Pacific Islands Forum Economic Ministers and officials have been advised to consider reviewing export taxes and tax credits to stimulate trade in the region.
A review commissioned by the Forum says all sectors, including those providing essential services, have been hit by shocks to the supply chain, but the full extent of the damage is still unknown.
Speaking after addressing ministers and officials about private sector concerns and suggestions, Michelle Macdonald, the President of the Samoa Chamber of Commerce contended businesses are paying for inefficiency.
“There’s massive port congestion and there’s a multiplier impact on port charges,” she said, stating fees and surcharges have increased shipping costs by three times. “It’s a cost of inefficiency, if I needed to be very frank. But who owns the ports? Our governments do. We need to have an intervention at the ministerial level from FEMM as a regional commitment to address this. It’s unacceptable, particularly for fragile sectors such as manufacturing.”
When the ANZ bank was talking to its Fiji customers about supply chain issues in June, it was urging them to plan ahead as much as possible, given the whole equilibrium of the global supply chain has been thrown out of balance.
“It will take time to resume [a] more normal form,” said ANZ Head of Trade and Supply Chain, Gareth Coleman, at the time. “But what that normal form is, remains to be seen, because there are so many variables, and variables that remain in a state of flux…not least of which is the conflict in Ukraine, not least of which is the way the world continues to navigate COVID, not least of which is inflationary impact and the subsequent interest rate rises and the impact on disposable income in the northern hemisphere, and in Australia and New Zealand as well.
“So it’s a really interesting time. And I mean that in a figurative sense, it’s an interesting time…as a corporate treasurer, it must be among the more challenging periods that they’ve had to navigate because from a planning perspective, it’s a lot of challenges.”
Country Head, Rabih Yazbek said ANZ’s clients faced challenges creating forecasts because of the big swings coming through in shipping costs and price inflation. “Our corporate customers are coming to us for assistance with their plan for navigating this. So what does that mean? It means they need to stock more than they usually would, because they don’t know when the next shipment is coming in. They need to build more warehouse capacity, because they’re having to hold on stock. They’re having to push through price increases where they can, because of the inflation playing through.”
Improve data, transparency, FEMM advised
At the Port Vila FEMM, the Forum review noted: “To cater for the increased demand and lack of capacity, ship charterers and operators sought more tonnage. With limited supply of vessels, especially with the size of vessels required to operate in the Pacific region, the costs of vessel charter also increased dramatically. Due to the pandemic induced shift in demand, vessel charter rates and bunder fuel costs, global freight rates rose by an average of 50% in 2021.”
It suggested that the lack of visibility and transparency in the supply chain be addressed “with digitisation, information sharing and upskilling of various stakeholders in the supply chain.”
It also recommended work be done to see how Pacific Islands can collaborate to build back better supply chains, and create opportunities for regional trade and cooperation for sourcing, given “FICs (Forum Island Countries) are linked with at least one other FIC nation on trade routes, and sometimes up to 7 other FICs to form a single shipping trade route.”
The review says the pandemic highlighted pre-existing bottlenecks, such as lean operating processes and ‘Just in Time’ practices, which have proved to be unsustainable and unsuitable in the face of fluctuations and disruption.
“Supply chain constraints also raised concerns over food security, for example in atoll nations, where “80% of daily household meals consist of imported and processed foods,” it noted. Some governments responded by encouraging domestic agriculture, distributing seeds and equipment.
Globally, grain shipments have begun to leave Ukraine through the UN-backed ‘crop-export corridor’, with over half-a-million tons of foodstuff moving through its ports in the first half of August. However volumes are still lower than normal, and it’s unclear how much risk larger ships are willing to take. Meanwhile, sanctions mean Russia has been unable to ship its usual harvest volumes.
Meanwhile, heatwaves and drought in many parts of the northern hemisphere have created new concerns about the stability of supply chains, while China’s ‘zero COVID’ policy continues to disrupt trade flows. On top of that, there are concerns that tensions with Taiwan will compound the issue- with some 2000 trade vessels passing through the Singapore Strait daily, and many of these, the Taiwan Strait as well.
At the end of the FEMM, ministers “noted the outcomes of the Supply Chain Disruption Study; and invited Members who wish to take up some of the recommended actions to seek support from the Secretariat.” Whether there will be any real shift on the recommendations for collective action remains unclear.
