NTI: Domestic and global supply chains have “normalised”

NTI: Domestic and global supply chains have “normalised” | Insurance Business Australia

Marine

NTI: Domestic and global supply chains have “normalised”

From a “perfect storm” to “situation normal”

Towards the end of 2021, Daniel Morrison (pictured above), head of NTI’s marine portfolio, described a “perfect storm” of global supply chain challenges caused by COVID-19 and the peak Christmas shipping season. He said there was an extreme shortage of space on ships and a lack of containers.

At that time, brokers were also telling Insurance Business that their clients were losing profit margins just paying extra freight costs, or “COVID Tax” as one called it.

Nearly two years later, a lot has changed.

“It’s significantly improved,” said Melbourne-based Morrison. “I’d say we are – at least domestically – pretty much back to situation normal.”

Last year’s record flooding kept the pressure on domestic supply chains but this year’s interruptions, he said, are generally the usual “blips” businesses expect.

“There are always issues that affect national supply but it’s much more situation normal,” said Morrison. “That heavy impact, the global impact, that was feeding its way back into Australian logistics due to COVID, in particular, hasn’t completely disappeared but it’s negligible.”

Those small impacts are likely coming from the Russia-Ukraine war.

Stratospheric freight costs have normalised

The stratospheric freight costs of the COVID era have also normalised, he said.

In late 2021, NTI’s logistics risk engineer, Kurt Herron, described the exponential rise in freight costs.

“I wouldn’t say absolute across all routes, but in general they are back to pre-COVID levels,” said Morrison. “There’s a little bit of inflation coming into those sorts of costs, so they might be slightly elevated, but generally you would say they are very much normalized.”

He said the end of COVID-19 and the current inflationary economic environment had impacted shipping lines in other ways.

“One or two smaller shipping lines started up pre COVID or around COVID, at the time of the global logistics crunch, when freight rates were really high because they saw an opportunity to get into that industry and take advantage,” said Morrison. “We’ve seen one or two of those go out of business because they came in just as things started to dip back down and the profitability wasn’t there long term.”

He said this can cause “a blip in supply” short term.

“It’s usually filled in pretty quickly by the bigger shipping lines and it gets back to ‘situation normal’ fairly quickly,” said Morrison.

Talent crunch issues

However, he said, in the trucking and logistics space, other issues have taken centre stage: staff shortages, in particular, trained staff.

“On our trucking side of the business there’s regular commentary around a shortage of drivers, particularly experienced drivers, and that brings its own issues because obviously there’s still a freight task that’s required and so logistics companies managing that with a shortage of drivers face a challenge,” said Morrison.

He said finding ways to bring new people into the industry and investing in technology are two ways stakeholders are looking for solutions.

“So the challenges don’t go away,” said Morrison.

When air was a big export

During the height of COVID-19 the unique supply chain pressures on shipping container availability became surreal.

Referring to shipping exports out of the United States, Gene Seroka, the Port of Los Angeles boss made the comment, “our biggest export is air”. He was referring to all of the empty containers bought up by US companies and then on ships heading to China, many to collect stocks for Christmas. The comment helped explain the shortage and extreme cost of shipping containers in Australia.

“Now’s the time to be in touch with your customers, understanding if they’ve pivoted or where they’ve gone to, how they’re adapting and how they’re changing to this current economic climate and making sure that the insurance product that they’ve got is in line with what they need,” he said.

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