Industry leaders call to keep global trade and investment settings open
The International Chamber of Commerce says governments must “double down” on the global trade agenda and avoid impulses towards onshoring, as supply chains disruptions continue to roil economies.
Global supply chains already struggling under the weight of a pandemic-driven spike in demand and heavy rainfall on the east coast and central Australia have been pushed even further since Russia’s invasion of the Ukraine.
Former Australian diplomat and ICC head of global engagement Damien Bruckard said the supply chain situation had been “quite extraordinary” over the last two years, with spot rates for shipping containers rising sixfold, turnaround times for ships at ports doubling and a shortage of critical inputs like semiconductors.
Since the start of the war in late February, he said lead times had lengthened by about 15 per cent, input prices were up 25 per cent, and energy and food supply chains in particular were facing huge instability. Russia, the Ukraine and Belarus — which have been effectively cut off from global markets due to the war and sanctions — are major suppliers of wheat and fertilisers.
While noting the impact was already being felt in Australia through higher grocery prices, Mr Bruckard said it was “much more acute” in the developing world and that the consequences would be a foreign policy matter for Australia.
“In the developing world, for instance, 55 per cent of the costs of smallholder farmers are from fertilisers. They’re not going to be able to absorb those cost increases in fertiliser prices — they’re basically going to go out of business and stop producing food,” said Mr Bruckard, who beamed into a Committee for Economic Development of Australia supply chains event on Friday.
“Looking at the potential for political and social instability . . . that will bounce back to the advanced economies.”
Mr Bruckard also warned against trends towards onshoring — which has gained momentum during the COVID-19 pandemic as a way of making Australian supply chains more resilient — describing it as “really quite misguided”.
“As soon as governments try to start to get into the business of regulating those supply chains or bringing them home it doesn’t work, it’s too complex,” he said.
Rather than taking matters into their own hands, Mr Bruckard said governments needed to keep trade and investment settings open, promote trade liberalisation, boost the role of the struggling World Trade Organisation and encourage their domestic economies to be more productive.
“Those alternative approaches that we saw during COVID — export bans on PPE (personal protective equipment) and on vaccine production — this was disastrous. It just didn’t work and it can cost lives,” he said.
“We see a case for governments to double down on the open trade agenda, boost the role of the WTO . . . and have as much international cooperation as possible including more innovative approaches to getting global transparency over supply chains.”
Australian Food and Grocery Council chief executive Tanya Barden, who also spoke on Friday, agreed that Australia needed a diverse range of markets to trade with.
“Our government can really be helping us to find other sources of supply,” she added.
While noting the Federal Government had assisted industry late last year when it faced a shortage of the critical diesel fuel additive AdBlue, Ms Barden said more could be done outside of sourcing ingredients.
Packaging, for example, has been a major issue, with some businesses unable to sell their goods because they had jars but were not able to import lids.
“I think it’s really critical we do look more at these really consolidated points and see how do we manage better for the future to minimise the risk where there is that consolidation in the supply chain,” Ms Barden said.
Asked how supermarkets were faring with supply chain issues, Ms Barden noted operations in Western Australia were “still not back at full capacity” following significant flood damage in January to the Trans-Australian railway, which links the eastern and western seaboards.
She said the industry was trying to strike the balance of dealing with short-term disruptions while planning for the impact of larger market forces such as climate change.
And against the backdrop of rising inflation, Ms Barden said consumers will need to shop around more and be conscious of specials, warning: “I think this is going to get worse before it gets better.”
University of Wollongong associate professor and supply chain expert Matthew Pepper said businesses in the last couple of decades had erred towards operating on a lean, “just in time” model.
He said this had led to a more fragile model where sudden spikes in demand put the system under stress.
“Clearly the time has come to diversify our supply base globally through the global supply chain but also regionally too,” Prof Pepper said.
“The productivity agenda is so important here to make it stable and resilient supply base, so to me that would be the biggest decision at the firm level.”
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