Manufacturing Matters- Tuesday Top-Up 55

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Recent key developments in MAKE│NZ

•We’ve recently had our AGM and are excited to announce the make-up of our new Board:

• President (Chair): Ben Bainbridge, Associate Director, Repair Operations & Digital Technology, Christchurch Engine Centre
• Vice-President (Deputy Chair): Mark Hewitt, General Manager, Argus Cabletech
• Charlie North, Head of Supply Chain, Dawn Aerospace
• Dean Boston, Managing Director, Feworx
• Jody Tuckwell, Operations Manager – MCD, AW Fraser
• John O’Callaghan (immediate past President): CFO, Fabrum
• Natalie Smith, General Manager People & Culture, Kiwicare
• Renee Joblin, MD, Joblin Engineering

Over the next few weeks we’ll be introducing each of our directors in more detail.

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As a reminder, this Wednesday (October 1st), the Mechanical Engineering Department at the University of Canterbury is hosting an “Industry Connect” networking event to promote discussions between UC, industry, and engineering students. This event is a great opportunity to meet students and share you perspective of what it is like working as an engineer, and will also be a useful opportunity to learn about what the mechanical and mechatronics student-led clubs are doing.
If you’re interested in attending you can find more information and tickets HERE

Recent key developments in New Zealand

•Even though ideas around the concept of Free Trade had been raised before then, the idea received its solid economics foundation from Adam Smith and David Ricardo in the late 18^th and early 19^th century. Notwithstanding the compelling macroeconomic rationale, violations of the principle persisted long after that, and the formation of the GATT and WTO after the Second World War were meant to ensure that such violations were discouraged and could be sanctioned if they persisted.

It is important to note that such violations, where they occurred, were usually intended to pursue economic, rather than political goals. Australian efforts to restrict apple imports from New Zealand may be seen as a case in point.

There have, of course, been politically motivated barriers to free trade – sanctions – in the past, and New Zealand manufacturers have been punished for violating such sanctions. Think of Pacific Aerospace and North Korea. What we have experienced over the past almost ten years, however, and especially since the beginning of this year, has taken on a new quality, with excessive tariffs and other forms of trade barriers being used purely to drive a political agenda.

The more asymmetric the (economic) power balance between the countries involved, the more difficult the situation becomes for those at the short end of the stick. What we have seen last week is a living example of where we get to when (free) trade becomes a victim of international politics, and New Zealand manufacturers with a strong international presence potentially being caught up in and becoming victims of these international political conflicts.

It is not unreasonable to assume that economic pressures played their role in the decision of the New Zealand government not to join allies like Australia, Canada, and the UK in recognising the State of Palestine. Neither can it be ruled out, on the other hand, that this decision by the New Zealand government will have a negative impact on trade relationships with other countries among the 153 UN member states that have recognised the State of Palestine. Let us hope, for the sake of our manufacturing exporters, that this won’t come to pass.

•Last week’s government announcement about changes in work visa regulations -Pathways to Residency – have been welcomed by business organisations, and they are a step in the right direction. The question is, is it a big step? Initial enquiries with manufacturing HR managers in Canterbury left us wondering whether it will make a big difference to them, but it’s early days yet. When it comes to changes to work visa regulations, a lot depends on how these are being interpreted by Immigration New Zealand [INZ].

Of the two categories / pathways listed in the INZ media release, the Skilled Work Experience Pathway is probably more relevant to manufacturers in terms of the number of people potentially eligible. Applicants will have to hold a job recognised as at least at ANZSCO Skill Level 3, “with at least 5 years of directly relevant work experience, including 2 years in New Zealand, earning at least 1.1 times the median wage.” The latter means an hourly rate of around $38. n.b., Statistics NZ’s latest data on the median hourly rate for manufacturing across both sexes, all age groups and all ethnicities is $34.

Probably of more concern will be the skill level requirement. Manufacturing Trade Workers’ jobs are all classified as being at ANZSCO Level 3 and will probably meet the wage threshold. However, the much larger number of workers employers might want to be covered by this pathway most likely won’t be. Other Machine Operators (ANZSCO Code 7119) or Engineering Production Workers (ANZSCO Code 7123) are assessed as ANZSCO Skill Level 4, and thus not eligible. At least as far as we can work out so far.

•A recent conversation with a manufacturing business owner with a high share of exports for their products reminded me of a conversation I had several years ago with the owner of a small East Auckland engineering business. He said: “I can’t afford to pay my people what I ought to pay them so they can live in decent accommodation.” That conversation was about wage costs in Auckland making it increasingly hard to compete with other companies outside of Auckland.

The conversation last week touched on the fact that New Zealand’s (manufacturing) wages are relatively high by comparison, making it more difficult to compete internationally – especially when (lower) labour productivity is added to the equation. And that, in turn, was due to the high cost of accommodation in New Zealand, driving wages upwards. Fact or perception?

As far as developments in New Zealand are concerned, Infometrics has the information we need:

How does that compare internationally? The OECD maintains an Affordable Housing Database, and a recent summary of findings provides the information we are after, this time including (some of) the cost of home ownership:

In the graph, we’ve marked the countries included in our recent labour cost comparison. The picture gets worse when we look at the situation for the lowest income group (bottom quintile). Note also the big gap between the bottom quintile and the ‘middle group’ (40 to 60%; third quintile) for New Zealand:

Note that the share of labour in the total cost of sales is quite low nowadays for many manufacturers. Moreover, there is no direct link between the cost of accommodation and the cost of labour. But it wouldn’t be rational to assume that there is no connection at all.

Recent key developments in the World

•Announced on April 17, 2025, and subsequently modified on June 12, the US Trade Representative [USTR] port fees issued under Section 301 are scheduled to come into force on October 14. We reported on that fees regime in an earlier edition. Essentially, it imposes significant additional US port fees on ships owned by companies registered in the PR China, and, separately and additionally, on ships built in China.

Shipping companies started to rearrange the deployment of their Chinese-built vessels as soon as the original announcement was made. Between May and August, the number of China-built vessels on the Asia-US West Coast route was reported to have fallen by 19%. The decline was similar on the Asia-US East Coast trade, amounting to a 20% drop.

Shipping lines outside of China can evade (most of) these fees by rearranging services, ensuring they predominantly use vessels not build in China to service US ports. The situation will be much worse for the two major Chinese shipping lines, COSCO and OOIL. According to a widely-quoted HSBC analysis, COSCO owners China Shipping Holdings (CSH) could incur approximately $1.5 billion in annual port fees, representing 5.3% of its consensus 2026 revenue forecasts against a 7.1% consensus EBIT margin. Orient Overseas Container Line (OOIL) faces an estimated $654 million in fees, equating to 7.1% of projected 2026 revenues against a 10.9% consensus EBIT margin.

That, and recent disruptions in global trade triggered by the imposition of US tariffs, not to mention the on-going uncertainty about the all-important tariff situation for the China-USA trade, have led to a decline in global sea freight rates recently that was just punctuated twice by peaks in the China-USA trade in anticipation of tariffs:

It remains to be seen what the impact will be on rates for New Zealand exporters.

•There has been a growing number of reports (here and here) from the US and Europe about recently graduated job seekers with a tertiary qualification having trouble finding a job or being at a much higher risk of long-term unemployment than in the past.

It has been a widely-held perception that the risk of being unemployed, or long-term unemployed (>12 months), is (much) lower for (young) people with a tertiary degree. If that were indeed no longer the case, what does that matter to manufacturers? Well, should the trend continue and become ‘socially accepted’, it might well make more young people think about pursuing an apprenticeship, including in manufacturing, than ‘going to Uni anyway’.

We need to break this down into two aspects. First, is there an’ education bonus’ across all age groups when it comes to unemployment? A snapshot view of current data for the EU, and the wider OECD, provides similar pictures:

n.b. ISCED (International Standard Classification of Education, developed by the UNESCO) Levels are equivalent to the corresponding NZQA levels; the NZQA system is based on the ISCED classification.

Worth noting are the significant differences between countries when it comes to the size of the education bonus, with no obvious explanation for the factors behind the pattern, be they economic or related to the countries’ education systems.

Second, has the ‘education bonus / advantage gap’ been compressed significantly over time, as suggested in the news media quoted above? In other words, is there a higher risk today for young people with higher levels of educational attainment to become or remain unemployed? If we look at the US first, that certainly seems to be the case, both for unemployment, and for long-term unemployment:

The table above provides a more fine-grained and up-to-date demonstration of how the education bonus in the US has been squeezed over the past five years. For the EU, a similar compression can be shown, albeit not as strong as in the US (all age groups):

What is behind this apparent loss of benefit / advantage from engaging in tertiary education, at least when it comes to security of employment? More recently, ‘Artificial Intelligence’ has been introduced as part of the explanation. We’ll take a closer look at that in next week’s newsletter.