Expect high freight rates to continue in 2022 ©  Suriyapong Thongsawang via Getty Images
Expect high freight rates to continue in 2022 © Suriyapong Thongsawang via Getty Images

Six supply chain trends to look out for in 2022

17 January 2022

Last year was one of the most difficult on record for Australian and New Zealand supply chains, ending with empty shelves in supermarkets due to labour shortages and other supply chain disruptions.

Supply chain managers are likely to see more of the same in 2022. However, some developments, such as increased digital procurement and reshoring, are happening faster than they would have without current pressures and may ultimately benefit the local economy and climate goals.

These are likely to be the big themes for procurement and supply chain mangers this year:

1.  Shipping costs to stay high

Anyone looking for short-term relief from rocketing shipping costs is likely to be disappointed. Lengthening cargo delays and spiralling freight rates are set to extend well into 2022, with events such as the Chinese New Year and the Beijing Winter Olympics putting further pressure on supply chains.

According to Ian Henderson, CEO of Australia Vinegar, since 2020, “the price of sea freight from Europe has risen 400%. Sea freight to the USA is almost impossible to get at any price”.

Carlos Villazon, managing director of Sydney-based logistics provider Stelno Group, said the fact that shipping line freight pricing is unregulated in Australia is adding to rate pressures.

And because Australia and New Zealand represent only a relatively small trade lane for global shipping lines, they are a low priority in terms of capacity allocation, he added.

High shipping costs are likely to have knock-on effects in supply chains – such as shortening credit terms, further straining cashflow.

Villazon advises buyers to ensure diversity in trade lanes rather than sourcing the same product exclusively from one country.

2. Repatriation of manufacturing

A survey by PROS in 2021 found that 55% of Australian manufacturers plan to reshore manufacturing operations to Australia by 2023.

Henderson believes this is likely to one of the key trends of 2022 as domestic freight prices have risen less than international rates.

“In tough working conditions for drivers, we have never had a domestic freight issue yet. Prices are up, but not like international prices,” he said.

“Things we outsourced overseas are coming home. The buyers we deal with recognise that paying a few per cent more is all it takes to get domestic supply with a two-day supply chain from a 14-week [global] supply chain.”

3. Boosting inventory levels

Like many other organisations, Australian Vinegar is keeping higher than usual stock levels of finished goods and raw materials.

“This is having serious implications on cash flow, but we simply have to guarantee the supply of materials,” said Henderson.

One of the knock-on effects of this trend is a shortage of the standardised CHEP pallets.

“You just can’t get as many as you need as everyone is doing what we are,” he said.

4.  Staff shortages

Being based in regional Australia has ensured Australian Vinegar has been largely immune from labour shortages, but these have been one of the features of the Christmas period in Australia.

And Villazon believes factories will continue to struggle with labour and raw materials shortages, and that this will continue to disrupt lead times substantially. He advises supply chain managers to ensure service providers have enough trained staff to guide customers through pandemic disruption. 

5. Increasing expectations around procurement and supply

Madhav Durbha, vice president for supply chain strategy at software firm Coupa, believes rapid digital transformation over the past two years has increased expectations over what procurement can achieve.

“In 2022 and beyond, procurement and supply management have critical roles to play... improving digital capabilities, making good on environmental, social and governance (ESG) goals, and navigating supply chain disruption and inflation to keep goods on shelves,” he said.

One area where attention is likely to intensify is modern slavery risk management and compliance.

“Reporting companies have done a passable job examining their tier 1 suppliers, but haven’t sufficiently met the challenge of drilling down into their broader supplier network,” he said.

This will lead to renewed attention to visibility beyond tier one suppliers and increased uptake of digital processes to improve compliance, he said.

6. Enhancing digital capabilities

Increasing consumer and stakeholder pressure on environmental, social and governance (ESG) factors are likely to lead to intensifying investment in digital procurement, Durbha believes.

“In the past the ‘back office’ roles have been neglected in terms of modernisation in favour of revenue generating parts of the business, HR solutions or financial solutions like ERP,” he said.

Digital capabilities’ role in modernising processes, breaking down silos and boosting access to data is likely to see renewed focus on technology within procurement.

“Now, it is undeniable that procurement and supply chain are so critical that they require and deserve continued digital transformation,” Durbha added.

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