Freight congestion pushing up prices and costing companies

Tuesday, 24 November 2020

Exporters of perishables such as strawberries are anticipating lower returns because of the shortage of lower-cost freight.

Congestion at ports and a lack of space on planes and container ships is starting to hit exporters, manufacturers and consumers in the pocket.

Shipping companies are charging more to get goods into and around the country due to delays at the log-jammed Ports of Auckland.

Global supply chains have been sluggish since Covid-19, delaying imports. And while export figures have been holding up well, growers say the difficulty and cost of getting a spot on air or sea transport is becoming onerous, just as the export season takes off.

Dieter Adam, the chief executive of the Manufacturers and Exporters Association, said his members were having a hard time getting products in or out of the country.

''It works both ways. A lack of raw materials coming in and [not being] able to ship products out, and it's getting worse all the time.''

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Rising freight costs are beginning to filter into stores, with Mitre 10 announcing some price increases.

International flights out of New Zealand have dropped from about 600 a week to about 120, nearly halving air freight volumes.

That has hurt exporters of time-sensitive perishables. Strawberry Growers New Zealand executive manager Michael Ahearn said growers were ''right in the teeth'' of the harvest.

But the hurdles they were facing meant many growers were resigned to receiving lower returns this year – although local consumers would benefit from cheap strawberries.

''The bottom line is we, the horticultural sectors that have a need for air freight, are all facing a significant increase in air freight costs and that's because, quite simply, there's less capacity, and what capacity is available isn't going as frequently,' Ahearn said.

''We are predominantly a domestically focused industry anyway and export is a kind of pressure valve, particularly in years like this year where we've got good growing conditions and the crop is quite big.''

Plastics New Zealand said delays in getting plastics into the country could well have a knock-on effect for industries that relied on them.

''Plastic is used in pretty much every industry. Anywhere where you have a raw material in a supply chain [being delayed] … you're going to be seeing delays in the production of that primary product,'' chief executive Rachel Barker said.

Key staff shortages and automation issues have hampered Ports of Auckland's ability to deal with a huge surge in demand, as well as port workers having to observe social distancing at times.

She said the rising costs of freight could well be passed on to consumers, although ''in most cases, everyone in the supply chain is having the same issue, so people are being reasonable''.

''Overall we'd like to see [the] Government facilitate some solutions in that space.''

Some retailers are already signalling price hikes. The Mitre 10 hardware chain told its trade customers in a note last week that its supply chain was being tested across a range of categories.

As a result, rising freight costs meant prices for many of its timber and related products would increase by between 5 per cent and 8 per cent in February next year.

Port strike a factor

The Ministry of Transport is leading a multi-agency group to keep tabs on the congestion issues. Supply chain manager Harriet Shelton said the group was keeping a close eye on how the market was responding.

“As we enter the usual peak import [and] export season and contend with Covid-related surges in local and international sea freight demand and increased costs, we are working hard to ensure there are no regulatory hurdles affecting the supply chain,” she said.

Major exporters received a warning in early November that they might have to wait some time for the supply chain to get back to normal.

The New Zealand Council of Cargo Owners, which serves major exporters and importers such as Fonterra, Zespri and major meat companies, told its members that ''cascading congestion issues'' would take some time to clear, just as meat and dairy exports rose to a seasonal peak.

One major factor had been an Australian port strike, which saw vessels scrambling to meet dates and missing port visits as they tried to make up time.

While that problem was slowly improving, a series of issues at Ports of Auckland had also been at play.

Port spokesman Matt Ball said that because of Covid-19 restrictions, only half of a major automation project that was meant to go live in March had been turned on.

KiwiRail's intermodal freight hub master plan was announced and presented by Regional Economic Development Minister Shane Jones at Te Manawa in Palmerston North. (First published July 2019)

Another major difficulty was getting the right staff to man all the port's eight cranes, and this had compounded the problem.

Congestion has become so bad that some shipping lines have introduced a surcharge on cargo going through Ports of Auckland, on top of shipping rates that are sometimes several times higher than usual.

Shipping line MSC Mediterranean has reported delays and wait times for vessels to berth in Auckland of 10 to 13 days.

Its surcharge is US$300 per TEU (20-foot equivalent unit) for exports to certain countries. Maersk’s surcharge is US$215 per TEU.

‘No easy fix’

The NZ Council of Cargo Owners said the supply chain was clearly ''in a difficult position'' as post-Covid volumes met the peak dairy and meat export season.

''At this point there is no easy fix,'' the industry body said. ''All New Zealand exporters and importers will need to provide robust forecasts to their shipping lines and lock in contracts and bookings as early as possible to protect their volumes.''

Some relief is on the way. Ports such as Tauranga are taking cargo that would have been bound for Auckland. And KiwiRail is putting on extra freight trains on the Tauranga to Auckland line to clear some space on the Tauranga wharves and send the diverted cargo back to Auckland.

DHL Express has added capacity for an extra 19 tonnes of air freight a week in the form of a new five-day-a-week service linking Christchurch, Auckland and Melbourne.

DHL Express country manager Mark Foy said a boom in e-commerce as well as the severe drop in commercial flights had sparked strong demand for air freight.

However, the express service had always been at the top end of the market. Because it had its own planes and did not rely on commercial aircraft, it had not been subject to the same price pressures, Foy said.

'’We've put in an emergency situation surcharge to cover the additional charters we have put on. We certainly haven’t seen significant fluctuations in our daily rates.'’

The Ministry of Transport is also working to help New Zealand-based specialist port workers to get their work visas promptly to fill the staff shortages at Ports of Auckland.

In September the Government extended the International Air Freight Capacity (IAFC) Scheme, a temporary scheme introduced in March to support carriers keeping essential imports and exports moving. The scheme has been extended to March next year.