Body blow for BlueScope's export supply chain


Turning BlueScope Steel’s Port Kembla blast furnace off will reduce the company’s 5.2 million tonne per annum export volumes by half

Body blow for BlueScope's export supply chain
Body blow for BlueScope's export supply chain

By Anna Game-Lopata | August 26, 2011

Turning BlueScope Steel’s Port Kembla blast furnace off will reduce the company’s 5.2 million tonne per annum export volumes by half.

Once close to 70 percent of its market, the steel manufacturer’s export volumes will reduce substantially to more closely resemble its domestic business of approximately 2.5 million tonnes per annum.

BlueScope Steel General Manager Supply Chain and Processing Ingilby Dickson tells SCR the change represents a significant blow to the company’s in and out bound supply chains.

"Obviously there will be less product going across the wharves to our overseas customers," Dickson says.

"This will mean a change in the amount of stevedoring undertaken by our Patrick contractors at the ports and the amount of shipping we procure from our shipping contractors.

"We’ll be working with the shipping contractors that supported us over the years to downsize the ongoing service they provide to the west coast of the US, South East Asia and northern Asia.

"It will certainly cause difficulty considering in many cases BlueScope Steel represented their backbone outbound services," he adds.

In terms of the inbound supply chain, a reduction in the manufacture of export steel products will mean bulk iron ore procured from Brazil will be substantially reduced.

The change will also hit key Pilbara and Tasmanian producers who were in the majority of BlueScope’s suppliers of the commodity.

Dickson says BlueScope Steel intends to make the transition slowly, honouring supplier contracts through to early 2012.

"The blast furnace at Port Kembla will be shut down in early October, likely impacting local suppliers at a quicker rate than those responsible for inbound sea freight components," he says.

While BlueScope has numbered Australian job losses caused by the closure of its facilities in NSW and Victoria at 1,000, Dickson says no figure has yet been put to overseas supply chain stakeholders.

These include a wide range of personnel such as shipping documentation and chartering staff, sales people and overseas manufacturing representatives.

Dickson says some overseas offices will be retained to maintain strategic relationships such as Nippon Steel.

"We have a substantial office in Singapore which runs our South East Asia businesses and there are a number of manufacturing sites in the region that will be retained," Dickson says.

"Offices in places like the west coast of the US and London will undergo substantial change to personnel but will not be shut down."

On a positive note, Dickson says the company’s domestic market supply chain will remain unchanged, with steel manufacturing and distribution requirements continuing on.

"This will provide the opportunity to focus more on that side of the market and to make sure our domestic capabilities and customers are continuously looked after and maintained," Dickson says.

Significant rail contracts with Pacific National and road freight providers will continue to operate.

"Economic activity around the country isn’t what we’d like, but a renewed focus on BlueScope’s domestic markets will allow us to grow them over time," Dickson says.

Improvements to the local supply chain continue with the bedding down of the new Oracle Transport Management System (TMS) implemented three years ago.

While it will no longer be required for the land-based component of the export supply chain, the TMS will now primarily serve the domestic market providing transparency in terms of final delivery for 22 carriers.

"The TMS is going well, allowing us to link electronically to our customers so we actually know that deliveries around the country are in full and on time," Dickson says.

BlueScope is also in the final stages of piloting its new SAP order management system, which for the first time will ensure inbound orders from customers in Australia will be processed in the one system.

"Slowly but surely we’re growing end to end visibility," Dickson says.

"We now have collaborative forecasting with all major customers particularly the big distribution companies. That means significantly better, more accurate planning systems and forecasting than in the past, which is a real step forward.

"All the pieces of the puzzle are starting to come together, and the challenge now is to make sure we have the capital and cash to get our business model into a positive direction again so we can continue to invest and join those dots. We’re on that journey."

But despite efforts to talk up the company’s plans, there’s no white-washing
the decimation of BlueScope's export business.

Both CEO Paul O’Malley and Dickson point to increased competition from increasingly comparable steel producers, especially in China, Korea and Japan, leading to oversupply in the market.

Dickson says high commodity prices, a strong Australian currency, extremely low sea freight prices and Australia’s free trade policy which allows imports free of tariffs gradually wore away the company’s ability to withstand its losses.

BlueScope’s troubles reflect the hardship the Australian manufacturing sector is experiencing overall.

"The real issue for us is to make sure we maintain some manufacturing capability for the future so that young engineers who want to work in manufacturing in this country have an opportunity to do so," Dickson says.

"That’s what we’re trying to do. We’re trying to get ourselves into a size and shape that will be sustainable for the future.

Dickson confirms if some the debilitating factors that caused its closures turn around, BlueScope plans to ramp up its export business again.

"We’re not shutting down the blast furnace forever, we’re shutting it down on the basis that we’d like to turn it on again some time in the future," he says.

But the reality is the company can’t predict how long the furnace will be shut down, only that it will be down for some time.

Bluescope Steel will also close its Western Port hot strip mill in southern Victoria.

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