09 December 2021
New Zealand consumers are likely to feel the effects of supply chain disruption well into 2022, according to ASB's first Trade Disruptions economic report. The report looks at the impact of COVID-19 on supply chain and global trade, and forecasts what lies ahead for businesses and consumers in 2022 and beyond.
ASB Senior Economist Mark Smith says, "The pandemic exacerbated underlying supply chain weaknesses and resulted in two major impacts on global trade. The substitution of consumer demand patterns and increased government and central bank stimulus boosted online shopping power around the world at the same time COVID-19 forced the closure of factories, constrained labour and put more pressure on how goods were moved domestically and internationally.
"This combination created the perfect storm for major disruption to supply chains, and the situation will likely get worse before it gets better.
"Global trade has grown 10% over 2020 levels, likely outstripping increases in shipping capacity. But global supply routes are buckling under the pressure of strong demand and businesses are forced to pay more to move goods.
"Logistics capacity is stretched and there are acute container shortages. We expect even further pressure now we're entering the peak global shipping periods associated with Christmas, the dairy export season and Chinese New Year."
ASB expects New Zealand firms that have invested in supply chains with freight contracts (versus relying on spot rates) to fare better than others.
At a national level, export resilience in larger sectors is offsetting weaknesses in smaller sectors but there is variance within industries, too. In the dairy sector, for example, whole milk powder is up eight per cent whereas skim milk powder is down nine per cent on pre-COVID levels.
"In horticulture, kiwifruit has done well but apples haven't. Seafood was greatly affected in the early days of the pandemic but has recovered well in 2021. At the end of the June quarter, both export and import volumes sat at record highs, five - six per cent above pre-COVID-19 levels."
Looking ahead, ASB is forecasting 6.0 per cent export growth for 2021 and 9.2 per cent for 2022.
ASB International Trade Consultant Paul Gestro says the next 12 months will be characterised by higher costs and improvements will need to be on a global scale for any difference to be felt.
"It's pleasing to see that increased profitability over the past year has triggered more investment in shoring up supply chains globally and boosting shipping capacity, but these improvements will take time to bear fruit.
"We're seeing businesses planning better, with some adopting technology to assist production and scheduling, collaborating to maximise shipping capacity and even changing the product mix to be less reliant on certain forms of transport.
"Exporters are also investing better for the future by holding larger quantities of stock, positioning stock in important markets and changing buyers and suppliers to create greater diversification. This will all reduce their supply chain risk.
"There is still plenty more to do like improve the movement of goods domestically and review coastal shipping and how our ports operate. Collaboration is key and this should extend to our government being more involved in what's happening around the world."
Mr Gestro says the key to resolving this global problem will be governments working together to enable transparency, trust, governance and interoperability of supply chain systems for shared benefit.
Read the ASB Trade Disruptions report online.
Read other recent ASB reports covering a range of commentary on our ASB Economic Insights page.