‘Full steam ahead’ for supply chains

Australia’s retail hardware sector has fared reasonably well under the weight of COVID-19 – notwithstanding some supply shortages of building materials. John Power analyses the state of our long-term supply chains.

COVID-19 was not all doom and gloom. 

While humbly acknowledging the catastrophic effect of the disease on selected trades and industry sectors, we must also appreciate that mainstream hardware channels, classified as ‘essential services’ at the outset of the pandemic, were spared the worst of the event.

Lessons have been learned that will have lasting impacts on post-COVID-19 supply channels, and these legacies, arguably, will leave the hardware sector in a stronger position than it was before early 2020.

If we examine different supply channels and how they fared during the height of the pandemic, an observer might ask, ‘What supply shortages?’ Some sectors, including certain decorative paint outfits, for instance, actually increased turnover dramatically and managed to source materials without undue pain. A good example is the Australian-owned company Haymes Paints, which reported publicly in January 2021 that its turnover had increased by 20 per cent between the March and September 2020 quarters. And over the past 18 months the business has more than doubled its number of company outlets, from 12 to 29. Most of this growth occurred under the direct influence of COVID-19, which stimulated a surge in home renovations and DIY activity. 

The paint sector as a whole, according to reports attributed to the Australian Paint Manufacturers Federation, enjoyed a 10 per cent sales growth over the same half-year period.

Meantime, companies in sectors like fasteners and fixings managed, for the most part, to survive supply channel interruptions without too much fuss, relying on broad bases of supply and distribution partners to juggle stock levels according to territorial demands. 

Look at the public statements of companies like United Fasteners and they are quite bullish: “To date, we have experienced limited delays from our supply chain.”

Indeed, most companies and sectors in the building materials domain remained calm throughout the second half of 2020, particularly those companies that had healthily diverse supply options and existing deep warehousing capabilities.

This is not to say that all building materials companies avoided inconvenience completely: some wholesalers have told the Australian Hardware Journal of freight cost increases in the order of 20 per cent–40 per cent, accompanied by an escalation in delays and ‘missing’ items. In particular, smaller companies with single-product business models and single-origin suppliers experienced the worst hardships, but in general the larger companies survived well by being adaptable and:

  • Sourcing product from non-traditional suppliers.
  • Changing product mixes to prioritise readily available items.
  • Increasing stock levels at strategic local warehouse hubs.
  • Reducing exposure to single-origin foreign suppliers.
  • Maximising domestic supply partnerships and alliances.

Ships, trains and budgets

Much of the above ‘good news’ may sound surreal – surely there were plenty of building materials companies (in sectors like cement, timber, glass and glazing) that simply struggled to fill orders due to shipping and haulage stoppages. The statistics, however, do not point to widespread supply chain interruptions. 

Rather, as we will explain below, some shortages might have been more attributable to closed wallets than closed ports.

When examining supply chain behaviour during COVID-19, it is important to distinguish between domestic and international channels, and within those categories there are further refinements that can made in terms of land, air and sea freight services.

If we consider international shipping, perhaps the most relevant category to Australia’s retail building products sectors, the ‘National Freight & Supply Chain Annual Report – The Year That Was: COVID-19 Impacts on Freight,’ offers very useful insights.

“Preliminary data from Lloyds List Intelligence showed that over the first half of 2020, the number of unique ships calling directly from China was down 12.3 per cent compared with the first half of 2019, but this had returned to normal levels in the second quarter.”

In other words, freight out of China was most acute soon after the declaration of the pandemic, but levels quickly returned to normal once some of the uncertainties about the nature and scale of the pandemic were better understood.

While ship departures were of intrinsic relevance to supply, two other factors might have lowered the actual delivery of goods to Australia, namely the emergence of overseas competitors seeking slices of the same pie, and unwillingness on the part of some Australian businesses to pay higher prices for goods. This latter consideration, we might guess, might have impacted smaller companies rather than multinationals.

So, it appears shipping movement itself may not have been as dramatic as first anticipated. Another consideration, of course, was industrial action at some Australian ports towards the end of 2020, which arguably added salt to some wounds.

International airfreight into Australia, on the other hand, fell 23 per cent over the 12 months to June 2020, according to the same report; however, for the purposes of this article, we may assume the bulk of building materials are not reliant on air services, and were therefore not adversely impacted.

Far more interesting are the statistics for domestic freight, in particular road and rail (surface) transport.

If we examine Australia’s road haulage during the height of the pandemic, “heavy vehicle VKT (vehicle kilometres travelled) did not decline significantly during the peak of COVID-19 restrictions”. Furthermore, many industry observers have noted that road freight actually increased significantly during the second half of 2020 and into 2021.

Rail services, it should be recognised, were the big winners during COVID-19. As the report states, “the Australian Rail Track Corporation (ARTC) reported increases of as much as 13 per cent across its national rail network to meet increased consumer demand.”

This figure spells out the clear value of maintaining domestic supply chains compared with overseas counterparts. Indeed, many local companies have discovered over the past year that there is great value in domestic self-sufficiency.

Naturally, surface freight experienced some difficulties across State and Territory borders, with different jurisdictions imposing different forms of lockdown. But these interruptions usually caused delays rather than stoppages.

Psychology on display 

No examination of supply chain movement during a pandemic would be complete without an appreciation of human psychology, particularly in relation to stockpiling and prioritising clients.

From a retail perspective, the pandemic might have raised mysteries about why items were in short supply. Possible reasons might have included:

  • Wholesalers did not want to absorb higher freight costs, and therefore opted to reduce order volumes.
  • Shipping was genuinely held up.
  • Wholesalers were selling goods to ‘tier 1’ clients at the expense of others.
  • Manufacturers/wholesalers were hoarding goods in case of escalating prices at a later date.

Of course, the above scenarios represent ‘worst case’ speculations about human nature, but they are a reminder that psychology can be just as important as border closures or shipping movement when it comes to getting goods to a warehouse.

If we have learned one thing about supply channels during the last year, it is that clear and open communication between trusted partners is invaluable. 

15/03/2021