Is the answer to New Zealand’s supply chain challenges to be found in green hydrogen?

The term ‘supply chain’, once primarily the domain of the operations and warehousing teams, has now become a key discussion point on every boardroom’s agenda. It’s crept into the public vernacular in the same way ‘epidemiology’ and ‘R number’ have done: unexpectedly, yet insistently. Like it or not, we’re all affected, and, perhaps for the first time, we’re all invested in finding solutions.

It’s true that these issues are affecting people and businesses all over the world: Forbes recently published that the shipping time frame from Asia to the U.S. has increased from an average of 40-50 days to effectively double that at 80-90 days. It’s getting goods across oceans that’s holding us up almost everywhere. On top of that, there’s sky-rocketing costs. With rates increasing more than five-fold to some of Aotearoa New Zealand’s key export destinations, that’s a serious challenge.

For our slice of paradise, surrounded by the sea, the implications are obvious, and they’re already having a significant effect. Through necessity, we’re a nation that’s heavily invested in international trade, via both sea and air. It was a savvy decision when it came to the pandemic as government support for the national airline kept aircraft coming in and out, maintaining a crucial freight link for our otherwise isolated nation. However, without similar investment in marine shipping, New Zealanders and our businesses are, for the most part, at the mercy of shipping companies. While for larger organisations with the ability to negotiate long term or annual contracts, the impasse has been an unwelcome inconvenience and one they have been able to partially mitigate.  However, for SMEs without the ability to negotiate with their large shipping companies it’s seriously crimping their ability to do business. That then begs the question – how do we play the hand we’re dealt?

Looking up and out

Doing more with less is part of our DNA. Already, we’re seeing innovative solutions to the problems businesses are currently facing. A well-known big box retailer, for example, has incorporated multi-product supply lines into their procurement strategy, leaning on multiple suppliers to keep their shelves stocked. But for smaller organisations, options are limited. Most of them consist of hedging their bets: over-ordering (with the implications for working capital) and relying on shipping timetables that are at best inconsistent, and at worst a lottery. In turn, businesses are being forced to make decisions or guestimates up to eighteen months in advance.

At what point do we return to times that are ‘precedented’? Moving forward, what will the new norm look like? Well, I suggest it’s a national conversation, and one we should be having, sooner rather than later. The precedent to which we’ve grown accustomed is unlikely to return, so it’s time to bring out our number eight wire mentality and rethink the way we do things. We’re already seeing industry collaboration with consolidations and larger companies working with Kiwi SMEs who are struggling to secure vessel space. Other readily achievable options being pursued are roll-on, roll-off shipments and going “back to the future” with breakbulk solutions. While these measures address the immediate impasse, planning for the future requires a more fundamental shift.

What about a consolidated dual port solution, serviced by vessels powered by green hydrogen generated in Aotearoa? Maybe it’s a bit out there, but innovation is what we need to create a global incentive to make the shippers call at the “last stop on the line”. Reducing emissions by modifying the way that ships are powered could be a significant part of that incentive. In fact, the concept of ‘green marine’ is not so far-fetched: there is already work underway to produce green hydrogen in New Zealand, and a trial delivery of hydrogen recently departed Australia for Japan. It is not too hard to envisage shipping companies calling at a dedicated port in both the North and South Islands with cargo being transported around Aotearoa to the remainder of our ports via a green hydrogen-powered, New Zealand-registered coastal shipping fleet.

It’s also possible that a trans-Tasman partnership could solve our shipping woes. Imagine a dedicated, port-based, mega ‘click and collect’ for New Zealand, situated on Australia’s east coast, that would encourage large shipping companies to call more consistently in Australasia, providing greater certainty for our importers and exporters. The “Kiwi” port would be serviced by our green hydrogen-powered coastal shipping fleet, providing both employment and surety of service to the smaller ports located across Aotearoa. Both of these suggestions would support the great work that agencies such NZTE and Export NZ do in facilitating connections to new markets and enhancing growth in established markets.

Whatever the solution is, we won’t get there without a conversation. And we urgently need a conversation to start. Nothing is more frustrating for an exporter than to have expended the time and resources to secure an order, only to be crippled by the inability to meet agreed delivery dates – and customers’ patience can only stretch so far. Without both local and central governmental skin in the game, the status quo around marine shipping is unlikely to change, and schedule planning is likely to remain challenging. The time is now for collaboration, for businesses and the Government to work together to find a solution that will keep New Zealanders on the international playing field – where demonstrably – our businesses punch above their weight. It’s very possible that green hydrogen is that solution.

While the immediacy of the crisis has created a heads-down, get things done approach, the danger is we miss the opportunity presented to us and end up looped in a game of supply chain whack-a-mole. Without a different approach, we’re stuck with the same ineffective tools to solve the same, or worsening problem. It’s like that old saying about the definition of insanity – doing the same thing over and over again and expecting a different result. Let’s not get trapped in that cycle.

The crucial next step is setting a new precedent – one that works for current, and future New Zealand businesses. The sooner all key stakeholders can come together in this, the better.

This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser.

No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.