Industry/Sector Implications of COVID-19

The following information is to help businesses in key sectors understand the COVID-19 situation and how it may unfold in New Zealand; and take steps to protect their employees, customers, supply chains and financial sustainability. It is clear that there will be short, medium and long-term implications on both our domestic economy and the global economy as a result of the pandemic.

The situation is fluid and changing on a daily basis, and we will update this content as and when new information is available. 

With New Zealand now moving past the initial shocks of the impacts of Covid-19 on our daily lives, now is the time for the agri-food sector to shift focus to the ‘now normal’ – grasping the opportunities that inevitably arise from disruption and radically accelerating plans that enhance organisations’ position in this new future.

New Zealand banks are taking a people-centred approach; focusing on ensuring staff and customers are kept safe and well, products and services are evolving to meet customer needs, and working collaboratively with regulators to ensure the industry is well supported.

Many construction businesses to date have maintained the status quo with little major impact so far. In fact, some sites are working double shifts to meet advance work and deadlines ahead of any further restrictions. The major risk continues to be a complete site shut down as a result of infection or mandatory self-isolation. Businesses will need to be proactive about how they deal with the health and safety of their employees and contractors, including how to isolate workers from each other on site, cleaning and what can be categorised as ‘essential’ works.

The Forestry sector already had a tough 2019, and with Chinese ports closed in early 2020, significant log inventory is sitting on wharfs around New Zealand. This has seen most forest owners put a hold on harvest activities, which is impacting employment in key forestry regions around the country.

It is crucial that infrastructure operators continue to facilitate the smooth provision of transport, connectivity and utilities services amidst a myriad of uncertainties. Public and private operators will need to strike a sensitive balance, prioritising both the health and safety of customers and staff, and the continued provision of critical services. This will require flexibility, the deployment of robust resilience plans and the utilisation of smart and digital solutions.

The COVID-19 outbreak puts a spotlight on insurers who can expect to be inundated with general enquiries and claims across multiple different lines, whether that be for health, life or non-life cover.  Balancing the need for responding to this influx of activity in the contact centres with a quickly shifting remote workforce is an area that insurers are working to address.

The decline in inbound tourism, social distancing and working from home means foot traffic across the hospitality and leisure sectors is materially down and is likely to remain significantly suppressed for some time to come. Cash reserves tend to be limited making the weeks to come very difficult for the sector. 

The key focus for larger privately-owned businesses is on business continuity – how owners can preserve their business, livelihoods and jobs for their employees. The impact differs by sector but almost all are expecting serious headwinds due to the flow on effects such as debtor risk, declining revenues and an expected immediate fall off in consumer spending. 

The immediate impact is a halt to most new investment activity. New projects are being deferred with an emphasis on a defensive approach in focusing on sustaining value from the existing asset base. In the near term we will see tenants seek rent relief from their landlords, particularly in the hardest hit sectors such as retail, hospitality and tourism but this will inevitably extend to all sectors. So, in the short term it will be all about survival and making the best of a bad situation – good open communication between owners and their customers will be critical in this period.

In the Retail sector, there has been some supply chain disruption, but this appears to have normalised now that production in China has ramped up again, so short-term supply should not be an issue for most retailers. That said, foot traffic has significantly declined, leading to a fall in demand and customers shifting channels. However, Grocery has seen a huge spike in demand as consumers bulk purchase “essentials”.  

Travel restrictions on international flights and cruises have resulted in huge reductions in tourist numbers, with significant impacts across airlines, experiences, hotels, travel, motorhome and car hire. The precipitous fall in cash flows will impact all tourism operators for some time in the future. Tourist numbers are unlikely to come back until Q1 2021 due to the “consumer overhang effect” and even then, consumer behaviour is likely to be very different given the scale of the challenges that have faced the aviation sector. Consumers will need to have assurance that future travel plans will have flexibility, and that insurers have returned to the travel market.

Despite reports of vessels being blanked during the Chinese shutdown, freight is still reaching New Zealand ports and our primary produce is being loaded for export markets. Coastal shipping is still operating as normal. China is coming back on line with all ports operating and controls over people movements being reduced.