Supply chain problems are global news. What is BNZ doing to support customers who are affected by supply chain constraints?
Jason Reeves: We’ve run several Supply-Chain Pain seminars around the country featuring exporters, importers, freight forwarders, industry leaders and Government officials. They have been sharing insights, scenario-planning for what the next 12 months look like and, importantly, working to identify mitigation strategies.
These seminars are more than just an opportunity for the industry to get together. They have delivered some tangible wins for customers.
For example, at one of our Auckland events was a customer who was having real problems getting his product to the US because it wasn’t of a standard size that you can put into a shipping container.
He met a fellow exporter at the BNZ event who connected him with a customs broker and a freight forwarder. Together they found a solution – an absolute godsend to that business because it meant he could maintain the relationship with a key American customer.
What else is within the role of a bank like BNZ?
Jason Reeves: It was obvious to us early in the pandemic that this wasn’t going to be only a two- or three-month inconvenience. From the start, we’ve been keen to engage with customers to determine how we can best support them.
An example is where contracts are in place with offshore suppliers with confirmed delivery dates, but due to the dislocation to shipping schedules customers have no certainty when the goods will arrive. As you can imagine, this creates both working capital and cashflow challenges – together with the risk of customers becoming frustrated with delays to orders.
Understandably with this scenario, some businesses are over-ordering. I know a South Island manufacturer who usually holds six weeks’ inventory who’s now holding 14 months’ worth. He doesn’t know when his next input deliveries are going to come into the country and can’t afford to upset his customers, the majority of whom are offshore. Through no fault of his own, this has caused working capital challenges which we are assisting with. With our wider experience of supporting the trade sector, our Trade Specialists may also be able to offer ideas that an individual business hadn’t thought of.
My advice to importers and exporters is this: communicate, communicate, communicate. Let your banker know what is going on. We’re committed to help find a solution – and the sooner we know what your situation is, the better we’ll be able to help. Also, businesses should be maintaining a constant flow of communication with both suppliers and customers – they will remember you for it.
Low interest rates notwithstanding, getting help from the bank with working capital and cashflow will be expensive for your customers – and now interest rates are going up. So will there be inflationary impacts that affect businesses?
Jason Reeves: That's right. With inflationary pressures building, costs will have to be passed on – but the good news is that global demand remains robust. With regards to trade finance and working capital offerings, pricing is very attractive when compared to other forms of funding.
To date, overseas customers have been reasonably understanding that costs are rising and are saying for the most part, “Please, just get the goods to market.”
Even so, we're just starting to see the signs of some customers getting a bit impatient with persistent delays. Will demand taper off as a result of frustration? That's starting to be a concern, and it’s a risk that is starting to lead to fundamental strategic conversations.
We know of one case where an offshore customer is considering moving away from the New Zealand supplier and getting their goods from their domestic market instead. That’s the sort of thing that will happen as patience runs out.
We also know of a New Zealand company that is considering moving some of its production offshore – in this case, to the USA – in order to be closer to the customer and avoid shipping delays. That is obviously a major undertaking, and not something a company would consider for a problem lasting only one or two months.
Some governments overseas are also talking about incentives to bring a percentage of manufacturing back home.
These are ideas at the moment, but they might become a reality if the disruption goes on for an extended period.
Even in normal times, New Zealand is at the very end of the global supply chain. Do we become an even more marginal customer when supply chains are tight?
Jason Reeves: When supply is tight, it’s natural for the shipping companies to go where they get a more lucrative return. To get a vessel from a port like Singapore down to New Zealand and back again is a 30- or 40-day exercise. In the Pacific, the major shipping lines are now focusing predominantly on the trade between the west coast of the US and China, which is the highest yielding.
The challenge is to get vessels to this part of the world both for imports and exports. There’s also a global shortage of shipping containers, quite apart from vessels being in short supply.
Can this be resolved by just paying more?
Jason Reeves: Prices have already gone up enormously. We’ve heard of cases where the cost of the shipment is as much as the value of the goods themselves. It’s hard to outbid the market when it reaches those sorts of prices.
Is there an end in sight?
Jason Reeves: We don't think there's an immediate solution to the impasse. The people I speak to think it will be, optimistically, 12 or 18 months before normal service resumes.
On the other hand, there’s a saying that bad news delivered early is good news. That’s a long enough horizon to make some adjustments.
A number of potential mitigation strategies emerged around the country at our seminars. Can we truck or rail our goods from one port to another so an overseas vessel can make fewer calls? That might work for high-value products, but it’s questionable for commodities.
Less-obvious solutions could be to rely less on container ships – perhaps using roll-on/roll-off vessels more than we have in the past or using more breakbulk shipping. There is also the option of trans-shipment – for example, sending goods to a port in Southeast Asia and then using coastal shipping to get it to, say, Tokyo.
At our seminars SMEs have even talked about pooling their resources and perhaps chartering a ship.
But isn’t it hard to charter a ship if there aren’t enough ships in the world?
Jason Reeves: Correct. So, I think there’s potential for a wider discussion between Government and industry. We have a national airline. But we don’t have a coastal marine fleet to ship things around New Zealand. How many ports do we need to best serve a population of five million? Now is the time to have the conversation.
As the saying goes, never waste a crisis. I am hopeful the current supply-chain pain will lead to a wider national conversation about lessening our vulnerability to global disruptions and securing our ability to transact as a small, trade-dependent and comparatively isolated economy. We would be keen to participate in that discussion.
Any views expressed in this article are the personal views of Jason Reeves and do not necessarily represent the views of BNZ, or its related entities.
This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of this article. BNZ accepts no responsibility for the availability or content of third-party websites referenced in this article.