Christchurch manufacturing sector - after the quake

Catherine Beard

A month ago the New Zealand manufacturing sector was looking reasonably healthy.

The PMI (BNZ-BusinessNZ Performance of Manufacturing Index) for the previous three months had shown solid if unspectacular expansion.

The PMI for January had been a healthy 53.7 and new orders were at a 9-month high.

Then the second major earthquake hit Christchurch.

BNZ and BusinessNZ consequently decided against running the PMI and its sister survey the PSI (BNZ-BusinessNZ Performance of Services Index) for the month of February, as the disruption would have impacted on the data and many Canterbury businesses would have more important priorities directly after the quake.

There is therefore no direct measure yet of the earthquake’s effect on business activity, although it will certainly take some sort of hit.

But we shouldn’t assume the city has ground to a halt; this is far from the case.

Manufacturing firms within the Christchurch central business district are most affected because of structural concerns or simply an inability to enter their building.

However, most large manufacturers are located outside the CBD and have been relatively unaffected, getting back into production within days of the earthquake.

For them, the biggest issue was staff being able to come to work. Many have told of the fantastic commitment from staff, turning up to work within days, to keep production going and meet tight supply chain deadlines.

Canterbury companies have been helping their staff out with accommodation, water, showers, washing machines and other support, and staff have gone the extra mile to help their company meet production commitments.

Putting it into context, Christchurch manufacturing makes up around 13% of Canterbury’s total GDP and employs around 15% of all Canterbury employees.

Phone call surveys indicate that larger manufacturing employers are either 100% operational, or in the case of those hit by the earthquake, many are up to 70% operational this week.

Many had business continuity plans in place after the September earthquake and found they worked well.

Those manufacturers that are exporting have customers overseas, unaffected by what is happening in Christchurch, so the demand is still there.

The Port of Lyttelton reports it is back to 100% of operation capacity this week, with imports and exports of all trades flowing well. The only change is a temporary suspension of cruise ship activity.

In the service sector, ICT-based businesses will be more mobile and faster to return to normal operations, while those without offsite back up records will find the going harder.

Tourism, retail and education businesses are likely to be harder hit than manufacturers, particularly if they were based in the CBD.

In the wider Canterbury region the agricultural sector is largely business as usual.

Large Canterbury employers and exporters such as ANZCO Foods - which contributes around $300 million annually to the local economy - report minor logistical problems only, which have been worked around.

Treasury have estimated a knock-off of 1.5% GDP growth nationwide over 2011 because of the quake, while the BNZ Confidence Survey shows 20% of respondents expecting the economy will get worse over the coming year.

However, confidence is one thing - actual activity is another.

Therefore, we also have to be aware of the many manufacturers that have quickly picked themselves up and are doing all they can to return to normality in their business operations.

This is true for the larger manufacturers, which were either relatively unscathed due to their location, (e.g. Tait, Jade, ANZCO Foods, Pratt & Whitney) and even for some that were in a hard hit area, such as Dynamic Control, which through the herculean efforts of management and staff, were able to meet their customers’ orders without too much disruption from the customers’ point of view.

Smaller manufacturers will find the going harder than larger manufacturers who have greater resources and capability to call on, and the logistics on the ground will remain challenging for some time.

Productivity in Christchurch will take a hit, given the short term logistical challenges, but companies are determined that they won’t let their problems become their customers’ problems.

The best thing that the rest of New Zealand and international customers can do is to keep doing business with Christchurch. The majority of Christchurch’s larger manufacturers and exporters are open for business.