Australians hoping for relief from cost-of-living pressures are facing another year of rising prices, with supply chain issues likely to continue plaguing the retail industry through 2023, a logistics and supply chain expert has warned.
Disruptions to the global supply chain caused by the COVID-19 pandemic have not eased due to the ripple effect of lockdowns and restrictions affecting labour and logistics. That's bad news for a country very much trade-dependent, RMIT Professor Vinh Thai of the School of Accounting, Information Systems and Supply Chain explained.
"Thanks to COVID, the importance of logistics in supply chain management, in general, has now been enhanced so much. Everyone is now talking about logistics. Everyone is talking about supply chain issues," Thai told Yahoo Finance Australia.
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"It is an ongoing issue. From late last year until now, we are seeing the increase in the cost of everything – all the essential commodities, including fuel and transport. Of course, we understand that the increase in the price of fuel directly affects the price of everything else."
Impact of Ukraine war
Emphasising the importance of the supply chain in Australia, Thai noted that, as a trade-dependant country, Australia's economy heavily relied on what went on around the globe, therefore making it "very sensitive" to current events.
"It did not start last year. It started already in the first quarter of 2020. We have already been seeing some signs," he said, adding that what we were experiencing today was the ongoing extension of the phenomenon.
"Anything that happens in the supply chain can actually contribute to the end user's costs and time waiting. The war in Ukraine, unfortunately, has worsened the existing supply chain crisis and directly contributed to the rise of fuel and cost of food."
Because Ukraine is a main supplier of key commodities such as wheat, metals, oil and gas, Thai explained, 2023 would likely not look positive in terms of the supply chain or improvement in the economy.
However, Thai said that moving forward, Australia had learned a lot from the pandemic, and there was an awareness that a disruption in the supply chain could happen again, thus the country needed to be prepared to face these challenges head-on through a national supply chain strategy.
"When we talk about resilience, it means how soon, how fast, and how efficiently we can bounce back to our original state. But, at a more advanced meaning, it means that although something happens, we can actually do something to continue normal operations and respond as quickly as possible," he said.
Thai detailed that there was a need to focus on three things: the capability to predict what was going to happen; our response capability; and recovery capability.
He explained that, as part of risk management, there was a need to predict what was going to happen, why something was happening - and its possible impact - and that, although we could not eliminate all risks, what was important was to have a plan in place in order to bounce back as quickly as possible.
He added that we needed to evaluate what was done well, what could be improved, and what else should be done in terms of reconfiguring the supply chain or even changing the way something was done in order to respond better in the future.
Future-proofing the supply chain
Thai said there was a need to make sure we had an adequate resilient supply chain infrastructure, which he explained could be jump-started by making sure our ports were adequately equipped and operated in the most efficient way through digitising the system.
"It's not an easy-fix issue but, as long as the Government has a mandate on the national strategy, then everything else can be workable at that framework," he said, adding there was also a need to address manpower.
"Skillset, in particular. We need to have the relevant skillset in the country and not rely on foreign sources."
With such improvements in place, retailers might have a better chance of avoiding sudden price increases on a range of grocery items. Just this week, Woolworths shoppers were shocked to find the cost of potato chips had skyrocketed, partly because flooding had disrupted the supply of potatoes from Europe, exposing Australia's reliance on produce from that region.
Thai added that there was a need to identify and strengthen relations with partner countries - such as those in South-East Asia, which may be able to respond more quickly to the call of Australia for the supply of certain commodities, due to its proximity.
Although there was still a lot of uncertainty regarding Russia and Ukraine, as well as tensions between China and Taiwan, Thai said Aussies needed to reassess their needs and demands, knowing the current situation would continue e for some time.