International trends and challenges

Global trends and challenges

Experts discuss the international trends and challenges we have faced in 2022, and strategies to help deal with disruption.

International Trends and Challenges with Industry Experts ASB recently ran another live webinar in its Backing Business International Trade Series with a packed room of attendees and lots more joining online. Facilitated by Paul Gestro, International Trade Consultant at ASB, it was a fascinating glimpse into the supply chain, logistics and labour challenges currently faced by Kiwi businesses. The recession question Kim Mundy, Senior Economist for ANZ, covered the elephant in the room. Are we in recession? If yes, what does that mean? Kim got to the point, saying, ‘On our forecast, we are probably in recession, but we're not alone. The economic trend is similar to our main trading partners’. Interestingly, Kim thought New Zealand’s recession wasn’t being driven by the weak global outlook but by domestic influences such as soft consumption growth and the outlook for construction.  Positives from recessionary influences ‘There are positives’, said Kim. ‘Swinging from what's arguably been too much demand relative to what could be supplied, towards too little demand’. For example:  <ul> <li>Reduction in shipping costs, where the cost of moving goods worldwide has fallen dramatically, in part because of falling demand. The price of shipping a container from China to New Zealand or Australia is now 70% below the 2022 peak.</li> <li>Finding labour is one of the major factors limiting expansion, but the labour market is turning, with net migration back at February 2020 levels of around 52,000. So it's going to reduce recently seen business staffing issues. </li> </ul> Slowing demand will help alleviate inflationary pressures, and less disruption in the world means fewer factories, ports or countries closing down, allowing a return to a more normal way of working. Strategies dealing with disruption Paul asked the panel about their strategy when importing and exporting goods to and from customers worldwide. Dion Mortimer, MD of <a href="https://www.1907water.com/" target="_blank">1907water</a>, looked at their client base to identify what would work. ‘We had to make some really tough choices’, said Dion, ‘to tell marginal profit customers we couldn’t supply them. Our sales managers didn't like letting these hard won customers go. But we didn't have a lot of choice, which helped us drill down into our business to see what was actually working’. Dr Sinan Altug, <a href="https://www.rakon.com/" target="_blank">Rakon</a> CEO, acted quickly when supply chains threatened business. ‘As an international business’, said Sinan, ‘the disruption ripples started early, so we quickly formed a crisis management team as a task force. We had daily virtual stand up meetings to look at what's happening in each country to secure supply from critical suppliers’. Everyone agreed that in difficult times, the preservation of the business takes precedence over customers and suppliers. If you’re out of business, everyone loses. ‘It came down to what was feasible for us to continue’, says Dion, ‘we couldn't make the logistics work for some customers, so it came down to cost. If you're making customer commitments, you need to meet those delivery criteria. Otherwise it’s unfair to them in the long run.. Supply chain insights As in any business, being transparent with customers and suppliers is key. People get frustrated when ships don’t arrive or containers get cancelled or sent to the wrong place. Bringing reliability back into the supply chain is critical. Dave Christie, Director of <a href="https://www.synergictechnologies.com/" target="_blank">Synergic Technologies</a>, explained the even greater impact on smaller businesses.  he said, ‘Some larger exporters had their biggest export season ever in terms of the containers they sent from New Zealand, which meant small to medium businesses (SMEs) lost out on shipping capacity, with fewer ships heading to New Zealand’. This snowball effect was compounded: <ul> <li>SMEs’ supply chain management compared to larger organisations is less mature. Many order just in time or have low capital reserves to buy in bulk, so the risk to regular supply is greater.</li> <li>Ordering lower quantities means SMEs can rarely influence shipping lines, either in cost, prices paid or services received. </li> <li>Lost time trying to resolve supply issues beyond their control. ‘Our plant manager was spending all this time on tasks they weren’t employed to do’, says Dion, ‘ and I fell into that category as well’. </li> <li>People not enjoying the work, overload, frustrations and burnout caused by the exhaustion of battling daily to get enough materials or inventory to stay in business. </li> </ul> Roger Grey, <a href="https://www.poal.co.nz/" target="_blank">Ports of Auckland</a> CEO, added, ‘We’re at the bottom of an integrated global shipping chain often determined by boardrooms in Geneva and Copenhagen. The shippers will only come if there’s enough demand for money to be made. Exporters rely on filling up the ships emptying from imports. As our economy slows, manufacturing exporters will struggle to get access to roll on roll off slots.  Two future thoughts shaping the new norm Dave is convinced that global events impacting the supply chain will occur every three to four years. ‘I think in reality’, he says, ‘we’re going to have something else happen in the future. Uncertainty is certain, so you need processes and mechanisms to plan for those events. Be proactive rather than getting smacked in the face when it happens’. Roger agrees, seeing 24/7 operations as the future. ‘The New Zealand supply chain will not be able to expand exponentially. We only have so many roads, rail lines or ports. If you’re running a transport company, you’ll need to start thinking about operating at night. I can't grow the footprint of Auckland Port, but I can reduce the linger time’. Last words of advice The panel were then given the opportunity to say a few final words. <ul> <li>Dave observed that many small businesses have rudimentary inventory management practices. Inventory software uses logic and algorithms that look backwards to figure out what your inventory should be. There’s new software that looks forward, identifying where your inventory should be in 12 or 18 months. Dave has seen up to a 20% reduction in the inventory required by being smarter, which reduces third-party warehouse costs, including less handling.</li> <li>Sinan recommended watching both supplier and customer contracts to ensure they enable a wide range of demand fluctuations or supply chain disruptions. </li> <li>Roger said to get ready for 24/7 operations. We won't be building more infrastructure, so prepare to sweat what we’ve got harder and more consistently.</li> <li>Dion suggests rebuilding trust with your client base is critical if you’ve had to stop supplying key customers.</li> </ul> In conclusion Though we may be in recession, the good news is that several main markers are moving back to normal, such as shipping costs and labour supply. To solve some key challenges, look for businesses improving their customer relationship channels, adopting smarter software and preparing for the next supply shock, which is sure to come.