CBH moves to cut supply chain fees

wagrainsgroup1 —  June 29, 2018


CBH chief executive officer Jimmy Wilson announced the $4 a tonne price drop last Thursday, as part of the bulk handler’s attempts to remove $100 million in paddock to port costs over the next 18 months.

Mr Wilson said the cuts would be split evenly between grower and marketer fees.


“WA is under siege, there’s a lot of international competition from the Black Sea and CBH has a responsibility to position growers in the best position

possible to compete,” he said.

“We’ve commenced with a program to improve effectiveness and efficiency to reduce costs and in light of this program, our strong balance sheet and obviously previous very good work to reduce costs, we are reducing our fees by $4 a tonne.

“Freight in essence is specific to where you are so the freight fees remain untouched, but the storage and handling fees we’ve reduced by $2 a tonne and our fobbing fees we’ve reduced by $2 a tonne as well.

“The grower effectively carries the cost right the way through to the customer so those costs effectively will come back to the grower.”

Mr Wilson said the co-operative’s rebate program would continue on top of the up-front cost cuts, but would vary depending on the season and on surplus funds raised through its marketing and trading division.

The price cuts follow the implementation of a cost and inefficiency reduction program announced in a letter to growers in recent weeks.

Technological, digital and automation advancements were among changes flagged in the letter, along with action to streamline and improve processes, more targeted and innovative grower service offerings and “ensuring we have the right people, with the right skills”.

As a consequence, Mr Wilson confirmed there had been some internal changes within the company, but at this stage the plans to reduce staff were a “work in progress”.

He would not be drawn on how many CBH positions were likely to be scrapped, or any further details surrounding job cuts, but said “a number of people have already been appraised”.

“Primarily, we want to run our outbound logistical network here more effectively and more efficiently, that’s our number one objective,” Mr Wilson said.

“Number two is to procure services and goods in a more effective and competitive way and thirdly to have fewer people doing all of this, so in essence that is impacting people productivity and as a result, there will be some job cuts.”

CBH suppliers have also been sent a letter as part of the program, calling for a reduction in prices and service rates for current and future purchase orders by 20pc or more.

Mr Wilson said CBH had received various responses from suppliers following the request.

He said CBH understood some suppliers were not in a position to reduce charges and future contracts would be assessed on a case-by-case basis.

“We’ve had some positives, some affirmation that people are prepared to do that,” Mr Wilson said.

“We’ve had a number of non-responses and we’ve had some responses where people have said no, they can’t do it.”

In addition to the 13pc supply chain fee

reduction announced last week, the co-operative also announced changes to its carry over fees.

Growers will have to pay more to hold their grain in storage for an extended period of time, with the fees brought forward two months.

This means growers who hold grain grown this harvest will be incurred a $2 a tonne fee from August 2019.

Mr Wilson said this was to encourage growers and marketers to sell and ship grain prior to the next harvest.

“In essence it’s more of an incentive for people to move the grain out of the system so as that we have less grain carryover, so that we can run a more effective and efficient network,” Mr Wilson said.

Mr Wilson said while a lot of change had been initiated within CBH over recent weeks, growers had embraced the co-operative’s new direction.

He said WA farmers understood the necessity to reduce costs, to increase international competitiveness.

“At the end of the day the growers depend on this network and they depend on this network very heavily and obviously the more effective and more efficient the network can be, the happier growers are,” Mr Wilson said.

“Largely the response has been a very positive response from growers.”

PINGELLY farmer Ray Marshall has welcomed CBH’s $4 a tonne reduction to supply chain fees, describing it as a step in the right direction.

Mr Marshall runs a 4000 hectare mixed farming operation with his brother and son, and said in dollar terms, the cut to fees would equate to a saving of about $20,000 for the

family operation.

The Pingelly farmer said an upfront cut to costs was preferable to a post-harvest rebate.

“Any reduction is good, it’s about money in growers’ pockets and it is absolutely better to get that reduction upfront,” Mr Marshall said.

“Rebates are an erroneous thing, and if they can give a rebate does that mean that they’re charging growers too much for their services?”

Mr Marshall said he was pleased with the measures taken by CBH in recent months to reduce costs and improve supply chain efficiencies.

“We’ve been saying for a few years now that CBH has got to change, we were not in agreeance with the privatisation proposal, but we understood that CBH has got to change its modus of operation,” Mr Marshall said.

“It’s just a reflection of the times, now we have severe competition from Russia and the Black Sea, so we’ve got to do it cheaper.

“Our costs are unsustainable.”

Read the original and full Farm Weekly article here.