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1、ASIAN DEVELOPMENT BANK6 ADB Avenue,Mandaluyong City1550 Metro Manila,Philippineswww.adb.orgASIAN DEVELOPMENT BANKASSESSING AND ADDRESSING RISKS IN PACIFIC CONSTRUCTION SUPPLY CHAINSASSESSING AND ADDRESSINGRISKS IN PACIFIC CONSTRUCTIONSUPPLY CHAINSNOVEMBER 2024Assessing and Addressing Risks in Pacifi

2、c Construction Supply ChainsThis report examines how the Pacific regions complex operating landscape affects supply chain risks for the construction sector and analyzes ways to overcome logistical hurdles and open the door to new entrants to help drive growth.Noting the regions remoteness,small mark

3、ets,and high disaster exposure,it assesses 14 Pacific economies and considers factors including inadequate port infrastructure,labor shortages,and foreign exchange volatility.Drawing on the results of stakeholder interviews,it shows how jointly promoting project pipelines,fast-tracking visas,and enc

4、ouraging governments and development partners to coordinate projects could help mitigate industry risk and build resilience in the regionAbout the Asian Development BankADB is committed to achieving a prosperous,inclusive,resilient,and sustainable Asia and the Pacific,while sustaining its efforts to

5、 eradicate extreme poverty.Established in 1966,it is owned by 69 members 49 from the region.Its main instruments for helping its developing member countries are policy dialogue,loans,equity investments,guarantees,grants,and technical assistance.ASIAN DEVELOPMENT BANKASSESSING AND ADDRESSINGRISKS IN

6、PACIFIC CONSTRUCTIONSUPPLY CHAINSNOVEMBER 2024Creative Commons Attribution 3.0 IGO license(CC BY 3.0 IGO)2024 Asian Development Bank6 ADB Avenue,Mandaluyong City,1550 Metro Manila,PhilippinesTel+63 2 8632 4444;Fax+63 2 8636 2444www.adb.orgSome rights reserved.Published in 2024.ISBN 978-92-9277-022-8

7、(print);978-92-9277-023-5(PDF);978-92-9277-024-2(ebook)Publication Stock No.TCS240535-2DOI:http:/dx.doi.org/10.22617/TCS240535-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies ofthe Asian Development Bank(ADB)or its Board of Gov

8、ernors or the governments they represent.ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by

9、ADB in preference to others of a similar nature that are not mentioned.By making any designation of or reference to a particular territory or geographic area inthis document,ADB does not intend to make any judgments as to the legal or other status of any territory or area.This publication is availab

10、le under the Creative Commons Attribution 3.0 IGO license(CC BY 3.0 IGO)https:/creativecommons.org/licenses/by/3.0/igo/.By using the content of this publication,you agree to be bound bytheterms of this license.For attribution,translations,adaptations,and permissions,please read the provisions andter

11、ms of use at https:/www.adb.org/terms-use#openaccess.This CC license does not apply to non-ADB copyright materials in this publication.If the material is attributed toanother source,please contact the copyright owner or publisher of that source for permission to reproduce it.ADB cannot be held liabl

12、e for any claims that arise as a result of your use of the material.Please contact pubsmarketingadb.org if you have questions or comments with respect to content,or if you wish toobtain copyright permission for your intended use that does not fall within these terms,or for permission to use theADB l

13、ogo.Corrigenda to ADB publications may be found at http:/www.adb.org/publications/corrigenda.Notes:In this publication,“$”refers to United States dollars and A$refers to Australian dollars.All photos are from ADB unless otherwise indicated.This publication was prepared by the Asian Development Bank(

14、ADB)in collaboration with the World Bank.The research was led by Rico Merkert,managing director,Global Transport and Logistics Intelligence Pty.Ltd.,and professor at the Institute of Transport and Logistics Studies of the University of Sydney Business School.The authors express their gratitude to co

15、untry officials from Pacific island countries,engineering consultants,and contractors who replied to the surveys,attended interviews,and helped during the data validation process.ADB also wishes to thank supporting development partners,including the Australian Department of Foreign Affairs and Trade

16、 and the New Zealand Ministry of Foreign Affairs and Trade,for their assistance in the preparation of the publication.ContentsTables and Figures ivAbbreviations vExecutive Summary vi1 Introduction 12 What Does Literature Tell Us About Supply Chain Risks?2Supply Chain Risks 2The Construction Sector i

17、n the Pacific 5 The Research and Evidence Gap and How This Study Can Add Value 83 Methodology 10Interview Program 10Interviewees 10Participation at Industry Events 114 Results 12Development and Findings of the Framework to Map Pacific Country 12 Supply Chain Risks and Challenges in Construction Supp

18、ly ChainsRisk Mitigation Strategies of Contractors 235 Findings,Recommendations,and Further Research Opportunities 27Key Findings 27Recommendations 28Further Research 29Appendixes1 Shipping Routes Across Pacific Island Countries in 2022 312 Merchandise Exports of Pacific Island Countries in 2022 323

19、 Merchandise Imports of Pacific Island Countries in 2022 334 Interview Guide for Semi-Structured Interviews with Contractors 345 Sample of Interviewed Stakeholders 366 Supply Chain Risks Specific to Multilateral Development Bank-Funded Construction Projects in Pacific Island Countries 38References 4

20、4Tables and FiguresTables1 Selected Logistics Performance Index Scores in 2018 and 2023 62 Distribution of ADB and World Bank Procured Large Value Construction Contracts 20182022 83 Pacific Country Construction Supply Chain Challenges and Risks Matrix 14Figures1 Construction Insurance Capability of

21、Pacific Countries in 2023 52 Logistics Performance Index Performance Change 20182023 for Selected Countries 7AbbreviationsADB Asian Development BankAustrade Australian Trade and Investment CommissionCOVID-19 coronavirus diseaseDFAT Australian Department of Foreign Affairs and TradeMDB multilateral d

22、evelopment bankMFAT New Zealand Ministry of Foreign Affairs and TradePNG Papua New GuineaPRC Peoples Republic of ChinaPRIF Pacific Region Infrastructure FacilityUNESCAP United Nations Economic and Social Commission for Asia and the PacificUS United StatesWHS workplace health and safetyConstruction p

23、rojects in the Pacific are complex undertakings fraught with supply chain risks that are exacerbated by the regions extreme remoteness,vulnerability to disasters triggered by natural hazards,and small markets.In a vicious circle,weak domestic construction sectors,limited import and export demand,and

24、 insufficient infrastructure investment across the region leads to a shortage of the physical infrastructure necessary to support the development of robust supply chains capable of increasing transport efficiency and reducing associated costs.Instead,port facilities in the Pacific are often insuffic

25、ient with shipping services infrequent and unreliable,leaving international contractors and suppliers with a heightened concern that infrastructure projects will be difficult to execute and not worth the risks inherent in their delivery.This report examines the nature and sources of these risks in 1

26、4 Pacific island countries and shows that practical solutions exist,and experienced contractors have developed solutions to overcome the inherent logistic challenges to working successfully in the region.Focusing on the construction sector,the study is based on a review of relevant literature,an ana

27、lysis of construction material import data,and extensive consultation involving interviews with 59 individuals from 52 private companies and government organizations active in construction supply chain ecosystems.The study reveals that Pacific island countries face some common challenges,but they al

28、so differ considerably,even among main and outer islands in the same country.This reflects differing culture,governance,access to essential services,and infrastructure that shapes the achievement of successful outcomes on infrastructure projects.Thefollowing summarizes the key findings and recommend

29、ations for actions that can help overcome them.FindingsShipping IssuesDisruptions during the pandemic.Lockdowns during the coronavirus disease(COVID-19)pandemic upended shipping.Just 20%of ships arrived on time,ships skipped ports where cargo was insufficient,and costs of shipping and associated log

30、istics services reached extremely high levels.This created significant challenges for Executive SummaryExecutive SummaryviiPacific island countries,exposing their vulnerability to global shocks,with widespread local impacts.By December 2023,shipping prices normalized to below pre-COVID-19 levels.How

31、ever,connectivity problems persist,especially in locations that lack adequate port infrastructure.Vessel size limitations.Large cargo vessels are often optimized for specific cargo,typically containerized or bulk,creating challenges for construction projects that have precise shipping needs,particul

32、arly in relation to break-bulk cargo where damage during transit from rough seas is also a risk.Planning for transport in construction supply chains is thus challenging,complicating bidding processes and project timelines.Port and infrastructure issues.Some Pacific island countries face substantial

33、delays in offloading and clearing cargo due to inadequate port infrastructure,congestion,and the focus on nonconstruction commodities.As the demand for cargo increased post COVID-19,it revealed a lack of available shipping capacity.However,where additional shipping capacity has been added,this has o

34、ften exacerbated already existing delays due to poor port infrastructure.Material supply.Contractors often need to import a substantial proportion of the construction materials needed to deliver a project.Long lead times for delivery are exacerbated by frequently changing tariffs and taxes on goods

35、entering some countries adding to financial risks and reducing contractor cash flow.Labor availability.Quality management through use of qualified and experienced staff is crucial for project success however,skilled local labor is in short supply as they often migrate to other countries in the regio

36、n for longer term,better-paying,jobs,exacerbating the labor shortage.In their absence,the use of imported labor is costly,and they are often reluctant to go to Pacific island countries for long durations due to their isolation,limited available services and,in some cases,volatile security environmen

37、ts.This situation is further compounded in some countries by immigration regulations.Foreign exchange rate volatility.Rapid devaluation of local currencies often complicates business operations and increases supply chain risks.Difficulty in obtaining foreign currency and its related volatility can u

38、ndermine revenues,raise costs,and reduce project profitability.Insurance.Infrastructure projects normally require types and levels of insurance that local contractors struggle to obtain.In some cases,they need to rely on self-insurance or government support for small projects to bid,limiting competi

39、tion.Large contractors are less impacted,with access to international insurance markets and an ability to insure at portfolio,rather than project,level.This topic is subject to another recent guide to insurable infrastructure in the Pacific.Local governance.Local regulations and tax regimes,includin

40、g their implementation,vary across the Pacific and poses significant risks.Contractors may face delays in regulatory approvals and customs clearances with some viiiExecutive Summarypotentially using unofficial channels to try to accelerate the process.This increases both implementation and governanc

41、e risks,and leads to perceptions of an uneven playing field.A perceived focus on price and limited consequence of poor performance.Contractors view the current contracting models used in the Pacific as overly cost-focused.This is despite increased use of quality-based evaluation methods by multilate

42、ral development banks,meaning more communication is required.There are also calls for a more collaborative approach to risk-sharing and improved performance evaluation post-construction with consequences for poor quality delivery.Short,Medium,and Long-term Supply Chain OutlookIn the short term(12 ye

43、ars),construction project supply chains in the Pacific hold promise.However,shipping capacity lost during COVID-19 has been slow to come back,which may add to constraints.The medium term(310 years)outlook is less clear,with concerns about geopolitical tensions,insurance availability,and labor market

44、 insufficiencies(while larger islands have better prospects for upskilling,smaller islands will struggle to develop and retain skilled labor).Long term(10+years)risks include climate change,geopolitical uncertainty,labor migration,and supply scarcity.Contractors are concerned about their ability to

45、source supplies and extreme weather events.RecommendationsThe observed supply chain risks can be overcome with proper mitigation measures.Indeed,the report repeatedly underscores the confidence among experienced contractors that these risks are manageable,though new entrants face higher vulnerabilit

46、y.Planning,institutional capacity,and adaptability are essential.Participants must anticipate project needs,hedge foreign exchange rates and fuel costs,and utilize reliable shipping methods to transport materials to remote islands.Barges are often used for transportation due to their reliability but

47、 are expensive.Vertical integration is another strategy employed by contractors to mitigate supply chain risks.By manufacturing building products locally and engaging local expertise,contractors reduce reliance on external subcontractors and support local employment.However,this approach can limit m

48、arket entry for newcomers and reduce competition.It should also not be confused with another form of vertical integration whereby all construction materials and human resources are imported,hindering local economic development.Therefore,the modality of vertical integration adopted is important.Gover

49、nment enforcement of quality standards is crucial to ensure project longevity and sustainability.Availability of insurance and incorporation of labor training activities are also important risk mitigation strategies as recently investigated by the Asian Development Bank as part of a recent related i

50、nsurance study.Freight insurance helps protect against losses during transit,while labor training improves the skills and experience of local and international staff.Management systems and digitization of the supply chain improve forecasting,planning,and operationsmanagement.Executive SummaryixForei

51、gn exchange management through fixing procurement costs and using financial hedging can help contractors to mitigate foreign exchange risks.Standardizing price adjustment matrixes in contracts and continuing to allow contractors to be paid in multiple currencies can also assist.Governments in the Pa

52、cific should employ various strategies to mitigate shipping risks,such as“exclusivity contracts”with shipping lines that require them to stop at their island and coordinated approaches to cargo handling among several islands.Adopting a regional focus to sourcing and logistics could mitigate some of

53、the challenges faced.They should also enact any changes necessary to ensure that local legislation encourages contractors to do business in the country as robust governance and efficient government approvals are needed for all projects.Clearly,supply chain risks arising from remote locations,weak lo

54、cal infrastructure,climate change,pandemics,and so on,make successful infrastructure projects a daunting challenge.However,contractors with experience in the region can manage supply chain risks effectively,making these projects financially and environmentally rewarding.New entrants often fail witho

55、ut local know-how,meaning that collaboration with experienced contractors is recommended for new market entrants to navigate the challenges successfully.By incorporating the recommended short-term actions and fostering long-term partnerships,detailed in this report,governments,multilateral developme

56、nt banks,contractors,and local communities can build resilience,enhance project efficiency,and promote socioeconomic growth in the Pacific.Global and local supply chains help businesses,communities,and entire economies connect and function,especially in regional and remote regions such as the Pacifi

57、c.Indeed,the coronavirus disease(COVID-19)pandemic and its aftermath underscored just how important functional supply chains are for every country and sector.This study examines the nature and source of risks associated with supply chains in the Pacific island countries,focusing on the construction

58、sector.1 The analysis identifies significant and continuing vulnerabilities and possible approaches to manage the associated risks.All parties involved in a construction project must assess these risks early and identify suitable mitigation activities.The study also focuses on the frequent threats a

59、ffecting the construction industry,including unforeseen delays and price increases related to supply chain problems and material shortages.The study reviews the major goods and infrastructure supply chains related to the construction sector across 14 Pacific island countries,focusing on how the iden

60、tified risks may affect contracts funded by both multilateral development agencies and the countries themselves.One associated issue,identified in project meetings with the Asian Development Bank(ADB)and the World Bank is that there is insufficient market competition and capacity to deliver infrastr

61、ucture project pipelines,with contractors(construction companies)wary of problematic supply chain risks in the Pacific.1IntroductionSupply Chain RisksIn GeneralConstruction supply chain risk in the Pacific is too“niche”to attract interest from peer reviewed academic journals,as revealed in the acade

62、mic and“gray”literature.2 However,academic literature does look,more generally,at supply chain risks(e.g.,Rao and Goldsby 2009),their assessment(e.g.,Choudhary et al.2023),and strategies to overcome and mitigate them(e.g.,Gurbuz et al.2023).All are relevant to this study and explored in this report.

63、It is generally accepted that supply chains consist of multiple actors and that supply chain design can help cost-effectively mitigate risks created by major disruptions,such as during the COVID-19 pandemic(e.g.,Rinaldi and Bottani 2023;Zighan 2022).Typical strategies for risk management identified

64、in this literature stream include the diversification of transport modes or an increase in stock and inventory,neither of which may be an option in the Pacific construction context due to limited warehousing capacity both in scale and scope.As technology advances,one supply chain risk often cited is

65、 the lack of labor force and skills(e.g.,Merkert et al.2023),a very relevant trend to Pacific countries.A further supply chain risk not specific to construction but often associated with the countries in the region is adaptation to climate change,particularly in maritime supply chains(e.g.,Dyer 2017

66、).In Construction ProjectsThe academic literature on supply chain risks related to construction projects is broad,comprehensively classifying supply chain risk types and/or analyzing supply chain management processes in the construction sector.According to Pham et al.(2023),much of the literature fo

67、cuses on identifying and assessing risks,while mitigating and monitoring risks has not yet received much attention.Project delays are one aspect given considerable attention(e.g.,Panova and Hilletofth 2018).More recent academic literature on construction supply risks has focused on COVID-19 disrupti

68、ons,but is limited to Ghana(Al-Mhdawi et al.2023),Sri Lanka(Niroshana 2022),Iran,and the United States(US)(Rokooei,Alvanchi,and Rahimi 2022).This stream of literature has found that contractual risks have the strongest total effects on project success,followed by organizational risks(i.e.,government

69、 or construction firms),financial market risks,construction workforce risks,and supply chain operation risks.This implies that supply chain risks are perceived as substantially less problematic than contractual issues and it will be interesting to see if this also applies in the Pacific countries.2

70、Gray literature is information that is published informally or unpublished outside of traditional publishing and distribution channels.It is produced by governments,academia,industry,business,etc.2 What Does Literature Tell Us About Supply Chain Risks?What Does Literature Tell Us About Supply Chain

71、Risks?3Interestingly,much of the gray literature,as discussed below,has focused on supply chain operations management(not including transportation),which is potentially the least important type of supply chain risk in construction projects.This report thus not only undertakes a more systematic revie

72、w of the academic literature but also identifies supply chain risks in construction and develops a theoretical framework for mitigating the risks.We then apply this to the Pacific countries.In addition to academic journals,considerable gray literature and consultancy reports discuss construction spe

73、cific supply chain risks,including a very recent guide on supply chain management and procurement published by the World Bank(2023a).A multitude of risks have been identified,usually related to performance risks(e.g.,skill shortages,financial stress,up-and downstream blockages),compliance risks(trad

74、itional obligations,emerging targets,regional and international differences)and uncertain world risks(COVID-19 pandemic,force majeure,criminality).Construction supply chains are not limited to materials but typically involve labor,plant,materials,and equipment as well as subcontractors and consultan

75、ts,all of which are supported by complementary industries,such as freight and logistics(Thompson 2022).Other contributors point to the multifaceted complexity and temporary nature of construction supply chains,including location,politics,governance,and geography.Supply Chain Risks in the Pacific Isl

76、andsRelatively comprehensive grey literature is available on supply chain risks in the Pacific,often commissioned by multilateral development banks(MDBs).Jephcott(2022)investigated supply chain disruption due to the COVID-19 pandemic and its economic impacts on business across the Pacific,identifyin

77、g much reduced 4Assessing and Addressing Risks in Pacific Construction Supply Chainsshipping line activity,disruption,and higher transport cost as the main impacts on Pacific business.Appendix 1 illustrates Pacific shipping routes and the interdependency of its countries on each other and on Austral

78、ia and New Zealand.This is important for construction projects in the Pacific countries,as it shows that end-of-the-line countries will be impacted by ripple effects and that due to the circular nature of these routes,delays in one port may affect the arrival of the vessels in subsequent ports.The U

79、nited Nations Economic and Social Commission for Asia and the Pacific(UNESCAP 2022)investigated the sustainability and resilience of ports and maritime connectivity in the Pacific and identified issues relevant to supply chains.This includes,for example,a lack of regional network integration and coo

80、rdination,leading to poor network efficiency,insufficient supply chain resilience,and high freight costs.UNESCAP highlighted aging and inadequate port infrastructure,the“buildneglectrebuild”paradigm,vulnerability to climate change and natural hazards,difficulties monitoring and fairly comparing port

81、 productivity,poor governance and management at ports,and a need for a managed approach to investment in digitalization.Perhaps most relevant to construction,the UNESCAP report highlighted overly optimistic planning assumptions about economic viability,dependence on aid,limits on borrowing due to hi

82、gh risk of debt distress,undercharging for port services,and inadequate budgeting for maintenance and repairs.Sector governance and human resources and capacity were also mentioned,including a small pool of people,lack of access to training,low management capacity,and low participation of women in t

83、he sector.The World Bank(2023b)detailed Pacific supply chain issues and strategies to overcome the challenges.The study was conducted in the aftermath of COVID-19,and thus related issues were still discussed.However,the focus had moved to risks related to ongoing economic and geopolitical uncertaint

84、ies,compounded by long-standing supply chain difficulties in these logistically complicated and remote markets.The study highlighted volatility in fuel prices and commodity markets for raw material(e.g.,steel)and high mobilization costs,as equipment,materials,and even labor are often transported or

85、imported from abroad for many projects.It focused less on climate change,but it did mention risks related to extreme weather events and flooding,both of which can worsen as climate changes,which leaves many projects difficult to insure.While it sees global supply chain issues and localized risks as

86、problematic,it also acknowledges that small project values contribute to the lack of bidders for donor funded projects in the Pacific countries and the associated high process observed to deliver these projects.Very relevant to this study,the World Bank(2023b)identified a reduction in market interes

87、t in bids,as construction firms focus on more attractive projects that carry less perceived risk in the large pipeline of domestic infrastructure projects in their home markets.Importantly,the World Bank study focused on transport and logistics projects as this comprised approximately 83%of their pr

88、oject portfolio,by value,between 2018 and 2022(Table 2).These figures are relatively consistent with ADBs lending program over the same period(67%in the transport and logistics sector,by value)meaning that supply chain risks and mitigation strategies identified in that report are very relevant to ou

89、r study.With an average ADB-funded project size of$21 million over 20182022,insurance availability may also be a project and supply chain risk,as shown by Infrastructure Risk Management and Insurance in the Pacific(2023),an ADB Pacific Region Infrastructure Facility(PRIF)report(PRIF 2024).The report

90、 found that for projects in Papua New Guinea,Fiji,Solomon Islands,and Vanuatu,access to insurance should not be an issue(Figure1)as these countries have insurance companies domiciled in these regions,which can provide most forms of construction insurance to those markets.Meanwhile,Cook Islands,Samoa

91、,and Tonga,for example,have some companies available,but they lack the capability to provide insurance to construction projects and would not have the capacity to insure large projects.For smaller and/or more isolated countries like the Marshall Islands,the Federated States of Micronesia,Kiribati,Na

92、uru,Niue,Palau,and Tuvalu,there is no suitable regulation What Does Literature Tell Us About Supply Chain Risks?5or insurance companies in these countries,leading to full reliance on overseas markets.This likely impacts local firms on small projects who have issues in sourcing insurance from oversea

93、s firms,while for international contractors,this will be less of an issue.Notably,this insurance issue is the status quo and may deteriorate further given increasing risks due to climate change and rising sea levels.The Construction Sector in the PacificAlthough climate change was highlighted during

94、 the scoping interviews as a major risk,this report also views it as an opportunity for construction companies.Climate adaptation will generate demand to erect or upgrade dams,build sea defenses,and protect infrastructure and buildings from rising sea levels.More generally,supply chain risk manageme

95、nt is not the direct management of individual parties or companies within the supply chain but is the management of the risks themselves.In the construction sector,supply chain risks are defined as any potential events or issues associated with any entity within the supply chain that,if experienced,

96、would have a negative secondary or knock-on effect on an organizations objectives(be it in a construction company or Pacific government)(Thompson 2022).Figure 1:Construction Insurance Capability of Pacific Countries in 2023Region 1Region 2Region 3NatureCountriesFindingsEstablished markets with Const

97、ruction Insurance capability.PNG,Fiji,Solomon Islands,VanuatuQBE Insurance Group is domiciled in each of these countries and is the clear market leader on construction insurance.NatureCountriesFindingsEstablished markets without a strong construction insurance lead.Cook Islands,Samoa,TongaThese mark

98、ets have established participants like Tower and Capital,but these firms lack strong construction capability or capacity to support larger projects.NatureCountriesFindingsLess established or unregulated markets.These markets do not have strong regulation around their insurance markets or recognized

99、participants that could lead a facility and reliance on overseas markets would be expected.Marshall Islands,Federated States of Micronesia,Kiribati,Nauru,Niue,Palau,TuvaluSource:PRIF(2024).6Assessing and Addressing Risks in Pacific Construction Supply ChainsIn the Pacific,construction companies can

100、be based on one island or overseas.As such,material,equipment,and labor are often imported.In addition,profit and responsibility centers for those construction projects may be far away from the project sites themselves.Based on gravity modeling,Alexander and Merkert(2017)have shown that distance can

101、 be a major obstacle to trade,and it is likely this also applies to the construction sector in the Pacific islands.Scoping interviews with donor organizations such as ADB and the World Bank,as well as with logistics companies and ports,highlight that distance,remoteness(Figure 2),and the lack of con

102、nectivity in Pacific Islands are hard to overcome.Scale and Pacific Exports and ImportsThe Pacific economies are small.Tuvalus exports are one of the smallest of any country listed by the World Trade Organization(World Bank 2023).Total 2022 exports of the 14 Pacific countries in this study,of$17 bil

103、lion,are only 0.068%of total global exports.Within this figure,exports from Papua New Guinea(PNG)account for almost 90%.While a COVID-19 effect is visible in the data in Appendix 2,many Pacific countries seem to have recovered and are growing again,especially PNG,which highlights its reliance on tra

104、nsport infrastructure.For merchandise imports(roughly half of the value of exports),the relative importance of the 14 Pacific countries is even smaller,with 0.034%of total global imports,as shown in Appendix 3.Similar to exports,imports were growing again in 2022,with a few Pacific countries,like PN

105、G and Fiji,accounting for most(circa 70%)of the imports.In contrast to exports,other Pacific countries do have notable imports,such as Palau,Solomon Islands,Samoa,Tonga,and Vanuatu.This can be seen as beneficial toin fact partially due tothe construction sector.Logistics Performance of Pacific Count

106、riesIn the latest World Bank Logistics Performance Index(LPI 2023),only three of the 14 Pacific island countries are included in the ranking:Fiji,PNG,and Solomon Islands.All three countries are not strong relative to the best performing regional economies,such as Japan and Singapore.PNG and Solomon

107、Islands have improved their scores and relative ranking compared to the last round in 2018,while Fiji worsened its score and ranking and is now in the bottom 10%part of all global economies(Table 1).Table 1:Selected Logistics Performance Index Scores in 2018 and 2023Economy2023 LPI Score(out of 5)%c

108、hange from 2018LPI Grouped Rank(out of 139)Singapore4.37.601Hong Kong,China4.02.0010Japan3,9(3.30)14Australia3.7(1.37)19New Zealand3.6(7.77)Solomon Islands2.88.9073Papua New Guinea2.724.1979Fiji2.3(2.20)123()=negative,LPI=Logistics Performance Index.Source:World Bank Logistics Performance Index(LPI

109、2023).What Does Literature Tell Us About Supply Chain Risks?7To better understand the observed changes in LPI scores for Fiji,PNG,and Solomon Islands,Figure 2 shows the relative change of the various indicators that together form the LPI score.While the relative customs performance has deteriorated(

110、a supply chain risk in its own right),the infrastructure score has substantially improved for PNG(up 22%from 2018 to 2023)and Solomon Islands(up 18%)but deteriorated for Fiji(down 8.4%).The international shipments score has improved for all three,with Solomon Islands up 32%,followed by PNG and Fiji.

111、PNG has improved the most in both logistics performance,quality,and timeliness,with timeliness being a real concern for Fiji,which has worsened in this subcategory of the total LPI score.This is a clear risk for any sector depending on international supply chains in and out of Fiji and is further ex

112、plored and evaluated in the discussion section.Figure 2:Logistics Performance Index Performance Change 20182023 for Selected CountriesLPICustomsTimelinessInternationalshipmentsLogisticscompetence2018202354321Tracking and tracingInfrastructureLPICustomsTimelinessInternationalshipmentsLogisticscompete

113、nce54321Tracking and tracingInfrastructureLPI=Logistics Performance Index.Source:International Bank for Reconstruction and Development/World Bank(2023).The Pacific construction sector has much to do with the development of transport and logistics infrastructure such as ports.For example,as shown in

114、Table 2,the majority of the large value(i.e.,$10 million)construction contracts procured using ADB and World Bank financing,during 2018 to 2022,were related to transport infrastructure(ADB=67%+,World Bank=83%+).Table 2 further shows the distribution of awarded contractors across regionally based and

115、 international contractors.As such,bidders for donor-procured projects are limited in number and geographic spread,requiring additional efforts to increase the pool ofcontractors interested in bidding on Pacific business opportunities.8Assessing and Addressing Risks in Pacific Construction Supply Ch

116、ainsTable 2:Distribution of ADB-and World Bank-Procured Large-Value Construction Contracts 20182022ADBWorld Bank%of total number of contractsNumber of unique companies%of total number of contractsNumber of unique companiesBy SectorSectorTransport67.57.83.33.Water and urban development10.81.16.67.Ene

117、rgy18.92.0.00.Human and social development2.70.0.00.By(Lead)Bidder NationalityPeoples Republic of China62.161533.331Pacific island countries16.224 33.331 Australia/New Zealand10.813 Aus+1 NZ16.671Rest of world10.812 India,1 France,1 United States16.671.=not applicable,ADB=Asian Development Bank,Aus=

118、Australia,NZ=New Zealand.Note:The data relates to unique winners.This may be firms that won a contract as a single entity or as the part of a joint venture.If a firm won a contract as both a single entity and as part of a joint venture,it is counted twice.For the purposes of reporting,where a joint

119、venture won a contract,the nationality of the bidders is assigned to that of the lead joint venture partner.Source:Based on raw data from the ADB and the World Bank.The Research and Evidence Gap and How This Study Can Add ValueWhile this study focuses on investigating supply chain risks in the const

120、ruction sector in Pacific countries,a subsequent question emerged during the first phase of the project(first literature review and scoping interviews)that has potential to advance knowledge beyond what the World Bank(2023b)reported.The present study,in Appendix 6,therefore explores why there are so

121、 few local and international bidders and companies competing for and undertaking donor agency procured construction projects and whether supply chain risks are a main cause of this.We reveal if and how these perceived risks can be overcome,mitigated,or minimized through specific strategies,policies,

122、governance frameworks or tools.We aim to understand what,in the perception of construction contractors and companies,the supply chain risks are and how they can be overcome,with the overarching aim being to increase both the number and diversity of bidders for donor agency construction tenders and p

123、rojects and reduce associated bid prices through adequate risk management and mitigation.The World Bank(2023b)discussed several procurement approaches that may help itself and borrowers(including Pacific countries)to increase the number of bidders for its projects.This includes consolidating the pip

124、eline of infrastructure projects to make them more attractive to bidders and offering a sequence of projects in the same location to offset high mobilization costs.Although this may attract more international bidders,it risks making it more difficult for local companies to compete.What Does Literatu

125、re Tell Us About Supply Chain Risks?9The scoping interviews established that both ADB and the World Bank organize regional pipeline and contractor presentations and business opportunities seminars for contractors,run by the Australian Trade and Investment Commission(Austrade)and the New Zealand Trad

126、e and Enterprise,but,based on interviews with ADB and World Bank staff,it was stated that attendance is predominantly by consultants.This has the disadvantage of limiting transfer of knowledge between the agencies and contractors.While the legal relationships are between Pacific governments and cont

127、ractors,there is a lack of direct contact between ADB and the World Bank and both Pacific and international construction companies when it comes to knowledge dissemination about their procurement policies and upcoming business opportunities.This may also limit their knowledge of construction compani

128、es preferences when it comes to bidding on Pacific projects and their perceptions and concerns around supply chain risk and potential measures that could improve their willingness to participate in projects financed by both institutions.Interview ProgramData collection was mainly accomplished in an

129、interview program with the private sector,development banks,and government stakeholders from July to October 2023.To close the evidence gap identified in our literature and document review,we reviewed multilateral development bank portfolio profiles for awarded infrastructure contracts to determine

130、likely supply chain impact targets and to identify a representative sample of interview subjects.We conducted exploratory interviews with a representative sample of contractors,including contractors awarded contracts in the Pacific(i.e.,under ADB,World Bank,New Zealands Ministry of Foreign Affairs a

131、nd Trade,or Australias Department of Foreign Affairs and Trade projects)and those of reasonable caliber but reluctant to participate in such tenders and construction industry experts.The interviews aimed to identify key supply chain challenges affecting their operations,the import of construction ma

132、terials into the Pacific,as well as the constraints and drivers for participating in regional procurement opportunities.The main interview program consisted of semi-structured interviews of 1 hour,on average.The interview guide is in Appendix 4.In addition to mapping unique supply chain challenges i

133、n Pacific islands,the interviews included questions around measures to mitigate identified supply chain risks by reducing bottlenecks and supply chain costs,and indicators that may enable government and development partners to consider risk when designing projects.We were also asked to investigate m

134、odalities to assess how supply chain risks influence the pricing of infrastructure projects,that is,risk premiums that may be associated with supply chain issues.IntervieweesIn contrast to Al-Mhdawi et al.(2023),who had responses from a large sample of construction contractors,the pool of actual and

135、 potential local and international contractors in Pacific countries is substantially smaller.Therefore,in addition to contractors,the interviewee pool for this exercise consisted of:Eleven managers from eight active and experienced construction firms operating in the region.Four suppliers active in

136、the region.Five large contractors and four suppliers not currently active in the region.Eight logistics companies,such as local shipping and airlines,as well as ports and airports.Five Pacific governments or ministries.Five international government authorities interested in promoting business develo

137、pment in the region.Seven financiers,including ADB and the World Bank.Three academics and consultants from the region,as well as three international engineering consulting firms.3MethodologyMethodology11In total,we interviewed 59 managers of 52 entities active in the construction supply chain ecosys

138、tem in the Pacific countries.Despite the semi-structured nature of the interviews,through open-ended questions we provided the interviewees with flexibility and freedom to explore supply chain issues and topics they deemed important.Appendix 5 lists interviewed stakeholders.Participation at Industry

139、 EventsTo triangulate and confirm our interview data,in the final steps of the primary data collection we participated in two industry events:a half day International Development Opportunities Seminar in Sydney(organized by Austrade)in August 2023,and PRIF Week,one of the largest Pacific infrastruct

140、ure-focused conferences attended by many Pacific government officials,in October 2023.Both events were well-attended,presenting many opportunities to converse with a multitude of stakeholders and to confirm findings obtained from earlier parts of the data collection.The results cover two main topics

141、:development and findings of the framework to map Pacific country supply chain risks and challenges in construction supply chains,and risk mitigation strategies for contractors.Development and Findings of the Framework to Map Pacific Country Supply Chain Risks and Challenges in Construction SupplyCh

142、ainsSynthesis of General Findings and Risk MatrixA first finding is that many of the risk events have already occurred and hence manifested as past or current challenges rather than risks.Second,the characteristics and supply chains of each Pacific country are complex and often differ the issues enc

143、ountered and how much they impact the overall supply chain risk.We have identified a non-exhaustive list of the key supply chain risks and challenges highlighted by our respondents,placing an increased focus and higher weight on risks identified by both current and potential contractors.The patterns

144、 of risks differ across the three main regions of the Pacific countries:Melanesia,Polynesia,and Micronesia,as shown in Table 3.The reason is related to geography(i.e.,remoteness and the vast distances both from supply and demand markets and within the Pacific countries)as well as to historical conne

145、ctions to larger countries and markets(Australia,New Zealand,the United States(US),and and the Peoples Republic of China PRC).Construction supply chains in the Pacific countries involve both bulk(i.e.,materials loaded directly onto ships)and container shipping;large container shipping lines are not

146、so interested in Pacific countries or in larger economies such as Australia or New Zealand,due to the lack of economies of scale.The issue is compounded by Pacific country reliance on imports,since they do not have their own manufacturing sectors,and this reliance on other external markets increases

147、 their supply chains.In addition to low trade volumes,the Pacific countries are very far away from important source markets(e.g.,Japan,the PRC,the US)and the distances to some of the outer islands,or even the 2,704 kilometer distance from PNG to Vanuatu,are substantial.The added volatility of Pacifi

148、c supply chains makes them very complex to manage,which can be a substantial disincentive to international contractors entering the Pacific construction market.As one contractor noted:“we see ourselves as a logistics and supply chain management company that happens to be in the construction sector.O

149、ur unique selling point and competitive advantage is to have extensive local expertise with logistics 4ResultsResults13and supply chains in the Pacific islands.”This knowledge and expertise,gained through many years of working in the Pacific,is generally not available to new entrants with limited ex

150、perience of delivering projects outside their own developed countries with associated robust supply chains.Hence,they perceive substantial risks or may underestimate the actual complexity of project delivery.To systematically cluster the Pacific countries by scale and size in our supply chain contex

151、t,all relevant countries were ranked based on their merchandise imports in 2022.For Melanesia,all four Pacific countries are shown independently,but,for Polynesia,only the largest two are separated,with Cook Islands,Niue,and Tuvalu grouped together due to their similarities in size and supply chain

152、risks.All Micronesian islands in the Pacific were grouped together for the same reason.The study was further complicated by the focus of many contractors on particular islands,leaving them without a comprehensive view of risks and challenges across all the Pacificcountries.Table 3 orders the challen

153、ges and risks by their importance and frequency of mention during the interviews.14Assessing and Addressing Risks in Pacific Construction Supply ChainsTable 3:Pacific Country Construction Supply Chain Challenges and Risks MatrixChallenges/risksMelanesiaPolynesiaPapua New GuineaFijiSolomon IslandsVan

154、uatuSamoaTongaCook Islands,Niue,TuvaluMarshall Islands,Federated States of Micronesia,Kiribati,Nauru,PalauMerchandise imports in 2022($million)3,1892,984644413435197174(=124+16+34)669(=223+106+35+211+94)Cost of shippingShipping service supply chain risksaLack of port infrastructurea(incl.cranes)Air

155、cargo service supply chain riskLack of cargo airport infrastructureLack of local construction material supplyLack of local construction equipmentSkill shortage riskStaff attraction and retentionForeign exchange riskSupplier risksbSupply chain visibilityHealth/access to water etc.riskChange of local

156、regulation/enforcement riskLocal government capability riskUnrealistic expectations of clients(PIC gov)Inflexibility of ADB/WB procurement/contractsPayment delay riskShort-term climate changeLong-term climate changeInsurance riskWHS/ESG risksCOVID-19/exogenous shock risk=low risk,=medium risk =high

157、riskCOVID-19=coronavirus disease,ESG=environmental,social,and governance,gov=government,PIC=Pacific island country,WHS=workplace health and safety.a Connectivity/frequency,delays,reliability,and cancellation.b Delays and quality of procured construction materials.Note:As Reported by stakeholders int

158、erviewed for this study.Source:Asian Development Bank.Results15Shipping IssuesExtremely high shipping costs and associated prices for loading,packing,and all other logistics services were a major concern during COVID-19 and showed that the Pacific countries were heavily exposed to this global shock,

159、with many ripple effects exacerbating local issues.Shipping prices have normalized since then and,as of December 2023,are below pre-COVID-19 levels.Only a few contractors voiced concerns about lagged effects,which are no longer seen as a challenge or risk.There are still regional differences between

160、 shipping lanes(prices,frequencies,and distances),which reportedly puts Australian and New Zealand exporters at a disadvantage compared to Malaysia or other Asian countries.During the pandemic,shipping services were severely impacted with,for example,only one in five ships arriving on time,frequent

161、changes of rotations and,if not enough cargo,ships choosing not to stop at particular ports,instead docking during the next rotation.As of December 2023,this situation has substantially normalized.Many reliability issues(connectivity,capacity,frequency)remain,however,and are often compounded by inap

162、propriate wharf infrastructure.This is especially acute for outer islands and the more remote and small islands of Micronesia,which need landing craft,because they do not have port berths or barges.Likewise,in Polynesia,weather can prevent discharging of vessels for several days.The supply chains of

163、 remote islands are not only longer and at the very end of global supply chains,but shipping lines also typically treat them as the lowest priority,disrupting them more.Mid-sized islands(Polynesia)fare slightly better but also suffer wharf infrastructure and weather issues.Expensive specialized equi

164、pment is required to get materials to these remote islands.And inter and intra island shipping is an issue,with only two or three firms operating with vessel size and frequency limitations which makes pricing difficult.Reportedly,those shipping fleets are also not well maintained,which leaves those

165、services unpredictable.Interestingly,Solomon Islands has built strong supply chain links with northeast Asia and operators from that region are happy with shipping service quality to that Pacific country.However,this view is not uniform among all stakeholders interviewed,particularly those with supp

166、ly chains emanating from other regions.Vessel size limitations mean that vessels are optimized for certain purposes(and cargo)and operators may be overwhelmed when new projects are awarded that require either bigger or smaller vessel dimensions.While conventional and containerized freight appears to

167、 be less affectedalthough empty container movements are an issueconstruction projects usually require break-bulk cargo,which is problematic as carriers have capability and capacity limitations and port infrastructure weight and dimensions are limited on most islands.Damage to oversize cargo in trans

168、it from rough seas is another risk.Inconsistent dimensions and weight of construction materials also makes packing efficiently and safely a challenge.Planning for transport in construction supply chains during contract bidding is difficult as contractors need to estimate and factor in conditions and

169、 prices several months ahead of shipping.Extreme weather in the OctoberApril cyclone season also plays a role when,for example,a project in Fiji may be fine,as Fiji is a shipping hub,but other islands might be skipped due to inclement weather.Tonga and Samoa are not on the main routes and get calls

170、more infrequently.Even larger islands suffer from this,as ships that sail toward Pacific countries through New Zealands Port of Auckland transshipment hub do not go to PNG.Factoring these considerations into bidding durations,such as providing more than the existing standard 6-weeks for Pacific proj

171、ects,would provide existing and potential contractors additional time to plan and cost logistics in their bids.Even in the larger Pacific countries,even if green in Table 3,interviewees reported substantial delays in offloading and clearing cargo.Issues included regional port infrastructure worse th

172、an the main port of the country,ports focusing on non-construction commodities(such as palm oil),or regularly congested ports(e.g.,the Port of Suva in Fiji).Since COVID-19,demand for cargo has increased,exposing a lack of shipping capacity.More recently 16Assessing and Addressing Risks in Pacific Co

173、nstruction Supply Chainsshipping lines or companies such as Swire Shipping and Mediterranean Shipping Company have added services that could cause bottlenecks in port infrastructure.Another issue in the supply chain risk is that some Pacific countries do not allow international or foreign shipping l

174、ines to berth and the number of competitors for shipping services is very low:Tuvalu has only one shipping line,while most other islands have two.Developing a better understanding of the specific shipping constraints that may impact a project in planning could reduce downstream implementation-relate

175、d risks.In Fiji,Neptune Pacific Direct Linean important local shipping line and sister company to Fiji Watersdoes not always have capacity for construction material,as its main business objective is exporting water from Fiji to the US and the PRC.Talking to Neptune Pacific Direct Line revealed its p

176、rovision of essential supply line services to(i)Australia/New ZealandFijiSamoaTonga,(ii)New ZealandVanuatu and back via Fiji,(iii)New ZealandTahiti,(iv)break-bulk services into Tonga,and(v)charters into PNG,Tuvalu,and Cook Islands.Nauru now runs its own single vessel shipping company with substantia

177、l risk and Neptune Line regularly having to help out.In addition to the liner services,Neptunes other ships are geared to discharge in different terrain and are chartered by requests from ADB,the World Bank,or contractors to move large equipment or even houses that would not fit on a container ship.

178、Overall,shipping service availability and reliability is seen as a major supply chain risk and the inconsistency of time schedules of shipping lines reportedly affects building programs(especially as shown in red in Table 3).Pricing of that risk is difficult and attracts a premium or risk margin tha

179、t may drive contractors out or bar entry ofnewcomers.As part of cost considerations,time is vital in Pacific country supply chains,not only from an on-time or delay perspective,but also due to often poor reliability and inconsistency of transport chains.For contractors to deliver on time,they need t

180、o ship and occasionally fly labor and materials to an island,including fuel.Given that a large proportion of electricity on the islands is still generated by diesel,this is a big issue,both for supply chain resilience and environmentally.Several interviewees pointed out that Fijis biggest foreign ex

181、change expenditure is diesel.Government officials noted that Fiji is now becoming advanced in producing sustainable aviation fuel,but airlines noted that it remains very expensive and not the best solution when the rest of the economy is running on diesel.This is even worse in the outer islands,wher

182、e diesel for energy needs to be shipped over long distances.Demand exists for air freight,meanwhile,but it is typically minimal,as it is on average 10 times more expensive than ocean shipping.Apart from regular air services to/from PNG and Fiji,only three dedicated freighter aircraft offer large cra

183、ft in the region.People rely instead mainly on B737 passenger aircraft“belly-hold”capacity.Infrastructure is also lacking on some smaller and remote islands.There is also a shortage of pilots and engineers to fly and maintain aircraft fleets,which is a risk for freight but also for fly-in-fly-out co

184、nstruction labor.Construction MaterialsInterviewees said that risks associated with specific construction materials depend on the specific project.For example,bridge projects,which are relatively common in this region,are generally highly specified and need high quality cement that cannot be sourced

185、 from local industry.It must be imported from overseas and then attracts large duties(e.g.,30%in PNG),as does reinforcing steel bars,and therefore is costly.Instability and uncertainty related to frequent tax and tariff changes are seen as a substantial supply chain risk.This is exacerbated by cash

186、flow issues,as this is a long supply chain(46 months),which interviewees said is a particular problem in PNG.Construction materials such as cement,steel,and even sand,are common and crucial ingredients to deliver infrastructure on some islands.How to best do this logistically and how Pacific countri

187、es may be able to support each other in this regard is an area worth further study.Results17Labor IssuesInterviewees firmly placed labor issues as a key risk in successfully delivering construction projects in Pacific countries.There is a substantial shortage of skilled local labor(although this var

188、ies across the region)and skilled international staff willing to travel to the Pacific islands to deliver projects(due to concerns about housing,health care,and cost of living,among other issues).While it can be expected that it is difficult to attract and retain qualified staff to work on outer and

189、 small islands,such as Tuvalu,due to their remoteness,isolation,and lack of access to basic services,it is reportedly equally hard to attract staff to larger islands,such as PNG.Set-up costs and efforts in understanding the market are prohibitive,hindering market entry.Some contractors highlighted t

190、hat getting visas is often extremely difficult,requiring instead that staff travel in and out on tourist visas.In one Pacific country,long-term visas cost$6,000 per person and decisions are often delayed to the last minute,substantially impacting the contractors ability to plan contract implementati

191、on,it was reported.Another critical issue is people management.Contractors claim that if staff and management are of good quality,the project should be fineexpertise matters.However,contractors have difficulty attracting high-quality staff,as they prefer to stay in Australia and New Zealand,or other

192、 neighboring countries,such as the Philippines or Japan.Compounding this issue,skilled people from Pacific countries get recruited to Australia and New Zealand,often outside their field of expertise,such as civil engineering,as lower skilled jobs like picking fruit or other labor programs in Austral

193、ia pay them a higher salary.Foreign Exchange Rate VolatilityForeign exchange rate volatility(rapid devaluation)was commonly quoted as an important supply risk to be considered.For example,exchange rate volatility in PNG in 2023,combined with the difficulty of locals and businesses to obtain foreign

194、currency,meant suppliers could not do business,as even purchasing fuel(often traded in US dollar)was difficult.Local currency pegs to other international currencies complicates foreign exchange management,such as the Fijian dollar peg to the US dollar.At face value it may appear to be a low 18Assess

195、ing and Addressing Risks in Pacific Construction Supply Chainsrisk,as most large construction projects in the region are paid in US dollars.However,many contractors are from developing countries and often the currency of payment is not pegged to their“home country”currencies and many materials come

196、from overseas.Any change in foreign exchange rates therefore can have substantial impact on revenues and costs,and the overall profitability of projects.This risk is somewhat mitigated(for contractors)on most MDB-financed projects,which allow them to be paid in multiple currencies based on the origi

197、n of the contract inputs.It appears,however,that this is not known to all contractors and even less so by potential contractors.It was further stated in several of the interviews that the International Monetary Fund is proposing that the government devalue the local currency of PNG,which creates sub

198、stantial procurement risks,living standard uncertainties,and supply chain risks.Local GovernanceEach Pacific island country has its sovereign regulations,with different health and safety compliance and regulations in each country,varied tax regimes and laws.Existing contractors,especially potential

199、contractors,mentioned governance weaknesses as a key area of concern.Some contractors reported significant delays receiving visa approvals for workers and customs clearances for goods and equipment arriving at ports in Pacific countries,such as PNG and Solomon Islands,undermining their ability to ef

200、ficiently deliver contracts.This was perceived as providing an opportunity to less principled contractors to accelerate approvals of their permits and approvals through unofficial channels,making the playing field uneven for all bidders and contractors.To encourage firms to do business in the Pacifi

201、c,donors are expected to set clear expectations with host governments around compliance with established laws and supporting efficient delivery of projects through expedited approvals andclearances.Transparency and Perceived Lack of Level Playing FieldWhile it is not directly a supply chain risk,a p

202、erceived inflexibility of the funding and contracting model was frequently highlighted as a core issue for interviewed national and international contractors competing for MDB-funded construction projects in the Pacific.Contractors see the model as overly cost focused and not reflective of risks,esp

203、ecially in outer islands.While there was some acknowledgement that the approach has improved over the years,respondents said that a further overhaul and more collaborative approach to sharing risks is needed.As local governments are the clients,contractors also complained about corrupt and non-trans

204、parent business practices on projects of interest.These practices place international,publicly listed companies who refuse to engage at a disadvantage,they said.Contractors further reported that they often missed out on projects where competitors offered inferior quality,with World Bank and ADB bid

205、evaluation methods that awarded contracts to technically compliant bidders with the lowest price seen as the main contributing reason.However,this risk is not specific to MDB projects and,in practice,those projects are less risky than when Pacific governments conduct their own projects.This is becau

206、se the MDBs require additional safeguards in bidding documents and contracts and conduct regular oversight and missions to identify illicitpractices.Some contractors complained that evaluating the performance of contractors,post construction,is not rigorous enough and that underperformers are not pe

207、nalized(e.g.,barred from tendering for future projects)as there are often other(sometimes political)considerations taken into account.Donor contracting procedures need to also better recognize that some international contractors(e.g.,Australian and New Zealand companies)need to comply with labor and

208、 work,health,and safety regulations of their domestic markets and this adds cost premiums to jobs compared to some competitors from less rigorous jurisdictions.Safety standards in Australia and NewZealand,where many contractors are based,are very high compared to the Pacific islands.Compounding this

209、 is that Australian,New Zealand,and international contractors from France,India,Japan,and so on,have tax obligations in their home jurisdictions(behind the scenes costs)that they need to price into their bids.Results19Current and potential contractors strongly perceive that the Pacific country const

210、ruction sector is not a level playing field,with certain international contractors having a competitive advantage,particularly when bid evaluation methods focus on price.Contracts are then awarded to these entities,and many believe quality suffers as a result,although some engineering consultants co

211、untered that they had not seen sufficient evidence of such practices.Regional contractors also highlighted that local economic development from the work is often limited when contractors bring in their own labor,camps,food,equipment,and construction materials.International suppliers also feel they a

212、re being practically excluded from many projects when incumbent contractors are already present in the country,given the large mobilization costs in establishing a presence in Pacific countries.Some interviewed suppliers who managed to win projects in joint bids with large international contractors

213、alleged that they were then kicked off the project as soon as it had been awarded.Several contractors highlighted in the interviews that they lobbied the MDB and their respective home governments to not award contracts to contractors with the lowest cost bids.That said,MDB-funded projects have stand

214、ard provisions to allow governments to exclude abnormally low bids and include provisions for quality-based evaluation methods,both of which can mitigate the concerns raised.20Assessing and Addressing Risks in Pacific Construction Supply ChainsClimate ChangeClients and the government agencies noted

215、climate change impacts,but this was not seen as an immediate risk to contractors.Climate change and sustainability are seen as a long-term risks that do not impact day-to-day business in individual construction companies or suppliers.According to one interviewee,the priority is“to get the job done a

216、nd to survive the next month.”This likely also reflects the relatively short-term nature of construction projects.None of the interviewees indicated climate change as a top-10 supply chain risk,contrary to what we expected at the outset of data collection.Contractors explained that having been expos

217、ed to severe weather events such as hurricanes and floods,the related risks are manageable,requiring good management of logistics and supply chains.In fact,interviewees mentioned multiple times that climate change would actually be a source of future construction demand in the region,with climate mi

218、tigation and adaptation contracts strengthening the project pipeline in the region.As such,climate change was frequently viewed as an opportunity for construction,not just for decarbonization and affordable clean energy(e.g.,solar panels),but also other UN Sustainable Development Goals,such as in re

219、ducing poverty and hunger,improving education,in gender equality,and in the development of industry,innovation,and infrastructure.Inexperienced potential contractors were more concerned about the impacts of climate change(e.g.,hurricanes and floods)on construction supply chains and project viability

220、 in the Pacific countries.Politically,environmental sustainability is high on the agenda,with Fiji a particular champion of the cause and wanting to build sustainable buildings.Interviewees also acknowledged that extreme weather events,such as cyclones and floods,have always been a risk factor in th

221、e region.And even though such events seem to have become more frequent and severe,many respondents felt nonetheless that extreme weather events were localized and of short duration.Climate change is also reportedly changing the construction season,with one interviewee noting the Solomon Islands as a

222、n example,as measured by wet weather days and high-water levels.However,contracting authorities see these issues as force majeure.The generally accepted view is that holding contractors accountable for this would not be fair(e.g.,during COVID-19 delays and cyclones)and authorities are not enforcing

223、clauses(e.g.,insurance,delays,force majeure).Authorities also fear they would be left with no contractors if enforced,or with projects that cannot be completed.Insurance What is seen as a major issue due to climate change is that some Pacific country contractors cannot obtain insurance,as discussed

224、earlier and in PRIF (2024).While large contractors can access insurance on the international markets and may also self-insure their portfolios,smaller,predominantly local contractors cannot.Because most multilateral and bilateral financing agencies insist on insurance,this can become problematic and

225、 limit competition.Reportedly,for local contractors,the risk is small enough to forego the insurance for the most part(if possible and if not financed by MDBs,as otherwise they would be in breach of contract)and for governments to self-insure those small works.This matter is subject to a current and

226、 parallel research study by ADB in partnership with the World Bank.Results21Other IssuesA myriad of“smaller”issues are relevant.As just one example,two interviewees pointed out that telecommunications and internet services are still inconsistent across the Pacific and,the more remote the island,the

227、worse it gets.Reportedly,most Pacific countries advise use of locked-in(proprietary)systems contracted through those countries and to use those as a Pacific country revenue generator.For instance,Starlink is not permitted in some Pacific countries.Experience helps manage supply chains efficiently,in

228、terviewees noted,as does leaving equipment on the more remote islands for use on future projects.While these aspects benefit incumbents,they can alsorepresent barriers to market entry for interested new entrants due to the lower mobilization costs of theincumbents.Short-term and Long-term Outlook In

229、terviewees highlighted that the lack of understanding of how Pacific islands operate can substantially increase supply chain-related risks.However,once this local know-how is acquired,they believe it can be used as a unique selling point and competitive advantage while managing the related risks.Not

230、ably,local exposure to Pacific country-related risks is different from global exposure.For contractors,risk exposure to Pacific country projects varied from 2%to 100%of their total construction revenues.As such,risk sharing across project portfolios is an advantage enjoyed by large,multinational con

231、tractors.The short-term(12 year)outlook for construction project supply chain risks in the Pacific islands is consistently positive with all respondents predicting supply chains to be smooth in the near future.Minor concerns are that some of the shipping capacity lost during COVID-19 has not been re

232、placed,which will lead to further capacity constraints,as there is so much work in the pipeline.The mid-term(310 years)outlook is less clear,with many interviewees concerned about geopolitical tensions,trade routes becoming blocked,insurance becoming less available and more expensive,and an exit of

233、shipping lines more likely than entry.The insufficient labor market is also likely to persist.Larger islands,such as PNG and Fiji,have enough people and many immigrants,and thus upskilling is possible.However,other islands,without that human capital,will struggle to attract and retain people and loc

234、al contractors to find skilled workers to deliver high quality projects.International contractors will continue to find it difficult to attract skilled workers from overseas to travel to these countries for project implementation.The foreign exchange issue in PNG is predicted to get worse and is a m

235、ajor risk for trading businesses and investment companies,with some construction projects being 2 years late,with firms unable to get materials,due to cash flow and market availability.Interviewees also noted a lack of visibility of future project pipelines,limiting ability to plan for work over the

236、 medium term.22Assessing and Addressing Risks in Pacific Construction Supply ChainsIn the long term(10 years or more),risks include climate change,including the need to plan construction schedules around more extreme weather,geopolitical risks,and other global uncertainties.Contractors were concerne

237、d about whether they would still be able to source supplies due to scarcity and circumstances becoming more volatile.On a more positive note,many interviewees referenced the fast rate of development in the Pacific,with the provision of internet services and food supply likely to improve further,main

238、ly due to government and donor-funded projects.In addition to rising sea levels,they were concerned about extended droughts,poor health care,water supply,education,and waste disposal.The 2030 net zero greenhouse gas targets will require development.Also an issue,Brisbanes hosting of the 2032 Olympic

239、s for Australia will divert many construction resources and skills to the Brisbane area,which could further complicate labor issues in construction supply chains in the Pacific.Potential contractors and suppliers can currently find many risk-free projects in Australia,New Zealand,Japan,and other dev

240、eloped markets and are not immediately attracted to the Pacific.We identified potential interest from Japanese and German companies.The Japan International Cooperation Agency is a useful intermediary for Japanese companies and Germany has just opened an embassy in Fiji,which is also useful for such

241、efforts.However,while potential contractors recognize the high reward that may come with branching out to the Pacific,when risks(including political and corruption)are considered,they believe they get similar returns at larger scale in safer jurisdictions.As such,they first want to set up subsidiari

242、es and/or grow existing activities in Australia and New Zealand(for some international players this region is still a blank spot)before branching out to the Pacific,which ultimately turns them into something similar to their Australia and New Zealand competitors.It is worth nothing that many compani

243、es prefer to collaborate,at least in the first instance,with large and experienced contractors who have worked in the region before attempting projects independently.This makes the contributions of current contractors and suppliers even more important to the development in this region and both stake

244、holder groups are seeking support and a cooperative and trusted approach with governments and MDBs to improve the supply chain situation and construction projects in the Pacific countries.Using our risk framework,we summarize that many substantial supply chain risks exist in construction projects in

245、 Pacific countries,many of them not under the control of the contractors and often not easy to build into bids.The vulnerability of contractors is hence high,and the local exposure is very high too.However,the exposure for contractors depends on how much of their portfolio is focused on Pacific coun

246、tries.Perhaps more importantly,most of the risks and challenges are known and to a degree can be quantified.In addition,the preparedness of contractors and suppliers is very high and expertise with handling supply chains in the Pacific countries context is fundamental.Newcomers have tried and failed

247、.It is a common view of interviewees that for contractors(construction companies)and suppliers that have experience with conducting construction projects in this region,these substantial supply chain risks are navigable.Indeed,due to mitigation approaches,they are manageable and typically financiall

248、y,socially,and/or environmentally rewarding,depending on the development goal of the project.Several risk mitigation strategies have been identified that can help overcome and mitigate the risks,some of which are further discussed in the next section.Results23Risk Mitigation Strategies of Contractor

249、sAs discussed,the level of preparedness,institutional capacity,and adaptability in contractors is substantial.Contractors hedge foreign exchange rates and fuel where possible,cash flow permitting.They try to plan at least 3 months ahead and to get large orders through stores and trade bases(i.e.,Fij

250、i).But getting supplies to smaller and outer islands is much more difficult.In that context,barges (owned or rented by contractors)are often utilized,as they are typically more reliable,although more expensive.Shipping Services:Contracts and CommissionsPacific governments have their own risk mitigat

251、ion strategies for shipping,such as signing exclusivity contracts with shippers to make them call at their specific island,such as the Matson shipping line to Niue.An interesting government approach to shipping challenges was presented in the case of the Micronesian shipping commission for the three

252、 US Compact3 countriesthe Marshall Islands,the Federated States of Micronesia,and Palauwhich ensures breakeven operations for shippers.Any carrier who wants to provide services,after winning a bid,rather than hauling into each port separately,uses a coordinated approach aligned with the US that gath

253、ers cargo in shipping hubs.This“hubbing”to outer islands is seen as the future,as is protecting routes through a shipping commission and grant of capacity and access to ports for individual shippingcompanies.Contractors often find it difficult to take on shipping risks,as they have no control over t

254、hem.Mitigation is difficult and pricing appropriately would often price them out of contention in the relevant tender.As such,to minimize risk and allow implementation of projects,some contractors often organize their own shipping and freight,especially in maritime construction and for specialist pr

255、ojects for smaller islands.Most contractors look at the lowest price of local shipping lines,but often have their own tugging barges for concrete units.For example,materials are transshipped to Fiji and then moved to Niue with their own barge.Since the COVID-19 crisis,many contractors are investigat

256、ing options of shipping or barging bulk materials themselves,but it comes down to cost and scale,where,especially for civil type projects from$100 million$150 million,it would make more sense to vertically integrate,as discussed below.But many contractors still rely on existing infrastructure and co

257、ntainerized transport or partner with contractors that are vertically integrated on the shipping side of thebusiness.3 The Compacts of Free Association are international agreements governing the relationships between the US and the governments of the Marshall Islands,the Federated States of Micrones

258、ia,and Palau.24Assessing and Addressing Risks in Pacific Construction Supply ChainsIn practice,many different avenues lead to lower shipping risk,including ownership of barges and tow tugs.But those vessels then need to be kept fully utilized,which is not easy,as they are often project-based.Many co

259、ntractors typically aim to understand,as a first step,what cargo is moved and what contract options are available.For example,in Tuvalu contractors need to move cargo with ship gear and not containers,and break-bulk cargo is beached on islands.This carries substantial risk,as weather regularly preve

260、nts beach landings,and the barge may sit there for weeks.In those instances,it is good to own the barge,but the client(government)and donor banks are then still involved to recognize and share that risk.The solution is often a standdown rate,meaning if the weather is not suitable for discharging,the

261、re is a payment and/or time extension.This type of risk and cost allocation may lead to a cheaper contract for donor banks and clients in good weather,with an example contract mentioned by one of the interviewees in Tokelau,north of Samoa.Vertical IntegrationSome contractors limit the supply chain r

262、isk by vertically integrating with a supplier,for example to get product into the Fiji market,such as manufacturing building products,gip board,steel mills,cement,insulation,and pipes and plumbing.Some take the vertical integration strategy even further,as they prefer vertically integrated services

263、and“survive by engaging expertise”on a self-perform model basis and backing themselves by doing almost everything in-house or with very trusted partners(only one subcontractor over the last three projects).This does lead to minimal subcontracting and so donors like to support local employment,these

264、contractors point out that this is still in that model,as one contractor following that model requires 70%of staff to be local.They raise skills among locals,provide meals at the site,and procure many goods locally,finding that the approach retains staff productivity and supports the local economy.S

265、uch vertical integration is good as a risk mitigation strategy but makes market entry for newcomers even more difficult as they then do not have access to local resources which take time to build.Specifically for construction,our interviewees reported that vertical supply chains limit competition in

266、 particular for concrete and aggregate(rocks).Contractors from the PRC are often perceived as 100%vertically integrated,meaning they not only import all construction materials for their projects from the country but bring in their own camps,food,and people and as such do not contribute to local econ

267、omic development.This approach has also reportedly led to the importation of poor-quality materials at times.It is important that contracts have detailed technical specifications that require working in the upper end of quality.Construction supervision activities should also ensure that contractors

268、adhere to these specifications and that all work is inspected prior to acceptance to avoid a scenario where problems emerge during the lifetime of the asset.Government enforcement of quality can be insufficient,giving cost-leaders a possibly unhealthy advantage when bidding for projects that are awa

269、rded solely based on price.Most interviewed contractors,consultants,and potential contractors shared this view.Some Australian and New Zealand contractors have agents in the PRC,which then also help load materials into containers but otherwise contribute substantially to Pacific economic development

270、 by using local staff and local materials where possible.Non-PRC carriers agreed that cost pressures need to be passed on to the end user and vertical integration enables this along the supply chain.According to the interviewees,one cost effective way of mitigating risk is to reduce the scope of pro

271、jects to focus on“must haves”rather than“nice to haves,”given the Pacific construction project context.While all islands are different,they face common issues,as their supply chains are risky,contractors often keep their own equipment in various countries(vertical integration light)and islands to av

272、oid relying on subcontractors.There are sometimes restrictions on contractors transporting their equipment to outer islands,requiring them instead to own,not lease,plant and equipment,which typically raises capital costs.Results25InsuranceAnother tool for reducing risk is freight insurance for mater

273、ial in transit,which has become popular since the 2018 Suva harbor incident,where a vessel sank and the$800,000 loss was avoided or recovered through insurance.However,cancellation and lateness of shipping services is not covered,which contractors consider problematic.Further research is required in

274、 this area.Labor TrainingA risk mitigation strategy interviewed contractors use to reduce uncertainty and labor related risk is to broaden and deepen the experience of people they employ in Pacific associated supply chains.They train their local and international staff and educate consultants to und

275、erstand the complexity of Pacific shipping and the volatile market.For example,the process to clear a container can change overnight in some ports and little documentation is available.Management SystemsAnother proven risk mitigation strategy to improve forecasting,planning,and operations management

276、 is the introduction of management systems that improve visibility of the source of construction project supply chain components.Digitization of that supply chain is in progress in most but not all contractors and logistics companies.Some contractors also mentioned that while technology enables enha

277、nced human rights,such as antislavery or no child labor,as well as robust,transparent,and verifiable(construction and energy)supply chains(where there are materials),it also increases costs of these materials,which then cannot be priced into contracts,unless the evaluation of those contracts place a

278、 suitably higher weight on quality over cost.26Assessing and Addressing Risks in Pacific Construction Supply ChainsForeign ExchangeForeign exchange risks related to importing materials,such as tiles from Europe or cement from Australia,are typically at least partially mitigated by fixing all procure

279、ment costs as soon as a contract is awarded.Some contractors also use financial hedging,yet generally prefer contracts with advance payments and then fixing prices at current rates.As it is not unusual for it to take 69 months for a tender to be evaluated in the Pacific,price adjustment matrices inc

280、luded in contracts help minimize risks.“Cherry Picking”ProjectsAnother increasingly popular risk mitigation approach contractors use is“cherry picking.”That is,they choose not to engage in tendered construction contracts that in their view are designed to be awarded to the lowest cost bidder.Given t

281、he construction activity and skill shortages in their own jurisdictions,contractors do not need to take on too much risk by branching out into the Pacific and only do so if they see sufficient reward for taking on the supply chain risks associated with construction projects in this region.Education

282、of Clients About RisksFinally,many contractors try to conduct early procurement and educate clients about the supply chain risks of Pacific construction projects.For example,to import 2,000 tons of specialist bitumen for a specific construction project,special tanks had to be organizedtemperature-co

283、ntrolled containersthat could be heated to 160 degrees once they arrive on site.The contractor procured them from a trader in Switzerland and the material was then shipped out of Poland via Fiji to Niue.This took considerable time and involved upfront cost and foreign exchange cost fluctuation,as bi

284、tumen is traded in US dollars as well as shipping risks and cost variability.The risk mitigation strategies used in this example was to ask the client to accept a bid price in US dollars,include an allowance for price variation between contract signing and order placement and incorporate an advance

285、payment to support some of the contractors upfront costs.In Pacific construction projects,engineering consultants are frequently brought in early to discuss specifications and project requirements with all stakeholders to set expectations,to build trust and to identify capable contractors.Much of th

286、is is associated with MDB-funded projects.Appendix 6 provides more detail on this matter.Finally,it was suggested that contractors should be able to use more aggregate construction materials sourced locally in the Pacific countries,and bidding agencies should be more flexible in contract procurement

287、 to achieve fit-for-purpose performance specifications.Feedback from Industry EventsOur attendance at the International Development Opportunities Seminar in Sydney organized by Austrade in August 2023 revealed that there is substantial interest in project opportunities in Pacific countries.The event

288、 was sold out and the various MDBs presented healthy indicative 20242025 project pipelines,with the World Bank having a pipeline of 39 projects and the ADB of 22 projects.A key focus of these projects is transport infrastructure,and the size of each project is relatively large.While there was a lot

289、of interest during the event,it was notable that much of it was from consultants rather than contractors,which was reported by development partners as being consistent with other similar events held to promote business opportunities in the region.We conclude that this could result in insufficient co

290、mpetition for many of the presented projects.Key FindingsOur findings show that construction projects in the Pacific countries are associated with many supply chain risks,although many appear to have already eventuated and can be classified as challenges,while others have scope for risk mitigation a

291、nd,therefore positive and attractive project outcomes.As anticipated,the more remote and the smaller the island and market,the higher the risks.As established through our developed framework and evidenced in the findings,there is a pattern but also heterogeneity across the islands,and sometimes even

292、 villages on the same island,in terms of culture,governance capacity,access to health services,housing and fresh water,and important transport infrastructure such as airports,ports,and berths.Climate change has been part of the risk assessment for some time.While it is a substantial long-term risk a

293、nd extreme weather events are disrupting operations more frequently,in the short term it is perceived as a normal challenge for operations management that contractors are happy to accept.In fact,contractors feel that climate adaptation projects are driving many construction opportunities in this reg

294、ion.Pacific country governments are very a much aware of this and there was talk about adaptation projects in our interviews.Collaboration with Pacific countries in this context but also for shipping commissions is important,as in the example of Micronesia.The biggest short-term supply chain issue i

295、s shipping service reliability,but a myriad of other challenges include a lack of infrastructure,governance,skills and labor shortages,health services,and freshwater access.The biggest single issue in the climate change debate,also relevant for alternative aviation or shipping fuels,is that almost a

296、ll electricity on many of the Pacific countries is still generated by diesel.This presents not only a supply chain risk to construction projects but a climate change concern that climate adaptation should be prioritized.ManyMDB-funded projects aim to address climate change and build resilience,but i

297、t will take time.COVID-19 was a substantial additional shock to this ecosystem.Although shipping capacity has not fully returned to pre-pandemic levels on all routes,supply chains and freight rates have normalized to below pre-COVID-19 levels.Contractors perceive the management of construction proje

298、cts in remote islands(i.e.,the smaller and outer islands)in Pacific countries to be all about logistics and supply chain management.As such,Pacific country construction projects are,by definition,seen as risky and will become even riskier in the future.However,our interviewees see these risks as man

299、ageable when contractors have the required expertise,and can ultimately be rewarding financially,socially,and/or environmentally.Many of the challenges,in particular around shipping,are less of a concern in the larger Pacific countries of Melanesia and Polynesia but are more confined to the smaller,

300、more remote,outer islands.Many interviewees believed that a level playing field is lacking,with a prevalence of state-owned contractors bidding at low prices with a consequent quality deficit,allied with very limited secondary economic benefits arising from the infrastructure delivery.Differences in

301、 regulation and foreign exchange rate risk compound this 5 Findings,Recommendations,and Further Research Opportunities28Assessing and Addressing Risks in Pacific Construction Supply Chainssituation.These views were countered by others who noted that there was no distinct correlation between delivery

302、 quality and contractor origin while MDBs noted that price is no longer the defining component in the award of large infrastructure contracts.Governance issues in some Pacific countries and a lack of local government capabilities(with Pacific country governments the clients for most projects in the

303、region)are seen as other important risks,as are certain procurement,monitoring,and enforcement processes of MDBs.RecommendationsShort-term Actions(i)Combine and jointly promote the project pipelines of the major development partners in the region to provide visibility to both incumbent and potential

304、 Pacific contractors on upcoming projects in the Pacific countries over a short to medium-term time horizon.(ii)Analyze,classify,and present to the contracting market an overview of the various shipping constraints on the main Pacific countries or indicate that this should be undertaken early in the

305、 preparation of projects.This would assist clients in understanding potential risk premiums and help contractors with pricing risk.(iii)Where feasible,develop engineering designs cognizant of any constraints that may exist in shipping materials and equipment to the project worksite.As a further step

306、,optimize designs to maximize transport in containerized units and reduce break bulk cargo to reduce complexity and cost of transport.(iv)Fast-track visas.Given that it appears to be often time consuming,costly and uncertain for contractors to get visas for workers,Pacific countries governments coul

307、d ensure a streamlined,transparent,and fair process for the issuance of visas for infrastructure projects,working with MDBs and other donors to ensure efficient delivery of infrastructure projects.(v)Consider increasing bidding durations for tenders(currently a minimum of 46 weeks)to allow all stake

308、holders and potential bidders to fully understand supply chain risks and costs(materials,transportation,labor,insurance etc.)specific to the bid.(vi)Consider a Pacific country-wide adoption of standdown rates,meaning if the weather is not suitable for discharging cargo needed to deliver infrastructu

309、re projects,there would be an associated payment and/or time extension to a contractor.These actions have the potential to assist governments,MDBs,and other bilateral donors in their efforts to attract and retain contractors to their future project pipelines.The actions can also achieve more long-te

310、rm and cultural change that has the potential to substantially improve the situation.Long-term Actions(i)To the extent possible,design infrastructure to reflect the environments in which they will be built and the logistical complexities inherent in their delivery(around both bulk and containerized

311、freight).Engineering designs should be conscious of the need to maximize the use of local materials and skills while optimizing the transportation of imported plant,labor,and equipment to the islands without compromising on quality.This requires the engagement of consulting firms and contractors wit

312、h a detailed knowledge of the region.Findings,Recommendations,and Further Research Opportunities 29(ii)Support the implementation of best practice.The perceived lack of a level playing field in construction supply chains in Pacific countries is a key issue.While the MDBs are not the clients,they can

313、 continue to advocate with Pacific countries to undertake procurement in accordance with best international standards.MDBs should continue to support Pacific countries in the move away from lowest-cost bidder approaches to tender evaluation towards a value for money approach that focuses more on del

314、ivering quality infrastructure aligned with Pacific country development outcomes.Improved communication between MDBs,Pacific country governments,and the construction market is required on an ongoing basis to remove the still-existing perception that all contracts are awarded on a lowest price basis.

315、(iii)Increased regional standardization.MDBs and other regional donors should advocate strongly for,and provide direct support to,increased harmonization across the region including,but not limited to,the areas of occupational health and safety regulations,taxation and related exemptions for develop

316、ment projects,work visas,and digitization of financial systems to improve the efficiency and reliability of payment.(iv)Governments and development partners should coordinate and collaborate closely when planning their future project portfolios over the medium to long-term time horizon.This could le

317、ad help establish a sustainable and predictable pipeline of projects in Pacific countries that encourages increased international market interest,brings economies of scale in delivery,and reduces the potential for overloading local contractors and suppliers.Guidance for Potential ContractorsBased on

318、 the results of our research that many of the risks become easier to manage with experience in this region,we recommend that new and potentially interested contractors strategically get“a foot in the door”with a couple of break-even projects and/or in joint venture with existing incumbent contractor

319、 delivering infrastructure across the region.While they may not initially make a sizeable profit from this exercise,it will enable them to acquire expertise and knowledge of the local market and donor funded project supply chain management context.In future rounds they can then bid to make profits a

320、nd reap the potentially high financial rewards,in addition to the social benefits that come with these projects.Further ResearchFurther investigation into the following areas is recommended.(i)Sharing risk vertically or horizontally.There appears to be interest in sharing risk.It would be valuable t

321、o explore whether this risk sharing should occur vertically or horizontally,that is,between local governments,MDBs,and suppliers(including transport)or at a level of any of these elements of the supply chain governance structure.For example,the idea of sharing a Pacific country freighter aircraft,sh

322、ipping vessel,and/or barge pools has not been fully investigated.Who would own these assets and who would have access to the asset pool and under which contractual conditions(collaboration as a service)raises efficiency and equity issues.Such a risk pool could also be extended to insurance and other

323、 items that could be shared with the wider private sector.(ii)Exploring risk preferences and tolerances.It would be interesting to examine these through applied choice experiments with current and potential contractors.This would reveal preferences to accept risk and inform procurement and contracti

324、ng of the vital components of successful supply chain risk management and enhance the broader understanding of the attractiveness of MDB-funded construction projects in the region.30Assessing and Addressing Risks in Pacific Construction Supply Chains(iii)Investigating procurement.Transport service p

325、rocurement through Pacific country governments and related competition effects(among transport companies but also contractors)are worth further investigation.Obtaining evidence on the effectiveness and efficiency of the practice deployed by the Micronesian shipping commission would be an excellent s

326、tarting point.(iv)Assessing options for the importation of key materials like cement,steel,and aggregates across Pacific islands to reduce supply side risks,tariff and taxation uncertainty,and reduce project-related delays.(v)Exploring short-term and long-term risks of climate change.It would be int

327、eresting to explore the short versus long-term risks of climate change and how they interact with short-term interest related to large pipelines of MDB funded climate adaptation projects.(vi)Conducting more research on contracting options in a Pacific context.Allocating more work to a single contrac

328、tor on a specific island would provide economies of scale,allow supply chains to mature,and increase planning certainty.However,it also raises market entry barriers and could lead to increased costs.(vii)Generating a matrix for Pacific countries where risk impact scenarios are to be adopted(e.g.,val

329、id for Tuvalu outer islands but not for Fiji etc.)and test how this can be used for pricing supply chain and contract management risks.Route 1Route 2Route 3Route 4Cook Islands(CI)NZ FJ-WS TO-NUFederated States of Micronesia(FM)PW MHPG SB FJ-MHFiji(FJ)NZPG SB MH FMNZ FJ TO-CI-NUSB VU NC WS PF TO-KIFr

330、ench Polynesia(PF)(AU)-NZNZ TOSB VU NC FJ WS TO KIKiribati(KI)FJ-TVSB VU NC FJ WS TO-PFNauru(NR)FJNew Caledonia(NC)AU-VU-FJNZ FJ VUNZ PG SB-AUSB VU FJ WS TO PF-KINiue(NU)NZ FJ WS TO-CIPalau(PW)FM MHPapa New Guinea(PG)SBAU-SBNZ NC SB AURepublic of Marshall Islands(MH)PG SB FJ FMSamoa(WS)NZ (AS)PF (AS

331、)NZ FJ TO CI NUSB VU NC FJ TO PF KISolomon Islands(SB)PgPG FM FJ MHNZ NC PG AU VU NC FJ WS TO PF-KITonga(TO)NZ PFNZ FJ WS CI NUSB VU NC FJ WS PF KITuvalu(TV)FJ KIFJ WSVanuatu(VU)NZ NC-FJAU NC-FJSB NC FJ WS TO PF-KISource:Jephcott(2022),p.14.Appendix 1:Shipping Routes Across Pacific Island Countries

332、in 20222019202020212022Reporting Economy$million$million$million$million%of globalGlobal RankCook Islands172015110.0000201Fiji1,0338268151,1000.0044151Kiribati1299120.0000200Marshall Islands554446430.0002189Micronesia4950761340.0005179Nauru19721211170.0005182Niue21110.0000209Palau47230.0000207PNG11,

333、3999,28810,88515,2000.061086Samoa493729390.0002190Solomon Islands4613793713330.0013171Tonga201516160.0001197Tuvalu10.0000212Vanuatu564654640.0003183Pacific 14 total13,176 10,794 12,440 17,073 0.0686World total19,014,182 17,648,303 22,343,840 24,904,489 Source:World Trade Organization(2023).Appendix 2:Merchandise Exports of Pacific Island Countries in 20222019202020212022Reporting Economym USDm USD