As the economic impacts of the COVID-19 pandemic came to the fore in Australia in March 2020, CEDA consulted with members and industry stakeholders to find out how Australia’s economy will be impacted by global supply chain disruption and how businesses and government should respond.
Consultations with local manufacturers, globally engaged Australian firms, freight facilitators and government stakeholders were held through April-May culminating with CEDA’s Supply Chains and global trade: Where to now?
livestream held on 28 May 2020, featuring Austrade Deputy Chief Executive Officer, Tim Beresford; NSW Ports Chief Executive Officer, Marika Calfas; and IBM’s Managing Partner, Global Business Services, Doug Robinson.
CEDA canvassed a range of views, reflecting our broad-based membership and the dynamic context in which discussions were held.
In March, panic buying placed pressure on Australia’s FMCG supply chain and attention turned to ensuring the nation’s supply of critical medical goods. These issues focused public attention on supply chains, which are so often taken for granted.
In April, discussion turned to onshoring supply of critical goods and the prospect of new industry policies based around attaining self-sufficiency. In May, simmering trade tensions with China brought into focus issues of trade diversification that threaten to further destabilise Australia’s trading foundations.
Many of these issues were examined by CEDA’s Chief Economist, Jarrod Ball, in a three-part blog series as part of this project found here
Short term adaptability
The impact that the COVID-19 crisis has had on Australian trade cannot be underestimated. Comparing it to a seismic earthquake, Tim Beresford argued that we haven’t seen this level of disruption since the second World War. Addressing the CEDA livestream, he said the social, economic and civil dislocations caused by COVID-19 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.
Australia’s supply chains adapted well to the short-term supply chain challenges brought on by the impacts of COVID-19. Consultations revealed that manufacturers were proactive in seeking alternative inputs into their supply chains from different sources and building inventory; service providers reinvented products and altered service delivery in innovative ways; government moved quickly to establish the International Freight Assistance Mechanism to help restore critical global supply chains for high-value goods; and some freight and logistics stakeholders hired additional staff to meet demand in parcel delivery given the growth in online retail.
Long term improvements
However, the crisis has exposed areas for improvement during the COVID-19 recovery phase and in the longer term to strengthen Australia’s supply chains, address risk, and build resilience as Australia continues to engage with global trade to grow our domestic industries, underpin jobs, and sustain our way of life. These include:
Use of technology in supply chains
Consultations revealed consensus among stakeholders that technology will lead the redesign of many of Australia’s supply chains. Artificial intelligence, robotics and automation will become more important to supply chain planners as Australia comes to rethink its supply chains and prioritise system-wide optimisation.
Many observed that the COVID-19 crisis could ultimately accelerate the uptake of digitisation in supply chains by up to 10 years. As described by Doug Robinson during CEDA’s livestream, advances in technology are allowing supply chains to think for themselves, by combining internal data with external sources such as weather, IoT sensors, press reports and social media to create a corpus of information for decision making. By way of example, Doug observed that press information, medical journals, and social media from South Korea at the beginning of the COVID crisis provided a window of patterns and advance warning to supply chain planners elsewhere to anticipate supply disruption by up to 6-8 weeks ahead of time.
Beyond the COVID-19 crisis, firms at every level of the supply chain will need to invest in technology to lower costs, optimise processes and create predictive analytics. From a government and industry point of view, initiatives that profile the advances of technology in supply chains, build the digital skillset of professionals operating in the supply chain and holistic supply chain digital strategies need to be prioritised.
Diversification of global trade networks and supply chains
Even before the escalation of the latest round of China trade tensions relating to Australia beef and barley in May 2020, consultations suggested that some diversification of Australia’s global trade networks was inevitable given the earlier China-related disruption caused by the health crisis.
With regard to trade, during CEDA’s livestream Tim Beresford emphasised the benefits of the Australia-China trade relationship in areas such as iron ore, agribusiness, and sectors such as tourism and education that will become increasingly important once social distancing measures are removed. However, Tim also noted that the story of Australia’s economic recovery post-COVID will include diversification of our trading partners and closer engagement with the Asia-pacific region.
Tim observed that while Australian supply chains have proven to be scalable and remarkable efficient, others have been shown to be fragile given that they had no in-built redundancy through supplier diversification.
Australian supply chains need to balance efficiency with the need to make excess capacity to create resiliency.
Productivity enhancing regulatory settings
Consultations revealed that the COVID-19 crisis has presented a chance to address long-term regulatory and industrial relations reform across the freight and logistics industry. Regulatory enhancements suggested during consultations ranged from lowering the excessive regulation imposed on exporting food manufacturers; removing curfew restrictions for high-value airfreight and road and rail freight; and increasing alignment between Australian governments on regulation relating to maritime shipping, which changed rapidly during the early phases of the COVID-19 crisis.
As the crisis unfolded placing pressure on local supply chains, governments at all levels worked to ensure that the freight and logistics industry was able to serve the community 24/7. For example, temporary measures removing curfew restrictions for freight deliveries were lifted to expedite the stocking of supermarkets. As outlined by Marika Calfas during CEDA’s livestream, these measures should be continued in the longer term to deliver community-wide productivity benefits, allowing trucks to supply businesses during evening periods while also alleviating pressures on the road networks during peak hours. This may be especially important during the recovery phase when congestion is exacerbated due to reduced capacity on public transport.
Out of necessity, the COVID crisis has presented a short-term opportunity for governments to remove regulatory restrictions for those operating across supply chains. Whether any of these changes remain permanent should be decided based on the productivity benefits they create and the needs of the community.
Risk management stock-take and strategic mitigation
The COVID-19 crisis has lead many organisations to revisit their existing risk management strategies to mitigate and address supply chain risk.
Consultations revealed that firms were moving to address inherent risks exposed and amplified by COVID-19. Such risks include the breakdown of global trade and a prolonged period of economic recovery; surging demand and unpredictable consumer behaviour; an increase in cyber-attacks and IT system breakdowns; transportation disruptions as a result of social distancing; closed state and international borders; and inflexible legislation and industrial frameworks made in response to crisis-like conditions.
As observed by Marika Calfas during CEDA’s livestream, while many risks in supply chains aren’t new, COVID-19 has brought greater awareness of them, the implications they present, and a greater appetite to address them to build supply resilience.
As outlined already, collaboration between regulators and industry, diversification of suppliers, greater insights drawn from data analytics, and technology-led optimisation will create stronger supply chains and help to mitigate risk by anticipating future challenges. Beyond these, the current COVID-19 context presents stakeholders from across Australia’s critical supply chains a chance to take a strategic approach to risk management and perhaps a greater appetite to build resilience, co-design contingency plans, and develop industrial frameworks that provide flexibility in dealing with future challenges.
Raising broader awareness of open trade and consumer behaviour
Throughout CEDA’s broader member consultation, there was a broad-based rejection of the notion that Australia needed to onshore significant portions of its industry base and adhere to more protectionist policies. This was supported by Tim Beresford during CEDA’s livestream who, while noting significant global headwinds, emphasised Australia’s critical responsibility as a middle power with a modest population to advocate for free trade, both to Australia’s population and on the global stage.
Many echoed the view that COVID-19 has demonstrated to the consumer just how fundamental Australia’s supply chains are in facilitating commerce and underpinning our way of life. It is clear through the COVID-19 experience that consumer behaviour is increasingly driven by advances in technologies and that e-commerce and ‘just-in-time’ services will continue to place additional pressures on modern supply chains.
Watch the full event Supply chains and global trade: where to now? here
Read other work in the CEDA trade and supply chain series here