Supply chain disruption 'expected until 2023'

11 January 2022

Supply chain difficulties are expected to last into 2023, according to a survey of Australian businesses. 

Two-thirds (65%) of firms reported that sourcing their average input materials was “much more difficult” in 2021 than in 2020, according to the State of Play report by the Australian Industry Group (Ai Group). 

The study, which surveyed the CEOs of 346 businesses across Australia with an accumulated turnover of around $74bn in 2021, found just over half (52%) of companies expected their ability to source inputs to be disrupted in 2022. 

Only 17% of businesses felt more optimistic about sourcing supplies in 2022. 

Global supply chains have been hit by factors including a rise in container costs, port bottlenecks, and a shortage of HGV drivers to deliver goods. The report said there was “a dominant view that we won’t see so much as a moderate easing in these conditions until as late as 2023”.

The report said freight rates on global trade routes were seven times more expensive than this time two years ago before the pandemic hit. 

The report found freight availability was impacting Australian exports the most, with 57% saying they were most affected by this, followed by freight costs, at 39%. 

Ai Group chief executive Innes Willox said these pressures on supply chains had the potential to “undermine our economic recovery from the pandemic and ultimately dampen economic growth”. 

He said: “The Covid-19 pandemic has exposed deep weaknesses in the operations of global and domestic supply chains and laid bare many Australian vulnerabilities as an island nation with 98% of trade and most jobs connected to or reliant on sea freight in some way.

“There is increasing concern about geostrategic tensions, trade conflicts and their associated unknowns. This creates real risks for businesses reliant on distant suppliers and generates an incentive to change the way they do business, and to avoid over-dependency on particular countries or regions, especially those where trade or diplomatic tensions exist.”

The report added: “While the problem is obvious, the solutions are less so.”

It noted 28% of businesses said their first response to supply difficulties was to increase inventories to ensure materials were available when needed. 

A quarter (26%) said they would not change their supply strategy going into 2022, which the report said was due to “the longevity of existing contracts, difficulties finding alternative suppliers, no improvement from finding alternative suppliers, existing processes delivering satisfactory results and having not yet reached a level of critical inconvenience”.

Reports of onshoring have been “overstated”, the report said, and only 14% of businesses had opted to find new suppliers within Australia. Just 7% said their first response to supply difficulties was to bring production in-house. 

The report warned: “Although the operation of global supply chains will eventually stabilise and freight rates will drop, there is evidence to suggest that Australia is running the risk of becoming a less attractive destination for shipping lines unless productivity, workplace relations, and supply chain inefficiencies are addressed.”

The report recommended government and business invest in Australia's ports and supporting infrastructure to address inefficiencies in its supply chains.

The report came as Australia faced threats to supplies of urea, which is vital for the trucking industry. 

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