At the time of writing, 2 major announcements have hit the wires. Prime Minister Scott Morrison has prohibited all Australians from travelling abroad. In addition, a group of West Australian doctors have demanded closure of the state’s borders. The last time this happened was in 1919 to prevent the spread of Spanish Flu.
While thus far the WA premier has rejected calls for border closure, it’s clear that those best positioned to weather the impacts of the crisis are companies with local supply chains.
West Australian projects with local supply chains
Fortescue Metals Group Limited (ASX: FMG) has always given work to local businesses. This stems from the company’s genuine goal to grow local communities. Fortunately, it has also turned into a major competitive advantage.
Fortescue has been trumpeting the fact that the new Eliwana iron ore project had awarded 90% of all work to Australian companies. In this case, that includes 82% to West Australian companies.
Commenting on the project in a company press release on 24 January, Fortescue CEO Elisabeth Gaines added, “[i]mportantly, we are proud to support Aboriginal participation in the resources sector, with the Eliwana project awarding 19 contracts worth a total of A$25.5 million to Aboriginal contractors as part of our pioneering Billion Opportunities program.”
At a time of tight supply chains, Fortescue has ensured continuity of output. This is a very strong business opportunity while Chinese demand has also remained constant.
BHP Group Ltd (ASX: BHP) has also promoted an approach that focuses on local businesses. For example, in its mammoth South Flank project, two-thirds of the contracts awarded have gone to Australian businesses and one half overall has gone to West Australian companies.
At Rio Tinto Limited (ASX: RIO)‘s large Koodaideri project, over $60 million in contacts have been awarded to Aboriginal companies. This is on top of many projects awarded to NRW Holdings Limited (ASX: NRH). NRW is one of the big winners from the current WA construction boom.
The extent of exposure to national and international supply chains has become starkly clear in the past few weeks. In the near-term, companies with local supply chains or that have awarded contracts to local businesses are most likely to reduce the impact of the coronavirus crisis on their operations.
Going forward, it will be interesting to see how this plays out. Market falls have wiped trillions from global markets. In other words, it is clear this can’t happen again. This may result in accepting slightly higher prices for local production and manufacturing.
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Motley Fool contributor Daryl Mather owns shares of Fortescue Metals Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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