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The Affects of Challenging Market Conditions

19 May 2005

New Zealand Exporters Feel the Affects of Challenging Market Conditions

Short-term industry confidence decreases as exporters begin to feel the pressure of the exchange rate and labour shortages

Auckland, 19 May 2005 – New Zealand exporters are expecting to feel the pinch from the exchange rate over the next few months, but remain largely optimistic of their prospects over the coming year, according to the results of the third DHL Export Barometer.

The research shows two critical challenges on the export landscape; an ongoing shortage of skilled employees and the cost of labour. Both these issues are affecting confidence levels as exporters cut back on growth and investment plans to protect their exposure.

Developed by DHL, in consultation with New Zealand Trade and Enterprise (NZTE), the study was first launched in March 2004 and remains the only large-scale evaluation of export confidence within New Zealand.

According to DHL Express New Zealand General Manager, Phil Rountree, the latest research confirms the resilience of local exporters who remain confident of overcoming market challenges to achieve ongoing growth.

“It is very pleasing to see that our exporting industry remains in good stead despite the tough trading year. However the affect of a tight labour market and shortage of skilled employees is a growing concern, one which we have witnessed with our customers first-hand. With 31 per cent of those surveyed having their future investment plans disrupted as a result, this is perhaps one of the single most worrying trends.”

New Zealand Trade and Enterprise Chief Executive, Tim Gibson, said, “despite pressures like the exchange rate and low unemployment, New Zealand’s export industry is in great shape and showing signs of maturity, resilience, experience and sophistication. However it is a worrying sign that exporters are cutting back on investment plans to protect their exposure.”

Export Confidence
Individual Business Confidence
Sixty-one per cent of New Zealand exporters believe they will experience a growth in export orders for their business over the next 12 months, down on both previous studies when 63 per cent and 70 per cent predicted an increase in March and September 2004 respectively.

However the greatest decrease in confidence was evident in the short-term with only 38 per cent of those surveyed predicting an increase in orders (43 per cent, March 2004; 59 per cent, September 2004).

Industry Confidence
Confidence regarding the industry as a whole is similar in outlook with only 35 per cent of those surveyed expecting an increase in industry export orders in the next three months, rising to 52 per cent over the course of the year.

These results are in keeping with recent business indicators reporting a decrease in general business confidence among New Zealand organisations and across all industry sectors.

Exchange Rate Impact
According to the DHL Export Barometer, currency issues remain the most significant burden for local exporters and have the greatest impact on profit and sales. Seventy-five per cent of survey participants believe the exchange rate will be the major negative factor impacting their business over the coming year, well above 63 per cent in March 2004 and 58 per cent recorded in September 2004.

The ongoing effects of the strong currency have also adversely affected the future investment of over 40 per cent of businesses while 21 per cent have been forced to reduce employee numbers as a result.

Profitability Expectations
Exporting remains a key profit source according to the latest results in this series of research. Forty-two per cent of those surveyed derive over half of total turnover through exporting. This activity is also believed to be a key driver in boosting sales, general business growth and competitiveness.

Exporters remain bullish regarding profit expectations for 2005 with 55 per cent predicting increased capital gains. A further 72 per cent anticipate passing this onto their employee base through a wage increase.

Export Markets
New Zealand exporters continue to maintain a diverse spread of markets with 69 per cent shipping goods offshore to more than one geographic region. Australia remains the key destination for most businesses with 68 per cent exporting across the Tasman, followed by North America (47 per cent), Japan (37 per cent) and the UK (36 per cent).

Government negotiations of a Free Trade Agreement with China have bolstered potential growth prospects for exporters and 64 per cent believe this region has the greatest growth potential in the coming year. South Asia and the UK are also favoured as growth opportunities, while Japan and the Middle East are picked as the least likely areas of export growth over the next 12 months.

Free Trade Agreements
Free Trade Agreements (FTAs) with key trading partners remain a welcomed addition to the trading landscape for the majority of New Zealand exporters. FTAs with the United States and China are believed to provide the greatest advantages offshore, particularly for those involved in the agriculture and services industries.

Exporters are largely neutral with regards to the impact of an Agreement with Chile, while 16 per cent of agricultural businesses believe this would create an adverse affect on their organisation.

Characteristics of Survey Participants
The ‘old hands’ of the local exporting industry are found within the agriculture and manufacturing sectors with the bulk of these organisations possessing over 20 years experience, according to the latest Barometer study.

Agricultural exporters are also most likely to ship goods to multiple regions, followed by the tourism industry.

Tourist operators are the most optimistic in terms of confidence. Seventy-eight per cent predict an increase in export orders for their industry over the next 12 months, despite the coming slowdown of the winter season, while other sectors lag behind in comparison (agriculture, 50 per cent; manufacturing, 45 per cent; services, 45 per cent). Eighty-two per cent of those involved in the tourism industry also expect an increase in profitability during the next 12 months.

Unsurprisingly the bulk of agricultural exporters seek to protect their business from the affects of the exchange rate via the use of hedging – undertaken by approximately one in four exporters when compared to survey participants as a whole.

ENDS

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