MELBOURNE
Global supply chains issues, including the war in Ukraine and geopolitical tension with China, are costing Australian companies $11 billion a year, according to new analysis.
Consultancy firm and supply chain expert TMX – which advises some of the region’s largest consumer logistics companies including Coles, Kmart, Coca-Cola Bottlers Japan Inc, Asahi, Singapore Post, Bunnings and Universal Robina – said it was too early to tell whether the extra costs would remain a permanent part of the post-COVID-19 world.
TMX chief executive Travis Erridge said Australian companies had experienced at least three supply chain events on average in the past 12 months, with non-food retailers and manufacturers the most likely industries to have been disrupted.
In response, Australian companies were changing the way they do business, including the way products are offered, switching suppliers, increasing the number of suppliers or altering transport options.
The big question is whether these pressures will fall away in the next few years, as the global supply chain adapts and overcomes, or whether the costs will be forever ‘baked into’ the transport expenses of companies worldwide, pushing up our cost of living permanently.
The post-pandemic business environment has already added significant costs to key sectors such as aviation and construction.
Natural disasters and flooding across eastern Australia earlier this year and this month has also contributed to the logistical nightmare.
With the Australian economy worth $2.42 trillion, and with supply chain unreliability costing companies 0.47 per cent on average in lost revenue around the world, Australian firms are forfeiting $11.4 billion a year in sales, according to the TMX analysis.
According to the Reserve Bank of Australia, pandemic-related supply chain issues have occurred in two phases since early 2020.
In the first phase, there were issues with supply, where global lockdowns – particularly in China – resulted in delays of certain goods such as medical supplies for weeks or months.
In the second demand phase – with many Australians working from home, and benefiting from various short-term government stimulus measures – there was a heightened demand for consumer and building supplies that led to a second wave of shortages in certain categories.
Delays in timber and steel, as well as soaring prices, hit Australia’s building sector during COVID-19, forcing some builders to go under after they had to wear the extra costs after signing fixed-price contracts with their customers.
A string of construction companies have gone under over the past year, with Hutchinson Builders chairman Scott Hutchinson warning there may be more to come.
Timber prices have already risen by 50 to 100 per cent in 2021, steel by 30 to 60 per cent and concrete by 20 to 40 per cent.
Federal Treasurer Jim Chalmers has warned that clogged supply chains are just one symptom of a world economy that is treading a “precarious and perilous path” toward global recession.
But it remains unclear how the Albanese government will fix supply chains, given most of the delays are linked to global events.
This article was written by Mark Ludlow and originally published by the Australian Financial Review on October 25, 2022.