Friend Shoring
Australia and New Zealand business can’t control the shocks disrupting their supply chains, but they can mutually take actions to make their supply chains more resilient. Shortening supply chains so they are closer to the home market (onshoring) significantly improve resilience for manufacturing business.
In the USA, US Treasury Secretary Janet Yellen has proposed “friend-shoring” as a means to insulate global supply chains from external disruption or economic coercion. The idea is for a group of countries with shared values to deploy policies encouraging companies to spread manufacturing within that group.
The goal is to prevent less-like-minded nations from unfairly leveraging their market position in key raw materials, technologies, or products to disrupt the US economy or those of its allies.
Here a friend-shoring policy between Australia /New Zealand (and the opportunity of a wider Pacifica) would harness historic institutions (CER) linking the two countries associated with a new approach to economic cooperation and security.
Asialink Business’s September 2021 survey of Australian businesses, Disruption & Innovation -Reshaping Regional Supply Chains, shows this uncertainty is hitting small business hardest, with 32% of those surveyed reporting restrictions on business could threaten their operations, compared to 15% of medium- sized businesses and 8% of large businesses.
New Zealand Business disruption and uncertainty would be similar. In real terms, Australia and New Zealand are positioned on the fringes of Asia. Both countries source similar products from the same countries within Asia.
If we look at global merchandise imports at a trade lane level and the potential risk in terms of Australia and New Zealand.
Trade Data Analysis (Example) Merchandise Global Supply Chain Resilience and Risk:
Australian and New Zealand Trade Import by Continent
Australian and New Zealand Trade import by Category
It is clear, that Australia and New Zealand are importing the same essential products.
With the recent disruptions and cost within supply chains because of the pandemic. Australia becomes an attractive alternative for New Zealand business to near source similar merchandise that Australia has imported themselves.
Shipping costs out of China have not reduced as compared to Australia. Lesser shipping services that are available into New Zealand are forcing importers into “re shoring”, in particular Australia.
The critical mass and the priority of this merchandise that Australia can orchestrate from suppliers and shipping lines, will clearly resonate with New Zealand business.
With shorter supply chains albeit arguably more expensive merchandise (3rd party access), the critical importance is “Operational “delivery and consistent access to the merchandise source.
We can see the spike in 2021 imports from Australia particularly in relation to pre pandemic figures.
Although within the short term. New Zealand business utilising Australia as near shore give some ‘Tactical’ relief.
At a “Strategic” level the Global Supply Chain risk still remains for both Australia and New Zealand in terms of accessing the same imported products from Asia ( particularly China) Europe and the Americas.
Medium to large New Zealand businesses arguably have the expertise to navigate complex supply chains and alternate merchandise with acceptable pricing (Australia).
However New Zealand SME business may not have the same leverage, therefore disruption risk is significant through Asia/Europe and the Americas.
As firms and governments seek to adjust to a new normal of uncertainty and tense geopolitics, the concept of friend-shoring has emerged as an alternative model for global trade. The term was coined to describe the shift towards supply chains that skip ‘unfriendly’ countries in favor of ‘friendlier,’ more reliable nations.
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Friend-shoring offers an affordable alternative to reshoring—bringing manufacturing back from overseas— to reduce disruptions, delays, and increased production and transportation costs.
Shorter supply chains and friendlier conditions should allow firms more security, transparency, and control over their supply chains.
We believe the Te Aoutanga Southern Link will have the opportunity and capability to reverse New Zealand companies sourcing products from Australia.
By offering Australian “firms and govt’ the ability to scale (in volume) in terms of merchandise and utilize New Zealand as their friend shore with safe and secure locations with ease of access for supply.
This innovation will allow New Zealand firms to access Australian products – onshore within New Zealand. Reducing cost of transport and time.
New Zealand Imports from Australia 2013 to 2022
