During COVID-19, the term “manufacturing sovereignty” emerged.

Supply chains were localised as manufacturing inputs from overseas became hard to get as shipping and air freight became more constricted.

Existing manufacturers grew and new manufacturers were born.

After decades of globalisation, local manufacturing was back in fashion.

Nearly three years after lockdowns progress towards a new normal has fallen short of expectations.

On the positive side, overseas markets are opening up again for exporters, with overseas contacts renewed, shipping available and container costs down.

However, while Governments still speak of the desirability of “manufacturing sovereignty”, this concept is now threatened by a post-COVID cost spiral.

Inflation has been a problem for households across the country but businesses are also heavily affected with decreased consumer spending.

Manufacturers in the NORTH Link network have reported, on average, estimated operational cost increases of 30 per cent across all areas of their business over the past eighteen months.

This has come from a range of sources, including:

• Interest rate increases
• Government charges such as land tax increases, WorkCover premium increases, the new Container Deposit Levy and excises
• Gas price increases
• Electricity price increases
• Insurance cost increases
• Cost (and availability) of labour, particularly skilled labour
• Superannuation Guarantee Levy increases
• Cost of materials/ingredients
• Cost of fuel/transport

The time cost of regulatory processes is also reported as increasing and a much tighter ATO collections policy is also having an impact. Multiple audits imposed by governments and clients can be costly, time-consuming and duplicative for the food and beverage sector. Added to this is a level of uncertainty surrounding energy security and cost.

Manufacturers exposed directly to the consumer, such as caravan manufacturers and many food manufacturers, have felt the pinch as consumer wallets have shrunk in a high-inflation environment.

Furthermore, government procurement opportunities have not always lived up to their promise.

While the stronger businesses will survive, their margins will be squeezed, reducing the funds available to hire staff or re-invest in capital.

Some manufacturing businesses doing less well are doing it tough – indeed some have closed in recent months.

Government must not forget that our businesses have to compete in a global environment and continued high costs will hurt their competitiveness.

Some global manufacturers are now reporting that their Australian factories are reporting higher costs than their European operations, which are traditionally high cost environments.

Manufacturers themselves are responding by tightening costs and finding ways to consume inputs and produce outputs more efficiently, but this is only a partial solution.

It is now time for governments to play their part in working with business and work towards “taking costs out” of manufacturing operations and improve procurement opportunities  to boost manufacturer competitiveness – or the opportunities offered by “manufacturing sovereignty” will remain unattainable for many.

– By Chris James, Executive Director – NORTH Link