during the Chinese lockdown. Len says this is easing now, but in the meantime, raw materials for New Zealand factories are piling up in warehouses owned by logistics firms.
Rhys Cole, not a member of the Colin Meads Club, tells me that his firm, a world leader in commercial battery management, has experienced problems with inbound supply delays out of China and Italy.
Rhys is GM Asia Pacific of PowerShield, which is a poster child for a high-tech innovation-driven New Zealand economy that's reliant on global supply chains. Most of what PowerShield makes goes into datacentres, the bricks and mortar of the cloud, supporting Netflix, Zoom, Google Classrooms and so on.
Rhys told me their supply delays have not yet had an impact given buffer stock was held through the chain, and their North Shore factory has been closed anyway. But they have duplicated orders (both sea and air freight) to spread risk around delivery and in response to increased competition for components.
On the export front, PowerShield had one air-courier consignment to South Africa pushed out the day before lockdown, but what would normally be less than a week door-to-door then took 18 days, bouncing through six countries.
The firm has export orders to Germany, Spain, the UK, Thailand, and Malaysia and are waiting on the green light to ship non-essential goods. But once they get their factory working it's not clear they'll be able to export given their destination countries are moving through various forms of lockdown. Malaysia, for example, has just extended its lockdown. PowerShield can still ship and their clients can receive, but if their clients can't progress their own customer projects it's hard not to see delays and cashflow issues throughout the supply chain.
The silver lining to all this though is that PowerShield are able to offer their top-end manufacturing capability to domestic businesses seeking to repatriate and shorten their supply chains.
As we line up to buy our bread and milk, we probably don't think too much of the effort that got it there during Covid-19. But try picking, baking, manufacturing, bottling, stacking, loading, driving, and delivering to depots and supermarkets while not being able to get close to other people. By the time the frontline store people sell the product it has already passed through 30 pairs of hands.
The lockdown restrictions have forced innovation in our food supply chains – from training new drivers remotely, to communicating to customers who aren't in the store, to managing huge spikes and lows in volumes as we panic-buy yeast or toilet paper and then avoid going out for a week.
One supplier of supermarkets my own firm works with was already halfway through one of the most ambitious supply chain innovations undertaken in New Zealand when the lockdown happened. They had no choice but to work out how to deliver food safely, buy new trucks and equipment, calculate and plan routes, build depots and so on, all while working in isolation. It's incredible what New Zealanders can do in a crisis.
That kind of agile response is going to be crucial post-pandemic, the World Economic Forum emphasises. They also say that more use of automation and artificial intelligence are going to be important for making supply chains more resilient.
Andy Garvie, another non-Club member with interesting experiences to relate, owns and runs Wellington-based Tidy Slabs, an award-winning and fast-growing concrete foundation specialist firm. Andy sees some important opportunities in disrupted supply chains.
Tidy Slabs buys spray paint, screws and the like from merchants who source them from China, but could go direct if need be. Regardless, Andy has enough in stock for the foreseeable future. Other inputs like boxing timber and polystyrene products are manufactured in Nelson and Wellington respectively, and he uses steel from Glenbrook. His supplier has put aside enough steel and mesh for Tidy Slabs for two months' normal business.
Andy knows there will be less work around when the lockdown is eased, at least until government investment in infrastructure starts to take effect. He also knows that suppliers and clients will be under financial and other stresses. His answer is to come out swinging. He has 12 people working in four-person groups on improvement projects over Zoom. The focus is getting back to laying concrete, and a lot of it, as soon as Covid-19 restrictions permit. He's acutely aware that Tidy Slabs needs to play its part in the wider construction supply chain.
Tidy Slabs lays foundations for social housing units being built by Kāinga Ora, the Government's housing body, and the Hutt City Council-owned Urban Plus. He's picking the Government will ramp up residential building on top of its infrastructure programme. Both will need lots of slabs to go down.
It's heartening to see businesses stepping up to source PPE and other Covid-related gear. It's just as heartening to hear how officials and industry peak bodies are pulling together, showing that when we have to, we can work quickly together for our collective good.
Rosemarie Dawson is the CEO of the Customs Brokers and Freight Forwarders Federation. She told me how pleasing it is to see industry groups 'working together for the benefit of NZ Inc'. Recently she's been part of a group of about 60 leaders and officials who met to identify roadblocks in horticulture supply chains.
Another group Rosemarie's involved in includes road carriers, ports, and shipping lines, while a third is focused on freeing up the movement of non-essential cargo – like PowerShield's kit waiting to be exported. Some firms will take a month to unpack backed-up imports.
Rosemarie recognises the problems firms are facing, but sees it mostly as 'a great opportunity to further educate importers and exporters to reflect on how they do things', and the same for customs brokers and freight forwarders – for example, operating for a wider range of hours than they have traditionally.
Andy from Tidy Slabs is like the innovating food supplier I mentioned, focused on people as much as the supply chain itself. He's concerned about the 'mental state, motivation and health of the people we have to interact with to get our job done'.
Apart from ensuring his own staff are match-fit after the lockdown, he's concerned about how quickly drivers, engineers, sub-trades and, of course, clients will be able to go 'full noise'. For example, will councils be able to keep up with demand for building inspections if there's a burst of residential construction?
Restoring supply chains for businesses in Aotearoa after Covid-19 is going to take some time. However, this really does look like the perfect example of the 'Never waste a good crisis' mantra. In New Zealand we need to use this crisis to reassess how and where we source inputs and how we export. Maybe it's time for a chip kick directly to the winger?
• Covid19.govt.nz: The Government's official Covid-19 advisory website
- Kevin Jenkins is a founder of www.martinjenkins.co.nz, and works at the intersection of business, innovation and regulation.
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