Resilience through Global Supply Chain Disruption

Part One - by Gordon Carlyle

The disruption to the global supply chain over the last 18 months has been described as the 'perfect storm', and our supply chain teams have been pulling out all the stops to get products to our customers.

During this article, David Ross from Kotahi and I will describe our journey in navigating the unprecedented global supply chain disruption, and how our partnerships enabled us to adapt and learn how to manage this new normal.

The first few months of COVID-19 disruption:

When the world was rocked by the onset of COVID-19 in early 2020, my first reaction was to hunker down in my home crisis control centre, aka my wife's and my walk-in wardrobe. However, as Fonterra is the world's largest exporter of dairy, with reliance on an intricate global supply network, which was about to be disrupted like never before, we needed to adapt and do so quickly.

For these first few months, Fonterra and our strategic logistics partners were able to quickly adapt and maintain our flow of products to customers. I put a lot of this initial success down to Fonterra having "boots on the ground" through our China team giving us insight into the developing situation and an early indication that we needed to prepare for the impact of the pandemic.

In addition, the strong strategic partnerships and risk management plans we have across the logistics indsutry enabled us to adapt together swiftly. However, this was just the beginning.

Fuel on Fire: Unprecedented global trading volumes:

The 'perfect storm' really started brewing around September 2020 when the world started trading at unforeseen levels. Government stimulus packages throughout key global markets maintained economic activity, particularly amongst consumers who, without the ability to spend on 'experiences in a COVID-19 world, spent incomes on physical goods.

As the situation continued to unfold, the freight industry was, and still is, under enormous strain dealing with the increased ocean freight load in a less efficient COVID-19 world. With limited airfreight options, global ocean freight saw a spike in demand for container volume, to the point that practically any container ship that floats found itself utilised.

This increase in consumer demand resulted in the movement of 14.72m TEU* in September 2020, compared to 13.76 TEU in the same month in 20191, as reflected in the graph. In addition, the world's inactive container ship fleet fell to 1.8 per cent down from a peak of 11.6 per cent in May 20202.

Adding to this, global port congestion increased, impacting shipping schedules and reducing container cycle times. We could no longer rely on getting our empty containers from offshore ports, as the ports were so backed up.

Not only were there international port issues due to COVID-19, but my team was also dealing with several separate port and land transport challenges in both Australia and New Zealand, which added pressure to the supply chain network. We were getting into the thick of the global supply chain issues now, and some problems really needed to be solved.

The impact on logistics and moving forward:

The result for our Fonterra team was constant schedule disruptions, a difficult challenge when you need to get your products to customers around the globe. Our logistics teams would plan on having capacity available on a certain ship on a particular day and then without warning the capacity would move out by several weeks, or in a few cases disappear completely.

This is often being driven by shipping lines omitting ports to try to get back on schedule for their key Asia berth windows. To put it into perspective, according to Sea Intelligence, the schedule integrity in the Oceania region usually runs around 75-80 per cent on average. But in January-February this year the average was under 15 per cent, so essentially this means most vessels are now late to port⁴.

Throughout all this, our supply chain experts here in New Zealand have been collaborating closely with our teams around the world to minimise the impact this has on our customers. Whenever there is an opportunity to secure additional capacity, the teams will pull together and rework the plans to ensure we are getting our products to market.

Customers are looking for us to provide reliability, and thanks to our strategic partnership, long term risk management plans, digitisation of processes, early reaction and adaptability, we have successfully navigated our peak export period and been able to keep our product moving.

While there is currently no end in sight for this disruption, our supply chain is adjusting to the new normal. In recent years, the Fonterra Supply Chain team has invested in the digitisation of our processes so we can be quicker to adapt and project new plans and shipping solutions. I am also very grateful for the work we have done in creating strong partnerships that have enabled us to adapt to these challenges.

One key contributor to the resilience of our supply chain is our relationship with our strategic ocean freight partner, Kotahi. Ten years ago, following the global financial crisis, New Zealand exporters carried a huge dependency on international shipping lines for the quality and reliability of shipping services.

We partnered with another New Zealand exporter, Silver Fern Farms, in 2011 to form Kotahi, with a clear strategy to build sustainable networks, remove waste and scale to bring bigger ships to New Zealand. Our partnership with Kotahi and Maersk is proving hugely valuable in managing this disruption as they provide us with the service options and container and vessel capacity to ensure our dairy products are moved reliably and efficiently around the world.

Part Two - by David Ross

Kotahi's unique partnerships keep New Zealand exporters moving:

Kotahi's strategic partnerships, ocean freight networks and planning expertise has ensured capacity and container supply for Kiwi exporters such as Fonterra, in the current global supply chain disruption. We have worked collaboratively with strategic partners like Maersk and Port of Tauranga, using our leading-edge planning and forecasting applications to operate with both a high level of resilience and agility.

This does not just happen by chance. At a time when there is widespread loss of vessel capacity and empty container supply, we have increased our allocation across services and brought in additional capacity and containers for Kotahi customers to deal with record fourth quarter container volume.

Putting it into perspective, regarding the number of vessel calls lost in the first 22 weeks of 2021, (depending on the shipping service) we have seen 5 to 36 per cent of expected calls lost from this period5. It has been a significant slippage or loss of capacity that we have been dealing with.

Innovative Kotahi solutions:

We have worked with our partners to increase capacity on existing services and create new capacity into underserved locations as the Kotahi, Maersk and Port of Tauranga partnership unlock New Zealand's congested export supply chain, with further vessel capacity created in Tauranga and the South Island over the coming weeks.

A New Zealand record volume lift of 5,326 TEU (twenty-foot equivalent) containers with a record 1,914 refrigerated TEUs, has loaded at the Port of Tauranga onto the Maersk Shams, with over 80 per cent of volume being Kotahi’s customers and a significant portion of this being high-value dairy products such as ingredients and infant formula. In comparison, Maersk would normally load 2,500 to 3,000 TEU in Tauranga, on each of these vessel visits.

Recognising the South Island of New Zealand had capacity challenges, we have worked with Maersk to bring in two additional vessels dedicated to moving Kotahi customer product, in particular Fonterra. These vessels will clear inventory volume and are phased to reduce congestion at key times and at key export ports in June. In addition, a seventh vessel has been added to Maersk’s Southern Star Service, our backbone Asia service, providing our customers with a boost in reliability and stability for our export supply chain network and capacity....

Article continues in this month's NZMP Perspective (click below to read).

The views expressed above are general opinions only, and Fonterra is not responsible for any decisions taken in reliance on the same.