The transport and logistics sector is the lifeblood of Australia. According to the Federal Government’s Australian aggregate freight forecasts, the nation’s ‘freight task’ grew over four-fold in the five decades to 2020.
However, it forecasts a continuing slowdown in freight activity in the medium to longer term. That’s due to slower domestic income growth and less demand for Australia’s major mineral exports.
With the pandemic over, why isn’t shipping back to normal?
Despite the end of pandemic shutdowns, shipping has yet to return to ‘normal’. Here’s what our transport and logistics sector is grappling with:
- Fluctuations in consumer behaviour patterns
- Protracted capacity issues (i.e., shipping container shortage), including the supply shock from COVID-19
- Higher domestic freight costs due to more expensive fuel (despite international shipping rates back to pre-COVID levels)
- Increased prices of commodities, ingredients, and materials
- A slowing economy
- Weaker industrial production
- The impact of the war between Russia and Ukraine, including sanctions and changes in shipping patterns.
The role of inflation
Inflation has been above the Reserve Bank’s ‘ideal’ consumer price index of two to three percent in Australia since June 2021. The effect has been to slow consumer demand for products as they pay more for essentials, including services, food, and petrol. That demand will continue to be subdued, with the Reserve Bank recently forecasting a return to the pre-pandemic average by late next year.
Higher inflation means lower purchasing power of money, yet potentially rising labour costs, such as wages and benefits. That narrows business margins. As well, customers may pressure you for free or discounted shipping. If you do business internationally, you’ll know Australian goods and services are less competitive than before the pandemic.
Shortage of truckers and seafarers
According to the Australian Logistics Council, filling vacancies is an issue. For example, a shortage of truck drivers means one in every five delivery vehicles sits idle.
As of the end of August, the job website, seek.com.au, was advertising more than 21,300 truck driver vacancies. That’s a role that can’t be done remotely unless it’s a driverless truck. Shell has remotely controlled trucks on its mines, a Transurban-Plus partnership trialled an autonomous truck on Melbourne’s roads last year, and the Australian Army completed its tests for driverless trucks on public roads in June.
The Maritime Union of Australia has raised the issue of an ‘acute’ seafarer skill shortage. One problem is the paucity of data on seafaring occupations, training starts and completions. There’s another complication: seafaring is one of the world’s most dangerous roles. Medics have seen an increase in seafarers presenting for treatment. Seafarers are more than 26 times more likely to die while at work.
How companies are making supply chains resilient
The more efficient a supply chain, the lower its costs and greater its resilience to disturbance. Research points to managing transportation and delivery risks by:
- An increase in the number of distribution centres
- Collaborating with other transport and logistics companies
- Identifying backups to your primary warehouse
- Having a plan B for emergency distribution
- Even optimising backloading, as this tech company does.
Meanwhile, McKinsey offers solid tips to help businesses strengthen their supply chains, including a three-step approach:
- Firefighting to deal with day-to-day, short-term actions, only buying components at the last minute. While this path may help identify overlooked gaps in your supply chain, it won’t build resilience
- Integrating and streamlining operations for a wheel-and-spoke design across your business to help stimulate and plan for extreme disruptions and re-evaluate just-in-time strategies. Consider a four-part structure comprising people, operating cadence, decision-enabling tools, plus an early-warning system
- Achieving structural resilience over the long term could happen by building a ‘digital twin’ of your supply chain’s most critical parts, creating and testing ‘what if’ scenarios, and considering sectioning off part of your supply chain. That means using a virtual barrier to reserve funds or resources to protect them from losses from riskier operations elsewhere in your business.
Keeping on top of risk management for your transport and logistics business has become trickier. Let us be your guide to help you manage the unique risks your business faces.