COVID-19 disruption to supply chains like nothing seen for generations

With the arrival of COVID-19 we have not had a disruption to supply chains of this magnitude since World War 2, according to Austrade Deputy Chief Executive Officer, Tim Beresford.

Speaking via interactive livestream to a CEDA audience, he said the social, economic and civil dislocations have been incredibly significant, with trade flows dropping by 10 to 30 per cent, and Foreign Direct Investment dropping by 30 to 40 per cent.

“International aviation has come to a halt – passenger movements have dropped 97 per cent,” he said.

“The vast bulk of our air freight goes in international airlines, 80 per cent.

“Overnight our air freight literally stopped, those perishable goods, goods which have a need for fast movement, literally came to a grinding halt – crayfish, lobster, beef, dairy products that are high in value all came to a crashing halt.

“Freight rates are up, if X was the pre COVID price, the post-COVID price was 13 X.

“We’ve had an international air freight mechanism up and running for about six weeks, but we’ve got the price down from out of China to about five X and that’s a function of the supply chain getting rebuilt, by putting more planes in the air it drives the price down.

“I don’t think we’re going to get back to X, I think we might get back to 2 X, or maybe even 1.5 X.

“We have to rethink our supply chains, we have to rethink how we do things, because I’m not sure we’re going to get back to X.

“We are seeing a significant amount of freight coming back in from the US, medical supplies, ventilators, that’s all heading in the right direction and it’s just basic economics, put more planes in the air and we’ll see the price start to move back towards the pre-COVID 19 rates.

“As we rebuild supply, how do we get some resiliency in those supply chains? We need to build resilience such they can handle shocks that come to us in the future.”

NSW Ports CEO, Marika Calfas, said that most of the freight handled through Port Botany, for example, is mainly imports – meaning that disruptions such as COVID-19, translate directly to pain experienced by Australian consumers.

“When there’s a disruption to our maritime supply chains, you feel that directly,” she said.

“For a Sydney household, 42 per cent of all the items in your house will have arrived through a container in Port Botany.

“When the disruptions occurred in China, we obviously felt that quite a lot in the maritime space, in NSW 40 per cent of our containerised imports are from China and 20 per cent of our exports in containers are to China.

Ms Calfas said that the divergence in policy between Federal and State, and between states themselves, presented challenges as China began to return to normal but Australia went into lockdown.

“Rules were changing very rapidly,” she said.

“If you’re a global shipping line and you are having to deal with different rules around the world but now you’re having to deal with different rules between states and Federally and State, that presents challenges.

“This isn’t new but with what’s been happening with COVID-19 recently, there is greater awareness of those and a bigger appetite to deal with that.”

Multinationals have particularly felt the effects of the disruptions to supply chains, according to IBM Australia & New Zealand Managing Partner, Global Business Services, Doug Robinson.

“We approached the COVID-19 crisis in three waves, and we thought the first wave was really about triage, how do we get to a work at home environment quickly and stabilise?” he said.

“The second, now we’re in a new environment, what do we do different, how do we help our clients recover in some of the issues?

“The third wave is about reinvention. We’re seeing a lot of industries going ‘the new normal as we come out of this is going to look very different’ and what’s accelerated?

“We’re seeing changes in technology that are allowing industries to reinvent themselves.

“This crisis has accelerated change by probably 10 years by where they need to be to digitise the offering and new revenue streams.

“The key thing that allows that is the changes in the technology and the availability in things like AI and blockchain.

“There’s a great opportunity from here to rethink what we do in different industries and different processes as a result.”