Supply chains all at sea as shipping independence sunk

Our total international and local shipping is in the hands of the global shipping cartel complex. Picture: NCA NewsWire / Paul Jeffers

Over the past 20 or 30 years Australia has based its industrial and retail base systems on a global “just in time” supply chain network.

And for the most part it worked and led to a vast array goods at low prices arriving when required, so reducing the need for large stocks. This gave consumers greater choice, curbed our inflation and boosted corporate profits.

But in the pandemic, the system broke down and became much less reliable and far more costly. Australian companies are only now starting to tell the market how they are being impacted.

Retailers like Kogan.com and Woolworths have led the way, but it also affected the global operations of the Pratt family’s Visy group.

Suddenly, in large areas of Australian society we are realising that in recent decades we have forgotten the lessons of our history.

In the Second World War, Australia also realised just how isolated we had become, and partly driven by BHP CEO Essington Lewis, we established large industrial complexes.

ALP and Coalition governments determined to make Australia far more self sufficient. Sadly, over time, bad management and costly work practices boosted the cost of local sourcing.

In the end, it was effectively abandoned, led by the dismantling of the motor industry.

But now the pandemic and the Chinese bans on our exports appear to be combining to change our attitudes. Australians are increasing their purchases of Australian made goods leading to the promotion of goods made locally.

We are only now starting to piece together what went wrong with the global “just in time” shipping operation.

Few Australians realised that our shipping lifeline was based on a very complex ownership and operational system with the ships owned in one country and registered in another.

Labor management was often organised in a third country and the labour came from wherever it was cheapest.

This complex web appears to be designed to insulate against the financial impact disasters. It also has the potential to be a massive tax reduction system.

Integrated into that global system was our own coastal shipping.

Unlike Canada and the US, we use global ships to undertake almost all our local shipping. In theory, local regulations prevent global shipping on the coast, but all that is required to use global ships is to ask permission. It is almost always granted. We have only token numbers of local ships.

So what went wrong with this structure in the pandemic?

The problem started early in 2020 with the large number of national lockdowns which slashed the production of goods.

Not surprisingly, shipping companies responded by reducing the number of cargo ships, which resulted in empty containers not being collected.

Worse still, containers in North and South America could not be sent back to Asia due to Covid-19 restrictions. They ended up in inland depots and stacked at cargo ports.

Then came two unexpected developments. The first was that whereas the Covid-19 restrictions substantially reduced the demand for services, the demand for goods surged. We saw that occur dramatically in Australia with spending on home renovation and building. But it was a global trend.

China was one of the first nations to get back on its feet and began stepping up production. But the containers were simply not there. Shipping companies are now engaged in a massive scramble to locate the missing containers and get them back into service.

In the meantime, they are trying to increase the usage of existing containers. We were impacted when overseas ships declared that they would no longer take goods from the East Coast of Australia to Perth because the containers were required in the northern hemisphere.

Sometimes it seems as though the Chinese control the distribution of our goods because they control so much of the trade.

Our first tangible response has been to prevent the closure of the Geelong and Brisbane oil refineries. We realised that, while oil is not part of the container trade, the sort of forces we have seen in containers could just as easily be applied to oil tankers — especially if there is military conflict.

But the Australian vulnerability goes much further than simply oil. Our total international and local shipping is in the hands of the global shipping cartel complex. We have no independence whatsoever.

In large modern ships, labour is not as significant a cost as it was 20 or 30 years ago. It may be time for us to develop at least a small independent shipping fleet based on the local trade but able to ply international waters in an emergency.

But as well, our internal transport systems are a mess because we have rundown rail and are very reliant on trucks, which are clogging roads.

Retailers are now assessing the long term attraction of promoting Australian made goods. Like shipping, modern machinery has lessened the labour cost component.

In practical terms one of the lasting legacies of the Covid-19 pandemic might be that Australia will go back to its history and devise better ways to lessen the dangers of isolation.

But “just in time “global practices are going to remain with us. The difference is that now we see the dangers, so hopefully we will protect ourselves from at least some of the impacts by having alternative local sources.