New Zealand freight and supply chain issues | Te rautaki ueā me te rautaki whakawhiwhinga o Aotearoa

This section of the issues paper provides a broad overview of factors influencing the future of New Zealand's supply chain.  

Freight and supply chains are a complex system that directly affects all New Zealanders every day. The movement of goods is a fundamental activity that enables our society and economy to function and flourish, which in turn affects New Zealanders’ quality of life. It enables New Zealand to prosper by engaging in international trade. Prices of goods are indirectly affected by various elements of the freight and supply chain system such as road quality, port efficiency, and rail capacity. For example, freight costs can comprise up to 12% of the total cost of supermarket goods, or higher in times of supply chain disruption.

This issues paper aims to present a view of the big issues facing New Zealand’s freight and supply chain system over the next 30 years. It will also lay out a strategic approach for responding collectively to these issues and taking advantage of opportunities. The paper reflects on our recent engagement with stakeholders who have different roles and relationships across the freight and supply chain. Between August and October 2021, we spoke with over 140 stakeholders in workshops, interviews and meetings. Their insights and suggestions have been invaluable in preparing this issues paper.

Developing a freight and supply chain strategy:

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We need to prepare the freight and supply chain system to face substantial changes, including decarbonisation

Our freight and supply chain system faces some big changes, including:  

• climate change and more frequent extreme weather events  
• shifting patterns of production and consumption  
• changing consumer demand and expectations  
• population change and intensifying urbanisation  
• technological development and digitalisation  
• shifts in international geopolitics  
• changes in international freight sectors. 

These trends had been identified by the International Transport Forum (ITF) and other international commentators long before the COVID-19 pandemic began. Many of these changes will put upward pressure on freight rates – the low rates New Zealand enjoyed and relied on for trade before the pandemic are no longer a certainty. New Zealand’s unique geography and remote location will exacerbate the impacts of higher freight rates. This means that even after the pandemic, the operating environment for New Zealand’s freight and supply chains is unlikely to return to its previous ‘settings’. The operating models we have relied on for decades may no longer be fit for purpose. 

The need to change is increasingly urgent, given New Zealand’s ambitious target of having net zero emissions by 2050 to mitigate the worst impacts of climate change. This requires a drastic transformation of New Zealand’s entire economy, including how our supply chain operates. Freight has a crucial role to play with heavy trucks emitting around 25% of total transport emissions, even though they make up only 3% of our vehicle fleet. The reduction in emissions needed to meet a net zero target will be sizeable, requiring significant investment, long-term planning, and shifts in operating practices. 

All these changes pose challenges for the sector, but also opportunities for the system to adopt  and embed better ways of doing things. The  market and the Government are already responding  to these changes. International shipping and airfreight companies are investing in biofuels and other low emissions technologies. Some businesses are increasing their inventory to better absorb the impact of supply chain disruptions, while others are adapting their operating models to improve agility. The Government is also developing and implementing measures to reduce freight emissions, support business resilience, accelerate digitalisation and uptake of technologies, and  ensure fair, inclusive, and equitable transitions.

We also need to address vulnerabilities in the system to take on these challenges and maximise opportunities

While our freight and supply chain system has weathered the storm of COVID-19, the pandemic has highlighted some of its vulnerabilities. For example, the predominant ‘just-in-time’ operational model prioritises lean inventories and commercial efficiency. This means that shocks and disruptions have greater impacts and are more difficult to recover from. Effective responses to disruptions are also limited by a lack of agility in shifting between freight options. There is a reliance on international shipping lines for domestic freight coastal movement, and a lack of easily accessible freight data. Some parts of the system are fragmented while others are localised, such as ports whose shareholders tend to be regionally focused. This division reduces the sector’s ability to create change that benefits the national interest. There have been chronic labour shortages in parts of the freight sector, which will require more collaborative and longer-term planning across employers, unions, and government to ensure the right conditions to build a sustainable labour force. 

One of the system’s main issues is the lack of data, which makes it harder to plan and assess how it is performing. Despite this we do have some indications that the system could be performing better. For example, Statistics New Zealand data shows that productivity in the freight sector has been declining over the last two decades. We need to find better ways to collect and share  data and to measure and review the freight  and supply chain system’s performance.

Government and industry will have to adopt a more strategic and coordinated approach

Amore strategic and coordinated approach to the freight and supply chain system is needed to deliver change of the magnitude and in the time required, and in a system where the government is only one of many agents. While the system is largely driven by private enterprises and will remain so, action and cooperation by participants across the supply chain will be hard for the market to achieve by itself. Investment in freight and supply chain infrastructure can have long lead times, high costs, and long- lasting legacies. This means that investment requires clear and long-term planning from all parts of the sector, including the government. Tackling climate change and changing population dynamics will require near-term decisions in an environment of change and unpredictability. Better coordination across government and industry could help  provide more certainty. 

We are proposing to develop a forward-looking strategy for the freight and supply chain centred on a close working partnership with stakeholders, to support a transition to a low emissions, resilient, productive and innovative freight and supply chain system in New Zealand. Together we will ensure that this transition is carried out in an equitable and inclusive way that results in positive outcomes for all New Zealanders.

The strategy will lay out:  

• a set of outcomes to seek for the New Zealand freight transport and supply chain system  
• the changes that need to occur to prepare the system for the future  
• a set of pathways and priority actions to achieve intended outcomes  
• a mechanism for stakeholders and government to work together on an ongoing basis. 

Through developing the strategy, we intend to: 

• provide a long-term and system-wide  view of New Zealand’s freight and supply  chain system  
• build a strategic direction to inform  investment decisions by government and  the private sector  
• align relevant government policies to  maximise impact  
• support coordination and information sharing among various agents in the system where appropriate.

The freight and suppy chain system is already changing

In sum, changes are already happening. While adapting to changes can be hard, it can also be a catalyst to embed new and better ways of doing things. We have an opportunity to take a step back and consider the big picture. Developing a freight and supply chain strategy for New Zealand will enable us to adopt a more strategic and coordinated approach to effectively address the opportunities and challenges before us, and improve our ability to manage unexpected changes in the future. 

While many studies have investigated aspects  of freight transport over the years, New Zealand has never had a comprehensive freight and  supply chain strategy. As we are doing this for the first time, we will need to take an iterative approach to the strategy: reviewing and adapting the work programme as we go along. This issues paper is the beginning of that process. Some elements of the work will progress more quickly than others, reflecting their different levels of urgency, complexity, and capacity available to tackle the various topics. For example, the urgency of climate change action means that we need to progress our work on freight decarbonisation quickly.

How the strategy fits with wider government goals

Supply chains are intricately connected with a wide range of sectors and activities: economic development, primary production, regional development, and urban planning, to name a few. Given the cross-cutting nature of supply chains, the freight and supply chain strategy will need to align with wider government goals, such as the goal of transitioning to a productive, sustainable, and inclusive economy. 

The freight network will also have to support changing industry needs driven by other government or industry-led economic strategies. These needs will include various sectors’  ongoing industry transformation plans, or  the development of a circular economy.2 The strategy will also draw on broader concepts of wellbeing and what contributes to it, as outlined  in Te Manatū Waka, Ministry of Transport’s Transport Outcomes Framework3 and the Treasury’s Living Standards Framework.4 

The Government’s first emissions reduction plan, to be released in May 2022, will outline the immediate steps needed to enable decarbonisation from 2022 to 2025, including  in the freight sector. The freight and supply  chain strategy will need to look further to  meeting the goal of net zero emissions by 2050. This will include meeting New Zealand’s other climate change commitments, such as signing up to MARPOL Annex VI (on preventing air pollution from ships), and the international agreement that 30% of new heavy vehicles entering New Zealand will be zero emissions by 2030 and 100% by 2040.  The first National Adaptation Plan, which  responds to the risks identified in the National Climate Change Risk Assessment and helps  to prepare New Zealand for climate change impacts, will also be published this year. 

In developing the freight and supply chain strategy, we will not be starting from scratch,  and can build on previous or ongoing work. In turn, the strategy can also inform the development of other relevant policies. This includes, but is not limited to, work on developing  or involving New Zealand’s freight networks,  such as the Government Policy Statement on  land transport 2021, the Upper North Island Supply Chain Strategy (2018-2020 – see box on the following page), the New Zealand Rail Plan (2021), the New Zealand Infrastructure Strategy (ongoing), as well as work on a new transport revenue system. The strategy will also have to  link in with the proposed reforms to the  Resource Management Act. 

Te Manatū Waka, Ministry of Transport’s Green Freight Project and the Hīkina te Kohupara discussion document have also set out opportunities and challenges in reducing heavy vehicle emissions. These documents also explain policy options for transitioning the freight sector to net zero by 2050. We can also draw on existing strategies to improve road safety, employment, and workplace health and safety.