Disruptions curb business potential

17/05/2021 - 14:00

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Supply chain issues have been a feature of the COVID-19 global economy and have been disrupting business activity for some time, constraining business potential and operations.

Disruptions curb business potential
Manufacturing businesses are experiencing some form of supply chain disruption, according to ABS data. Photo: Michael Browning

Supply chain issues have been a feature of the COVID-19 global economy and have been disrupting business activity for some time, constraining business potential and operations.

In the latest business survey from the Australian Bureau of Statistics, more than three in 10 businesses are currently experiencing disruptions, with 37 per cent stating that this was greatly affecting business operations, causing major delays and significantly affecting revenue.

Nearly all sectors have been impacted, but more than half of businesses operating in the manufacturing, retail and wholesale trade sector are experiencing some form of supply chain disruption.

But if we look at the depth of impact, it’s the logistics (transport, postal and warehousing), professional, utilities and wholesale sectors that are having the most headaches. One in five businesses operating in logistics is being challenged, with 73 per cent of these rating these challenges as being ‘major’ rather than ‘minor’ problems.

Why are supply chain disruptions becoming so problematic and will they resolve themselves anytime soon? Well, there are a number of reasons, not least of which is a shipping container shortage, and no, it’s not because we’re converting them all into backyard studios.

Shipping containers are in short supply, left stranded in places where they are still waiting to be picked up and filled. It’s estimated that the US has about 90,000 empty shipping containers that need to get back to China to be refilled. And there’s a backlog stemming from the Suez Canal debacle. Global shipping prices for containers have now grown by 200 per cent in the last 12 months and have not yet subsided.

A number of other changes are also contributing to supply chain disruptions, including increased demand for goods over services, which is unlikely to subside given that we are likely to be grounded until 2022. Consumers are spending – on cars, clothes, furniture and houses – and businesses have increased their demand for inputs into production as demand increases in a number of markets, particularly construction.

So, what are businesses doing to combat these disruptions, and how long will they last?

Businesses are making multiple modifications to their operations to respond to supply chain disruptions. They are changing suppliers, ordering processes and the way that products are provided.

They are also passing on costs through increasing prices for goods or services.

Changing the ordering processes is the most common modification reported. This translates to ordering more, or earlier, with two-thirds of businesses reporting making this change. Supply chain diversification has also been a common response as businesses seek to spread disruption risk.

How long these disruptions will extend for is still an unknown, and while some of the backlog may start to clear as shipping routes resume to a level of normalcy, the increased demand for goods over services will likely be sustained for at least the next year.

Ultimately, supply chain issues affect the cost of doing business, and these costs are generally passed onto the consumer.

The Productivity Commission has opened an inquiry into supply chain vulnerabilities and will be handing down its report in July. Its recommendations will be eagerly anticipated.

• Rebecca Cassells is deputy director, Bankwest Curtin Economics Centre

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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