Manufacturing Matters- Tuesday Top-Up 12

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Recent key developments in MAKE│NZ

• And now, a brief interview with one of our members:

(MAKE│NZ) What was the first product manufactured by your company?
(Glenn Wilson) I believe it was body molds and lamp shades.

(MAKE│NZ) What role did the initial product play in establishing the company’s market presence?
(Glenn Wilson) None really, went into food grade packaging which was quite a change. We saw a market for punnets in horticulture

(MAKE│NZ) Can you share an example of how early customer feedback influenced the development of your company’s products?
(Glenn Wilson)Change in Food safety requirements by the supermarkets that required more packaging to protect produce that was going into stores

(MAKE│NZ) What were the key factors that contributed to the success or failure of the company’s early manufacturing efforts?
(Glenn Wilson) Identified an opportunity in the market that helped the company change direction from lamp shades and body molds to food grade packaging

Glenn Wilson, General Manager, Custom-Pak

• What an interesting Fireside Chat we had last night, with Sharon Zollner from ANZ and Gordon Sutherland from A.W. Fraser presenting. Sharon gave us a very interesting analysis of where the New Zealand economy is at, and where it is heading. Gordon then shared with us his thoughts about the best way to source funding to grow your business, which A.W. Fraser have done very successfully since the management buy-out of the company in 2006. Among others, key insights were the advantages of a privately-held business where the owners are free to decide what proportion of the profits to re-invest in the business, and a reminder that a bigger business also need more working capital, on top of the money invested in additional buildings, and/or machinery and equipment.

• Also yesterday we held the Annual General Meeting for the NZ Manufacturers and Exporters’ Association [NZMEA] – the legal entity behind MAKE │NZ. Indeed, it was our 145th AG! The Meeting confirmed the President, John O’Callaghan, and the current directors Bryn Thomson, Dean Boston, Lu Croft and Mark Hewitt in their respective positions, Ben Bainbridge was elected Vice-President, and the Meeting appointed two new directors, Charlie North (Dawn Aerospace) and Rhonda McLeod (NZ Global Foods) as new directors – welcome Rhonda and Charlie, great to have you on Board!

At the meeting we presented the financial information for the NZMEA and pointed out that MAKE│NZ could no longer continue to operate without financial support from those we serve. From today, Oct. 1, 2024, members of the MAKE│NZ Community will be asked to pay an annual fee for accessing a range of our services while others, like this newsletter, will continue to be provided free of charge. The contributions we ask for are moderate and depend on the size of your company; you can find the details here. Membership fees are charged on a per-company basis and cover the owner (representative) and all eligible employees.

• Following the explicit sentiment of our members, we have been very careful not to turn our Fireside Chat events into sales platforms or networking events for those wishing to sell goods and services to manufacturers. On the other hand, we see ourselves as ‘connectors of dots’, and that should include making members aware of services in particular that they may not be aware of, but which might be useful for them. We have decided to do a trial run with events – separate from and in addition to Fireside Chats – where we provide a platform for the presentation of commercial service offers. The first one of these will be on October 16, when Michael Barry and Nick Prattley from Swell Group NZ will talk about their services, which are all about accessing R&D tax credits and grants from the New Zealand government, and John O’Callaghan will talk about how Swell Group have helped Fabrum to access such funding. Details for the event can be found here:

Recent key developments in New Zealand

• Consumer Health Warning: This is not about climate change, nor is it about poor performance of the Cook Strait ferry services.
It isn’t even about how resilient – or not – the major transport networks are, without which manufacturing in New Zealand, as we know it today, couldn’t operate competitively in global markets. However, let’s let some pictures talk first:

A national assessment has shown that just over 1% of New Zealand’s road (1414 km) and rail (87 km) networks are currently exposed to storm-tide and wave flooding. However, this exposure increases significantly with sea-level rise, with an additional 145 km of road becoming at risk for every 0.1 m increment of sea-level rise in the first meter (https://www.nzgs.org/libraries/understanding-shoreline-change/ )
The question is – are we, and are governments at all levels doing enough to ensure that manufacturers still have access to the reliable and affordable freight services they require.
When it comes to road transport, and in the short term, the government has set priorities and allocated significant amounts of funding to address the most pressing issues. In its 2024/25 Budget, government has set aside $2.8bn over four years to invest in roads, rail and public transport. The biggest single initiative, accounting for 22 per cent of the total, is for fixing existing damage from ‘North Island Weather Events’.
In June of this year the government also published its Policy Statement on Land Transport. It shows planned expenditure of between $8bn and $14.4bn on State Highway and Local Road Improvements from the National Land Transport Fund over the next five years (to FY2029/30). Rail gets $2.2bn over the next three years (to FY 2027/28) for a range of improvement investments, the most relevant from a freight perspective being $687m for new rolling stock over the same period. Coastal shipping will be allocated a paltry $30m over three years (to FY 2026/27) “for activities that enhance the resilience of coastal shipping freight connections”.
The government’s Policy Statement is quite specific in terms of which rail and road infrastructure improvement projects it wants to invest in. In terms of strategic goals in relation to what matters to manufacturers in terms of a resilient and affordable freight transport network, “More efficient supply chains for freight” and “A more resilient road and rail network” are two of a total of 12 target outcome statements.
A summary of the document can be found here, with details available here.
Overall, it is fair to say that government has quite specific long-term plans when it comes to investing in transport infrastructure. When it comes to a cohesive plan for a resilient and affordable (freight) transport system, covering all modes (road, rail and shipping – including the Cook Strait ferries) and considering the goal of “reducing emissions from freight transport by 35% by 2025”, we can’t really find that in what has been made public so far.

Recent key developments in the World

•There has been a lot of public debate about certain issues around supply chain integrity recently. Another issue, less well reported, but potentially more relevant to New Zealand manufacturers of machinery and equipment in particular, relates to a fire started by an electric vehicle in a basement garage in an apartment complex in Incheon, South Korea on August 1. The fire destroyed or damaged more than 140 cars and caused damage to the building. But this is not about the safety electric cars. It is about the fact that the car in question was a Mercedes EQE and, so it is reported, Mercedes sold all cars of that model in South Korea with a claim that its batteries were made by the Chinese premium battery manufacturer CATL.

As it turns out, that wasn’t the case. After initially holding back, Mercedes-Benz was forced to concede that the battery pack in the vehicle in question was in fact manufactured by a lesser-known Chinese company, Farasis Energy. Whether that was material in any way to the cause of the fire will be addressed by the investigation initiated by South Korean authorities.
The wider question here is whether manufacturers of machinery and equipment, or cars, or other products like household appliances, should (be required to) make promises about the origin of key components of their products and thus limit flexibility in their supply chain. In its original response, a spokesperson for Mercedes-Benz headquarters in Germany confirmed that the company sources the battery packs for its EV production globally “from factories on three continents”, claiming that to be a key component of their success in taking EVs to global markets and that “this ensures that we remain locally independent and making a contribution to sustainability”.
There is no debate about providing customers and consumers with false or misleading information, which appears to have been the case here and will be part of the investigation by the authorities. In the case of EVs and battery packs, different manufacturers are following different practices in different markets when it comes to revealing where their battery packs were made and by whom, but it’s no surprise to see that in South Korea at least all EV manufacturers are scrambling to provide information about who makes the battery packs in vehicles sold there. And in the EU they will be legally required to do so under a ‘Battery Passport’ regulation from 2027.
In general, this will have to be a consideration of balance between marketing benefits and supply chain constraints. As we mentioned last week, there were times when laptop computers without the ‘Intel Inside’ sticker were sold at a discount, even when they had a comparable performance.

• Back to road freight transport. Apart from anything else, it currently is a significant contributor to carbon emissions from the transport sector. In New Zealand all forms of domestic transport collectively contribute about 17% to or our total emissions and 90% of that come from road transport. We have a breakdown for Canterbury showing that last year Heavy-duty Trucks and Buses accounted for 32% of all road transport emissions. Current government carbon reduction plans in New Zealand have set at target of reducing that contribution by 35% by 2035. How can that be achieved?
For cars, the solution is seen in the replacement of ICE engines with hybrid and, ultimately, fully electric drivelines, even if that approach is not supported by everyone – this is not the place to debate the pros and cons of EVs …
For (heavy-duty) trucks, the solution is far less obvious from a technical perspective, let alone other considerations. A number of different approaches are being evaluated at the moment. One of them is using a fully electric driveline with power supplied from overhead lines.

Short stretches of motorways with such overhead lines have been set up in California, Germany (x3) and Sweden. At least in Germany the future of this approach is now very much in doubt. Funding for the trials had run out after seven years, but has just been extended by six months, with a low probability of further support in spite of some strong technical factors in their favour. The main factor is cost. Although modelling has shown that in Germany only 2,000 kilometres of the most intensively used freight corridors would have to be electrified, the cost of that has been estimated at around €7 bn.
Other alternatives to the continued use of diesel ICE engines are LNG or biogas ICE engines, battery-electric drivelines, hydrogen fuel cells, and hydrogen combustion engines.

The table below illustrates key performance parameters for each of these approaches, using the example of an IVECO S-Way heavy-duty truck:

Driveline	Power (kW)	Tank/ Battery Capacity	Time to refuel	Range	Weight	Approx. Cost [€ ,000]
Diesel	426	max. 1,320 l	max. 20 minutes	max. 3,000 km	8.5 t	120
LNG / Biogas	368	max. 1,080 l / 390 kg	max. 15 minutes	max. 1,700 km	8.5 t	150
Battery electric	480	max. 738 kWh	90 minutes1)	max. 500 km2)	12 t	320
Hydrogen fuel cell	400	70 kg (at 700 bar)	max. 20 minutes	max. 800 km2)	12 t	450
Hydrogen ICE engine	Not finally determined	ditto	20 minutes	max. 800 km2)	ca. 10 t	300

Notes:
1) Charge to 80% at a 350kW supply point
2) Extended by re-charging stops on the way

Beyond some experimental hydrogen fuel cells trucks, all major European truck manufacturers have heavy-duty battery-electric trucks on offer. Market uptake, however, has been slow. Of all the heavy-duty trucks (GVM > 16t) sold in Europe in the first half of 2024, only 1.1% were battery-electric. The main reason for that is a lack of charging infrastructure, which will be very demanding and expensive to build. For that reason, Daimler Truck’s head of R&D, Andreas Grombach, is strongly arguing for a dual-track approach, using battery-electric and hydrogen drivelines. The reason is the different ‘cost dynamics’ of refuelling: an initial network of charging stations for battery-electric is relatively low-cost, most of these will be installed at the depots of trucking operations. Expanding the network of charging stations beyond that will get increasingly expensive and time-consuming. The opposite is true for hydrogen fuel stops. The initial costs for setting up a network will be very high, but expanding the network will become increasingly cheaper and faster.
Speed is of the essence indeed. Current EU rules require fleet emissions in 2030 to be 45% lower than in 2020, with a fine of over € 1m for every percentage point by which that target is missed.