A national logistic policy is needed to drive growth in Australian Manufacturing and generate export services revenue in Asia.
Logistic policy at a Federal Government level is in the main limited to discussions on Infrastructure investment to reduce bottlenecks and improve productivity. This is important but it is only one aspect of a National Logistics policy.
The question is why do we even need a National Logistics Policy?
Manufacturing Opportunities in a Global Market
The primary reason is that the dynamics of the global economy are changing. Nations are now beginning to compete on the basis of component value adding, not complete product. Take for example the iphone.
Invented in Calfornia. Assembled in China. Components made in Germany, Japan, Korea and elsewhere. In other words, today’s manufacturing production is fragmented by phases of production, with each country specializing in a phase according to its comparative advantage. (source)
So countries add value along the logistics value chain, importing – adding value – then subsequently exporting to another country for the next stage of value adding.
Ultimately countries will compete on the basis of component value adding along the Logistics Chain (Supply chain). Such physical component value adding shall necessitate that countries have the logistics infrastructure, business and individual logistics skill to support competitive advantage.
Of particular importance to Australia is the Manufacturing sector. The manufacturing sector is of critical importance given its creation of skilled jobs. Positioning the Australian Manufacturing Sector for a future in global component manufacturing requires a national policy to address key logistics issues.
Why, because the comparative skills and value adding of Australia’s manufacturers could be eliminated if Logistics to get there and back is not efficient.
Four National Logistic Policy Components
There four identified critical components of a National Logistics Policy that need to be considered:
Leadership at the Ports: The changing dynamics of global production means increasingly companies are importing raw products or components – adding value – then re-exporting. The companies comparative advantage in value adding can be completely negated by tarriffs, duties and inefficient port supply chain operations.
Small to mid sized innovative companies will be forced to move off shore if they lose there comparative advantage due to inefficiency at the gateway (ports). Loss of such companies means a loss of jobs and skills.
Due to Australia’s vast distances, Ports in Australia are effectively local monopolies. But Australian ports have been largely corporatised or increasingly privatised, the later most often to repay State debt. This creates a serious issue as whether corporatised or privatised the primary objective is profit and such profit comes from the real estate management and service charges levied by the Port organisation.
Logistics is about the flow of goods NOT real estate
So if Ports focus on profit from being landlords, who then focuses on addressing the macro issue of addressing the costs in the Port Supply Chain that are associated with the movement of goods? Goods that local manufacturers and or value adders need to receive and re-export cheaply and efficiently in order to maintain their comparative advantage.
Who has the leadership role to drive efficiency through the collective maze of serviec providers that make up the port logistic chain – shipping companies, stevedores, brokers( import/ export), Customs, container hire companies, transport and warehousing companies? All of whom touch the goods in some way both in and out directly impacting the local manufacturers comparative advantage.
So whose problem is it to reduce the demurrage costs imposed by transport companies (Directly or Indirectly) on the importer or exporter? The fact is that post Corporatisation or Privatisation there is a vacuum.
Therefore it is essential for National Logistics policy to encourage and foster marco level port supply chain efficiency in order to develop and maintain a national comparative advantage for the nations value adders. Value adders who drive a nations prosperity through employment, export wealth creation and skills development.
Logistics Infrastructure: Infra-structure is relatively well managed by Infrastructure Australia, albeit that greater investment is needed.
LINFOX Logistics chief executive Michael Byrne has urged the major political parties to embrace a sensible infrastructure policy to improve productivity and efficiency. Source: The Australian
Inclusive with in the Infra-structure debate is a National Broad Band network. Within a Logistics chain context, information can reduce inventory contingency holdings. Reducing inventory – frees up working capital whilst saving up to 35% in inventory holding costs pa.
If Australian manufacturers are to seek opportunities as Global Value adding Component Suppliers, then they need to be able to connect at high speed to logistics information systems of their suppliers and customers. Information exchange along the logistics chain can be data intensive, with CAD files, sketches, as well as other files. A national broad band infrastructure is critical to this, albeit only domestic – and not international.
Logistics Education: Logistics has long been the poor cousin of manufacturing and marketing in terms of education and training. Logistics is the fourth element of marketing in the basic four P’s: Product, Promotion, Price and Place (Logistics – getting it to where it needs to be).
But Logistics is far more important than that because from a Value Added Component Manufacturing perspective – Logistics is about getting the item to which value it to be added to the production facility cost effectively.
New and innovative ways of achieving this are emerging, not just technology but wholely new concepts of logistics chain design. Unfortunately Logistics in Australia is a relatively poorly educated industry compared to other professions. Vocational education is on the whole not valued by the Logistics Sector who see that unless its cost neutral – ie Government pays for it – then they won’t do it. Primarily companies see Certificate level VET training as a cost not an investment.
This is a position that must change, Logistics education and training must be focused on capability rather than competency. Such that Businesses see that it is an investment in their staff and hence their business AND staff see it as a valuable investment in themselves. In short capability focuses on understanding the why as well as the how, competency focuses on the how but in a specific context. The problem with competency training is that changing market dynamics change contexts, hence creating a barrier to market agility. Market agility being a key competitive requirement for Australian manufacturers in particular.
Asian Logistics Opportunities: Australia needs to position itself to take advantage of services export opportunities that are emerging in South East Asia in particular. Transport services is one of ASEAN’s largest imports, even excluding shipping and its component services, the remaining size of the transport services import market is extremely attractive to services exporters.
Australia does have some superb pockets of Logistics skills and competency that can be encouraged to pursue Logistics Services opportunities in ASEAN. Creating an additional source of export revenue as for the Australian economy. Such services include transport, transport planning, logistics software, consultancy, warehousing, inventory management, infra-structure design, etc. ASEAN is a significant logistics market opportunity, just two examples illustrate this:
- Malaysia and Singapore handle more containers than the entire USA, and
- DHL just announcing its going to increase it logistics operations across ASEAN growing from 25,000 to over 60,000 employees.
Logistics policy in Australia has largely been focused on Infrastructure and inter state harmonisation of transport, both of which are important and should be continued, but neither consider the whole picture and the opportunity Logistics presents to Australia.
A broader approach is needed to assist Australian Manufacturing in particular to become globally competitive in particular in relation to the emerging value added component market AND to take the opportunity to create a services export market in to the ASEAN region.
Both major political parties should consider the opportunity Logistics presents in helping Australia’s competitiveness and services exports, and develop a national logistics competitiveness policy for manufacturing.
A National Logistics Policy must be developed and implemented if Australia is to leverage the opportunities offered – it must become an imperative for the next Federal Government.
Written by Latus Asia Manager