Pressure of Omicron – MHD

MHD interviews SCLAA Director Kyle Rogers and uTenant’s Director of Business Development Katharina Attana on the ramifications of the Omicron strain for international and domestic supply chain. 

With the Australian Retailers Association (ARA) predicting supply chain issues will continue for the next 18 months, organisations like the Supply Chain and Logistics Association of Australia (SCLAA) say it could take longer.

Kyle Rogers, Independent Director of the SCLAA says he’s spoken to the association’s clients, national partners, members and many senior supply chain logistics professionals with regards to the problem. 

He says it could take anywhere between 12 months to two years for domestic supply chain issues to wane.

Addressing supply chain issues will involve actions such as inventory planning and forecasting, reviewing warehousing footprint, adjusting service level expectations and pricing across the board. 

Kyle says it all takes a significant amount of time to from a process governance point of view and requires advanced technology as well as having people on the ground and people in the business who can make those changes. 

Katharina Attana, Director of Business Development at the Warehousing Matchmaker company uTenant, says one key international supply chain issue is schedule delays caused by lack of capacity and equipment.

“The reasons for it are an increase in demand because people couldn’t travel, therefore they’ve obviously purchased significantly more products,” Katharina says. “And also, as a result of the disruptions in the supply chain, businesses increase the stock-hold from 10 to 15 per cent.” 

She says the issues won’t be resolved quickly because there’s a drive to order new equipment and to grow container liner fleets, which according to Katharina grew 4.5 per cent last year. 

“But what really needs to be understood is that in the last 20 years shipping lines made no money,” Katharina says. She says South Korean shipping line Hanjin became bankrupt in 2017. 

It led to shipping lines monopolising to the point where five major shipping lines now own 65 per cent of the market share, she notes. 

She says shipping lines are finally generating revenue following the start of the COVID-19 pandemic two years ago, but they’re not price gouging. She adds they need to reinvest in port infrastructure, vessels, meeting carbon emission targets by 2030, and end-to-end supply chains. 

She says it will take a long time to recover because there’s a capacity shortage, and the equipment and vessels need to be replaced, but the shipping lines can address these problems due to growing their profits throughout the pandemic. 

“Ports are 40-plus-years old and some of those port upgrades will take 10, 15, 20 years,” she says. “So, I actually think that 18 months is a little bit short. The industry needs the money to bring itself into the 21st century.”

Kyle says ships are getting considerably bigger as shipping lines attempt to make greater turnovers. “A lot of ports don’t welcome these ships, and even the likes of the Panama Canal, some of these vessels can’t even pass through there,” he says. “In South America, products are having to dock either on the east or the west coast, and then be shipped across by rail or by truck,” he adds.

He says the pandemic has amplified supply chain issues, many of which were already there, and geopolitical problems are also exacerbating them – such as the Russia-Ukraine conflict. 

Katharina says one of the ways the federal government can ameliorate the supply chain issues is by preventing inflation increasing. 

“A lot of retailers tried to absorb the increases in shipping rates because they thought it was a short-term problem,” she says. 

“Now, obviously, since the higher prices had to be passed on, and that brings up prices overall, for basically every product that’s been purchased, and that’s causing inflation,” she adds.

She says other problems are severe labour shortage, which is partially due to national border closures, and partially because people have reconsidered their priorities.

She says free RATs will help keep the labour force active while working and cash injections along with rent reductions will hopefully take off the pressure caused by additional supply chain costs. 

“It means that prices for consumers can stay at a reasonable level, and we don’t push inflation up too high,” Katharina explains. 

Kyle says the federal government and the ARA can help with the other side of the supply chain: demand. 

“It’s as much about the demand from consumers, and a lot of consumers these days as well, we are and always have, we buy things on demand,” Kyle says. “So typically, when something’s running low, we go buy another one, when we have a birthday coming up in the weekend, we might buy a present short notice.” 

He explains how it would help if consumers could buy in advance. “There’s a number of benefits too in terms of people get the stock on time, if they order two, three, four weeks out – rather than two days next day.” 

Kyle also stressed on the need to work with consumers and educate them about the fact that it’s pretty hard to always deliver something the next day. 

“Everyone’s trying to order the next day and then there’s just constant stress on the supply chain in terms of capacity and on networks that just create more bottlenecks and delays.” 

Katharina says the shipping industry now offers landside services and multinationals like Amazon are offering forwarding services to its customers while newcomer Flexport has raised almost a billion dollars in additional funding, which it can use to reinvest. 

“The government should not regulate the prices, because the prices are finally a true reflection of the costs of the industry prior to COVID,” Katharina says, adding it was unsustainable and that was why the shipping industry wasn’t investing.

For more information on the Supply Chain and Logistics Association of Australia, click here. 

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