Measuring supply chain uncertainty in New Zealand

The health of New Zealand’s supply chains is of critical importance to businesses and the economy as a whole. But measuring the concept of supply chain ‘health’ usually means having to piece together a story by comparing and analysing dozens of discrete data points. That’s why in the 2024 Ports and Freight Yearbook, we sought to build a holistic measure of New Zealand’s supply chain health and track its performance over the last decade.

Our new index, the Deloitte Access Economics Supply Chain Health Index (DAESCHI), is a New Zealand-first, using economic analysis to bring together dozens of data points into a single index. Using domestic and global data covering shipping costs, delays and purchasing manager intentions, DAESCHI provides a simple, but comprehensive, view of the status of New Zealand’s supply chains.

Trends in supply chain health

Unlike similar indicators of supply chain health, DAESCHI provides a New Zealand centric view. The importance of this is apparent when comparing DAESCHI to the New York Fed’s Global Supply Chain Pressure Index (GSCPI), a global index from which we adapted our methodology.

New Zealand’s supply chains fared relatively well in the early stages of the COVID-19 pandemic compared to global measures, but quickly deteriorated in 2021. New Zealand has been slow to reap the benefits of global supply chain improvements as constraints began easing slightly later than global measures. Since easing back to ‘normal’ health by early 2023, DAESCHI has ticked up slightly, possibly due to uncertainty over the Red Sea.

A new economic indicator

Supply chains and the economy are closely linked. This became apparent during the COVID-19 pandemic where supply chains came under increased pressure and economies across the globe faced capacity constraints. An inability to move enough goods around the world led to, in part, the rise of inflation observed in 2021 which sparked current monetary policy settings.

This is apparent when DAESCHI is plotted against tradable inflation shifted forwards 2-quarters (i.e. DAESCHI today against tradable inflation in 6 months' time), it appears to be a forward-looking indicator for tradable inflation. DAESCHI generally tracked the rise and fall of tradable inflation in 2021 and 2022 respectively. We estimate that, historically, a one standard deviation increase in DAESCHI translates to a 280-basis point increase in the level of annual tradable inflation in 6 months.

The economic outlook is uncertain, but DAESCHI can help identify plausible scenarios

In its February Monetary Policy Statement, the Reserve Bank highlighted the risk that uncertainty in the Red Sea could translate into inflationary pressures if sustained, building this into their tradable inflation forecast for the June and September quarters of 2024. DAESCHI has recently ticked upwards – highlighting that this risk is real.

Given the uncertain nature of the challenges and opportunities which lie ahead for New Zealand, we find it useful to adopt a “preparation over prediction” approach to considering the path forward. Considering scenarios for 2024 and beyond allows us to identify how economic trends impacting freight flows could play out, and better identify what opportunities lie ahead and how businesses can identify and prepare for them.

Tools such as DAESCHI play a key role in identifying and conceptualising these scenarios. We can integrate DAESCHI into our forecasts to answer questions such as “What could a sudden deterioration in supply chain health mean for the interest rate outlook?” by drawing linkages between DAESCHI and key economic indicators to produce ‘what if’ scenario forecasts.

For more information, get in touch with our experts below.