COVID-19 supply bottlenecks ‘a wake-up call’

AUSTRALIAN manufacturers that serve the local automotive sector have labelled global supply chain bottlenecks caused by the COVID-19 pandemic as a “wake-up call” that highlights an over-reliance on imported goods and the related risk to national sovereignty in times of crisis.

General manager of Melbourne-based Sneddon & Kingston Plastics, Blair Sinsheimer, told GoAuto he was conscious of how much it had cost global vehicle manufacturers to stop or slow production when the COVID-19 outbreak stymied component supplies out of China.

“When we were a Tier 2 supplier to Ford and Holden, we were always reminded about the costs of the production line stopping if we didn’t supply, so I can just imagine how many automotive manufacturers around the planet have not been operating properly since early January because they were not able to get product out of China,” he said.

“Any money they would have saved by outsourcing to low-cost countries has probably been pissed up the wall, to say it bluntly.”

Mr Sinsheimer – who oversaw Sneddon & Kingston’s diversification away from reliance on engineered plastics for the local automotive sector toward rigid food packaging and medical products – predicted that the effects of COVID-19 on global trade would result in a “big review” once the pandemic had blown over.

“People are really going to be looking at the globalisation model and asking themselves if it’s really worth it,” he said. “This will be a time to reflect on that and to look for opportunities in the future.”

Ty Hermans, managing director of Brisbane-based product commercialisation specialist and plastics manufacturer Evolve Group – which supplies the majority of plastics used by nearby Century Batteries and produces off-road recovery equipment under the Tred brand – also told GoAuto that a recent trend of companies looking to “reshore” production to Australia had accelerated as a result of COVID-19.

“With COVID-19, clearly there are people looking at reshoring and are now realising very quickly how important it is to have manufacturing here on home shores rather than relying on overseas,” he said.

“As we’re seeing now, when the shit hits the fan, we get left behind very quickly because of our lack of buying power and our heavy reliance on imported goods.”

Mr Hermans said a “silver lining” of COVID-19 was the potential for Australia to come out of the crisis with a stronger and more stable manufacturing sector.

“People are calling us saying that not only do we need to reshore now because of the crisis, we need to reshore now to protect our sovereignty going forward because we’re way too reliant on overseas,” he said.

He added that the trade war between the United States and China had also sparked interest in reshoring, as well as an uptick in enquiry from sectors such as baby and healthcare products for which a ‘Made in Australia’ badge increased their desirability and value in Asian markets enough to offset the increased costs of Australian production.

Mr Sinsheimer agreed that “people are starting to realise the risks” of over-reliance on imports and was optimistic about the ability of Australian manufacturing to capitalise on its reputation for quality and reliability.

“I think Australia has a reputation for being a reliable source in terms of manufacturing,” he said.

“We’ve always had good manufacturers here – unfortunately not as many as we had in the past – but on a global basis I think we still do have some of the best manufacturers on the planet.”

Although both Sneddon & Kingston and Evolve Group produce plastic products for a diverse range of industries and shared similar stories of tooling delays caused by COVID-19 impacts in China, Mr Sinsheimer and Mr Hermans had differing views on how Australian manufacturing could be sustained and prosper.

In Mr Sinsheimer’s opinion, securing Australia’s supply chains would require government efforts – including the return of protectionism – to encourage more local manufacturing.

“It has to be government incentive driven because unfortunately the way the world is, this will be forgotten before too long and I think this is a wake-up call for a lot of places and will definitely change peoples’ attitude to offshore sourcing,” he said.

“But like all things in life, the end user needs to be willing to pay accordingly and in Australia we have very high wages. This is where the government needs to lead the way by protecting the industry, making it expensive to bring things in from overseas.”

On the other hand, Mr Hermans was wary of protectionism and said it was already more cost-effective to make plastic injection-moulded products in Australia than China, without tariffs.

“You’ve got to be careful with tariffs and things like that,” he said. “There are more than a billion people in China and we’ve got 25 million here, so I know where I’d rather have no tariffs, and that’s on China so we can export more there.”

Mr Hermans was critical of using government funding to support industries that would otherwise never be viable in Australia, such as car manufacturing.

“You’ve got to look at industries that make sense, that are right-sized for this type of country, the type of workforce and skillset we’ve got, focus on the stuff we can do really well at and make sure we’re always innovating,” he said.

“As long as you’re at that cutting edge you’ll be fine, but some industries don’t make sense in Australia so we shouldn’t be using taxpayers’ money to breathe life into them.”