Productivity Commission releases Vulnerable Supply Chains interim report
Logistics is one of several central sectors in the Productivity Commission’s (PC’s) Vulnerable Supply Chains interim report.
Viewed as an essential industry, ‘logistics’ has more than double the imported inputs of the next rated industry, ‘energy’, at $424 billion compared with $196 billion on 2016-17 figures and while it also tops the ‘vulnerable imports’ count, at $720 million, compared with the next highest, ‘government’, at $280 million.
On the basis of these figures and admitting that more expert input is needed for the final report PC views vulnerable imports as “a fraction of essential industries’ costs”.
It also says: “This is suggestive, but not conclusive, evidence that vulnerable imports may not be critical to the production of essential goods and services.”
Heavy Vehicle Industry Australia (HVIA) hails the PC’s investigation as crucial to its members, given the lack of a single part can delay the rollout of new vehicles.
The interim report lists 104 vulnerable imported products across 15 types under ‘logistics’, headed by ‘textiles’ at 31 – ahead of ‘health’ with 97 and twice as many as third-placed ‘government’ with 52.
Read how supply chain vulnerability is serious HVIA concern, here
Here, exposure to the economies of scale Chinese manufacturing offers insights into the costs of ‘onshoring’ supply of certain products, as a risk solution, noting Logistics Bureau commentary that points out: “With significant reductions in labour and capital investment expenditure, production costs can be slashed by some 20 to 40 per cent, and for labour‑intensive products, up to 50 per cent and beyond.
“The main reason for these savings is the availability of cheaper labour — manufacturing labour costs in China average US$5.5 per hour against the Australian average of US$15 per hour.
“An added factor is that Chinese companies produce in bulk for global consumer markets and therefore import raw materials, e.g. plastics and resins, in quantities so vast that they attract significant discounts from suppliers.”
Gauging risk
More general risk issues for the sector include cyber-attacks through increasing use of the Internet of Things and but it sees compensation in related technical aspects.
“Advances in tracking technologies, data analytics and machine learning have made it easier to predict where and when disruptions might occur,” the report notes.
“These advances have also made it easier to access real time information about disruptions, facilitating a quicker response and recovery.”
At its most basic, the interim report suggests an overlapping three-sphere framework for an issue that the impact of the Covid-19 pandemic put into sharp relief last year, delineating through overlapping segment that are vulnerable, vulnerable and essential and vulnerable, essential and critical.
“The framework still relies on some judgement, notably in specifying the goods and services that are considered essential. This can be decided by the analyst, but for this study, the Commission defined essential goods and services as those that meet the basic needs of Australians,” the interim report notes.
“Basic needs are part of the output of numerous industries, including water, health, communications, energy, logistics, finance, and government.”
“Food, while essential, is excluded from the analysis because Australia is a major and diversified producer of food. While food products may have vulnerable supply chains, food as a category is much less so.”
The full interim report can be found here.