Confidence in NZ’s civil construction industry has dropped to just 16%, and the reality on the ground is even harder
Over the last couple of months, Deals on Wheels magazine has featured two construction industry reports, both of which paint a bleak picture of the current economic market. Probably the most telling, and what aligns with how many are feeling right now, is the drop in business confidence by the civil construction industry as recorded in the CCNZ (Civil Construction New Zealand)/Teletrac Navman report – down from 50 percent in 2021 to a mere 16 percent in 2025. Lack of available work was the main concern.
Recently reported government figures show a drop of just 0.9% in GDP (Gross Domestic Product) in the last quarter got me scratching my head. First off, businesses in the construction sector are finding it a real struggle, which concurs with the NZ Herald report that company liquidations are up some 26%. I would expect that number to be higher if I drilled into construction industry figures alone.
Some contractors I have spoken to report their takings are down significantly – way more than the small percentage the government is talking about, which to simple-minded me means other businesses must be doing okay and propping things up, or some clever accounting is going on behind the scenes and making the economy look a lot better than it really is. I do bear in mind though, that New Zealand isn’t the only country going through this difficult phase.
It could also have something to do with civil construction industry being at the beginning of the food chain. If the footings of a building don’t get dug and the aggregate isn’t transported to site, nothing else can follow. The building won’t get built, so tradies are out of work, the retailer won’t have premises to lease and sell their goods, etc. It’s a vicious cycle. So, is the construction industry the first to experience what will be a flow-on effect? That doesn’t sound good.
Industry responds
In the civil construction industry businesses are responding by selling equipment, downsizing staff (some by a lot) and where necessary, closing-up shop. Industry related social media groups paint a very tough market for everyone. Hearing that companies are laying off staff at the beginning of the earthworks season is a red flag.
Others are reducing rates to ensure the work keeps flowing and they can keep staff on the books because like always, things pick up again. This is fine if your gear or the majority of it is freehold, and you have the financial resources to weather the storm.
One transport operator I spoke to last week said he knew of six-wheeler tippers being hired out at $80 per hour – down from $130 an hour in his region. That low rate was considered relatively cheap some 30 years ago, but who knows? Perhaps the truck operator has a freehold truck and doesn’t need to worry about keeping a finance company happy. I’m sure the low rates don’t come as a surprise to some.
Auction companies must be doing okay though. You only have to see the amount of secondhand gear going under the hammer almost every day to understand the pressure some contractors are under.
First-hand experience
Long-time demolition contractor Peter Ward of Ward Demolition Ltd recently found out when tendering for a large job that the playing field is not what it used to be. Having completed a teardown of an Auckland building, he was asked to tender on an identical one in Wellington.
“We did over 21,000 hours with zero injuries on the Auckland job, so I kind of expected that would have been somewhere near the top of the tenderer’s list for an identical structure,” says Peter. “Turns out, according to their strange weighting process, we weren’t good enough to even tender on the job – an identical job. I would expect someone with a super sharp pencil will end up securing the work.”
Fortunately, Peter has been in the game a long time and with hundreds of pieces of freehold plant (150 excavators I’m told), so he’s not under pressure from finance companies.
Another issue is the shiny things many in the construction industry like to acquire. This is often in the form of high-priced equipment and big boy toy collections. When work was plentiful as it had been from around 2010 through to relatively recently, the sale of top-end new trucks and equipment, classic cars and flash utes must have been through the roof – often on the back of newish-to-the-game contractors.
Solutions
I do worry about the mental stress the economic downturn is putting families under, because as we know, most contracting companies are family-run businesses often going back generations. Marriages and family relationships will be strained.
While some say that the downturn is concentrated on the large cities with lots of work going on in provincial towns, that doesn’t quite line up with what the CCNZ/Teletrac Navman report says – apparently only 16% have business confidence.
Other than reducing rates, which can only be done up to a certain point, what other options are available to business owners? There is the option to lay off staff. One company director I spoke with said they recently shed four unproductive employees and had over 300 applications for new positions. Knowing there were so many applicants for a small number of jobs did make the remaining employees realise the fortunate position they were in, I’m told.
Downsizing staff comes with its own issues and having correct procedures and red tape in place can remove a lot of heartache for employers. It can be a costly exercise if not done correctly, so expert advice is a must-have.
Cutting costs is an obvious one. One business I know of recently saved over $15k a year by a five-cent-per-litre reduction in their fuel purchase price. Nailing down suppliers is an expectation these days, so have a good hard think about long-term loyalty to suppliers. In reality, that all goes out the window when the screws come on.
Selling off gear is another obvious option. Peter Ward says that $50 is the new $100 – or in other words things are not worth what they once were.
“Don’t think too long about it,” says Peter. “If things are getting too tight then sell off everything you need to get in a sustainable position. It may mean going back on the tools and working for someone, but don’t let it drag you under – it’s only business and you’ll soon get back on your feet. Learn from what is behind you but never worry about it – just keep looking forward.”
In a worst-case scenario where company liquidation looks like the only option, then take control first and contact a liquidation lawyer. They can advise on the best course of action and help make fast decisions. Don’t wait until a supplier or Inland Revenue start taking legal action, as they will call the shots and the outcome will add unnecessary stress.
As Peter says: “Remember, it’s only business and they come and go all the time. Get you and your family in a safer financial situation and position yourself for another crack.”
As for when things will improve? Last I heard was survive until 2025. If you look at many other countries around the world, we are all experiencing a similar economic situation, so New Zealand isn’t an isolated case. It will improve, but we may need to sit tight for another couple of years.
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