Why cargo ships have not brought your Christmas goodies

Standfirst: Suppliers are struggling against a compounding series of issues in an effort to get goods to market in time for Christmas. Laura Walters reports on the global, and domestic, factors throwing supply chains into chaos.

Covid-19 has been labelled the Grinch threatening to steal Christmas, as the effects on global shipping lines result in a backlog of Christmas shopping.

Meanwhile, desperate attempts to get presents to good girls and boys has seen carbon-coughing trucks clogging the roads.

Not the Virus alone

But the failure to get goods to market in time for Christmas cannot be blamed entirely on the virus.

Ships anchored off Rangitoto and unroadworthy trucks on the country’s northern roads are symptomatic of broader issues with freight and logistics.

Compounding domestic and global factors have highlighted weaknesses and limitations in New Zealand’s workforce planning, infrastructure and a broader lack of vision for how the country sequences its importing and exporting supply chain.

This is all despite years of warning signs, and expectations that import and export movements will continue to grow.

As for many other sectors, Covid-19 has exacerbated issues with the freight industry, highlighting the gaps and forcing problems to a head – just in time for Christmas.

Good in the waiting

Despite retailers’ attempts to hold extra stock to offset uncertainty, as well as the use of road and air freight to ship goods around the country, the current bottleneck will not be cleared ahead of Christmas, with some predicting it will take at least another couple of months before things settle down. In the meantime, it is more than just empty toy shelves at Kmart, and a lack of bicycles and electronics.

Sitting out at sea are the fridges that will be used to store the new Covid-19 vaccine.

This nugget of information shared by Covid-19 Response Minister Chris Hipkins shows just how important it is to keep things moving.

Freight issues snowballing

Infometrics Senior Economist Brad Olsen said that in the freight world, every issue had a flow-on effect, which could create cascading slowdowns.

This year has seen these flow-on effects snowball.

Analysis from Olsen’s colleague, Infometrics economist Andrew Beattie, shows that the number of containers being handled at New Zealand’s ports has fallen and the situation does not appear to be improving. 

Container handlings were down 5.3% per annum in the March quarter, before falling further in the June and September quarters – both down 7.1% per annum. It was understandable that the March and June quarters were down, as the world adapted to the pandemic, Beattie said. 

But persistence in September would be worrying for importers and exporters. 

It was difficult to disentangle whether imports were slowing because consumption was slowing, or if consumption was slowing down because imports were being disrupted. 

The Chicken or Egg question

Determining the answer could be a bit of a ‘chicken or the egg’ question in a world where Covid-19 had disrupted production, transport, and consumption demand.

Olsen said it was incredibly difficult to quantify the level of disruption.

But preliminary data from Stats NZ showed that the total value of imports was down 13% per annum since February, with a preliminary 18% per annum fall in November 2020 alone. Some of this was because of supply chain disruption, but lower business investment was also reducing demand.

Olsen said vehicle import and registration data gave an idea of supply and demand in regard to imported goods and help quantify disruption.

Vehicle supply falls

This data showed since June there had been more car registrations than vehicle imports, which was leading to an undersupply of vehicles. 

With vehicle registrations already down year-on-year, this even lower volume of vehicle imports demonstrated the supply chain issues New Zealand was facing.

Of course, the empty toy shelves and lack of bikes and new toastie machines from Santa were also clear – albeit anecdotal – indicators of the current issues.

Domestic factors

While Covid-19 and global supply chain issues have played a part in the disruption, it is impossible to pin the problems on any single thing – there is a series of issues creating the chaos.

And they start close to home.

Strikes at Australian ports have disrupted shipping schedules.

Meanwhile, New Zealand’s strict Covid-19 requirements for ships and crews have also added to timing issues, with increased compliance and cost. This has seen some shipping firms suspending trips to New Zealand or bypassing the country altogether.

The situation at New Zealand’s ports – particularly Ports of Auckland – have added an additional set of problems.

Safety issue at Auckland Port

The key import hub has experienced another death this year, with stevedore Pala’amo (Amo) Kalati dying in August.

Following the death, POAL and the Maritime Union agreed to reduce workers’ hours to increase safety, which had contributed to delays. There have also been delays in POAL’s automation upgrades, which have exacerbated logistics issues.

And there is a lack of skilled staff employed at the ports to both pick up the slack caused by the delays in the automation project, and to also deal with the current backlog of goods.

International factors

Covid-19 is the biggest international factor currently feeding the chaos.

Shipping lanes around the world are clogged and freight hold-ups are keeping things gridlocked.

Mainfreight has noted disruptions are also limiting cargo movements between Asia and Europe, with available space for cargo at a premium.

And there is a global shortage of shipping containers, with companies around the world paying exorbitant prices to try and get their hands-on shipping containers.

New Zealand has to work hard to balance its number of containers, as a country that exports more than it imports. The lower import volumes have added to this problem, and there is now a 10% reduction in the availability of empty containers in New Zealand. 

In its recent briefing to the incoming transport minister, KiwiRail talked about this uneven flow of imports and exports.

“This has had a knock-on effect throughout the supply chain as the flow of containers, both full and empty, has been thrown out of equilibrium.”

This was hampering exporters’ ability to pack and ship goods.

Consequences for perishable goods

Meanwhile, air freight capacity for higher-value or time-sensitive goods like fresh fruit, meat and dairy has also reduced.

When the shipping of these food products are delayed, they drastically drop in value.

That might be a good thing for Kiwis looking to get their hands-on cheap strawberries (prices are currently down 43%) but it is not good for exporters.

On the flip side, import limitations have also seen some items rise in price or become extremely difficult to find, Olsen said.

September quarter inflation data showed some imported electrical and homeware goods rising in price due to supply constraints. Bikes are now hard to find, with a 10.5% per annum rise in bicycle prices – the fastest in 11 years.

Olsen said that manufacturers that relied on overseas inputs were also struggling, as well as retailers who couldn’t fulfil orders or whose sales were limited by a lack of stock.

Trucks clogging the roads

A combination of international ships playing catch-up, the lack of containers, and lack of domestically flagged coastal shipping (New Zealand ships) all made it difficult for goods coming into the country to be moved around different ports and unloaded close to market.

This meant an over-reliance on big trucks; big trucks that clogged up the roads and pumped carbon into the atmosphere. While there have been efforts to use rail and air freight – especially during the holiday season – capacity is limited.

Unprecedented situation

Mainfreight managing director Don Braid said that all of these factors had led to an unprecedented situation.

“Currently the world’s supply chains are congested,” he said in the December newsletter on behalf of the global logistics company.

“Shipping lines and air lines alike are unable to provide sufficient space, on time, to satisfy consumer demand. “Combine this with manufacturing delays, port congestion, and the build-up prior to Christmas, and we have an unparalleled peak season upon us,” he said.

Immense pressure

KiwiRail group chief executive Greg Miller said the combination of factors had created “immense pressure” in New Zealand’s domestic supply chain.

And the perfect storm facing the freight industry has taken its toll on frontline workers.

“To be frank, this has been a dreadful year at the port and it’s not been made any easier by POAL’s management,” Maritime Union national secretary Craig Harrison said.

The death of Kalati was “gut wrenching,” and while workers and their families supported each other, Harrison said that things were not going to change until management started accepting responsibility and acting with safety as a first principle.

In terms of Covid-19, the border control response on the wharf had been rigorous, and the union and ports worked together to keep people safe.

But it was not this Covid-19 response that had slowed operations, Harrison said.

“The blame for that sits squarely with the port’s automation project and not enough staff which is seeing lower throughput than they had previously. The bottleneck that automation is causing is also being exacerbated by the fact we have virtually no domestically flagged coastal shipping – that’s left us with no redundancy to ship freight around the country except for expensive and road-clogging trucks,” Harrison said.

Where to from here?

Many of these issues are not new, but Covid-19 has pushed the situation to breaking point; exposing the numerous gaps in supply chain planning.

At the moment, Auckland is still working through a backlog of activity and these efforts are being supported by both Tauranga taking on more handling and NorthPort’s efforts to unload some containers. 

Additional support for freight by major ports, KiwiRail, and air shipment services will take some pressure off, but the effects of supply chain disruptions are expected to continue into 2021.

Infometrics’ Olsen said this year showed freight movement options across New Zealand needed to be expanded.

Inland ports and distribution nodes in the pipeline, including near Palmerston North and Hamilton, would provide for better freight management.

Work on rail systems to Auckland (both from Tauranga and up to Northland) would also add capacity domestically, he said.

The diesel alternative

The Ministry of Transport said diesel rail was a desirable alternative to road freight, especially as it was safer and reduced emissions by 70%.

But in a recent briefing to the incoming minister, the ministry said a lack of strategic planning and investment had seen rail passed over as freight owners’ mode of choice.

While rail was one part of the equation, along with the potential for domestically flagged coastal shipping, New Zealand needed better strategic planning, Olsen said.

Infometrics’ analysis of key freight indicators before Covid-19 showed that a 17% rise in freight volumes over the last five years – even with the pandemic, the firm’s leading freight index was 10% higher than five years ago.

General Strategy lacking

Despite this expected growth, there was a lack of general strategy around port operations, with reports written every second month about replacing, upgrading, or changing one port or another.

“There seems to be no clear vision for New Zealand’s freight and port operations, which is an area I’m sure the Government will be looking at more closely.”

And wider global supply issues required New Zealand to consider its shipping operations and how the country sequenced and timed its imports and exports, Olsen said.

Over recent decades, supply chains have been refined to deliver goods ‘just in time’, saving time, money and storage.

In the company’s last operations update of the year, Mainfreight’s New Zealand Country Manager Craig Evans said that 2020 would be written into folklore.

And the chaos of the year had put the approach to supply chain sequencing into perspective.

The ‘just in time’ era had been overused rhetoric, Evans said.

It had mostly been superseded by transparent technology that provided real-time visibility of goods’ whereabouts, negating the need to deliver faster just for physical certainty of its arrival.

The absurdity was that most freight travelled fast, to then sit at its final destination. 

“In the meantime, it has exhausted our people, reduced utilisation on our units, increased claims, made the industry much less enjoyable for many, let alone employing extra trucks that burn unnecessary carbon into the environment.”

If there was a goal for 2021 and beyond, it was for common sense to become instilled; because if expectations did not alter then something must give, he said.

Laura Walters is Senior Political Reporter at Newsroom in Wellington, covering Justice, Education and the upcoming campaign. The above Report has been published under a Special Arrangement with Newsroom.

The above Report has been sponsored by