International trade disruptions have been fraught over the past year. The pandemic has decimated trade in services as people flows around the globe are restricted. Trade of goods has been higgledy-piggledy as the availability of containers to ship goods in and out of the country has been constrained. More recently the Suez Canal has been blocked by a container ship the length of four football fields, which is expected to add salt to the wound COVID-19 has already inflicted on supply chains. Many have already stopped refreshing their tracking numbers.
New Zealand’s position at the bottom of the world hasn’t helped, and we’ve been hit hard. The drop in the value of goods imported has been huge, with over $7.3b less imported in 2020 than in 2019. However, this hit hasn’t been as bad as during the global financial crisis, despite huge supply disruptions at our ports this time round. Restricted demand during lockdown has been the largest cause of this fall, although imports of goods have been slow to recover and were still down 9.7%pa in the December quarter (see Chart 1).
The decline of goods imports has been dominated by manufactured goods and minerals. Within manufactured goods the dominant product declines were of transport and machinery such as planes and cars. A drop in Imports of crude oil and its derivatives also contributed notably to this decline (see Chart 2) – part of this drop in import oil values is due to lower oil prices generally.
Imports of some goods have grown over the past year, including computer and electronic office equipment imports, which grew to over $1.861b in 2020, $65m more than in 2019 as the economy switched to work from home. There was also growth in medical and surgical manufactured equipment, in response to COVID-19 as our demand for ventilators and PPE increased.
However, the fall in the value of New Zealand imports doesn’t fully reflect what is happening to global trade. In fact, global merchandise trade has been remarkably resilient and according to the Institute of Shipping Economics and Logistics’ container throughput index, shipping volumes are above pre-pandemic levels and growing. Globally spending patterns have shifted away from entertainment services towards goods for at-home entertainment or to accommodate working from home, such as computers and furniture. This abrupt change in consumer behaviour has seen demand for shipping surge, causing shipping costs to nearly triple over the past year, according to the Freightos Baltic Index. The severe reduction of international flights which typically export high value low volume goods has also contributed to increased shipping costs, although government support has helped keep some airfreight routes viable.
To make matters worse for New Zealand, congestion at our ports, our small market size, out of the way location, along with tougher border security because of our COVID-19-free status, all make shipping to New Zealand both costly and logistically difficult.
This freight problem is undoubtedly causing headaches for freight logistics and impatient consumers. A quick fix does not appear in close sight as global trade networks are not designed for this level of uncertainty, and unfortunately, blocking off a main artery (the Suez Canal) is only going to cause more haemorrhaging. Don’t expect your overseas packages any time soon.
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