Coles cutting could add to economic uncertainty


Private labels threat to interstate road transport, but logistics buoyant against markets turmoil

The rise of private labels on supermarket shelves and a reduction in brand diversity could reduce demand for interstate transport, an economist warns.

But despite the global financial markets meltdown the domestic transport and logistics sector in Australia will remain buoyant overall, CommSec’s Savanth Sebastian says.

Supermarket giant Coles has denied reports it is planning to slash the number of products it stocks by a third, but a statement admits trials have started in one store to examine "reducing the range in some product categories and expanding the range in others".

Regardless, retailers like Coles and Woolworths are investing heavily in their self-branded products, or private labels, which Sebastian says could impact road transport operators.

"That means fewer goods on the shelves [and possibly on the roads]," he says on moves to cut brand diversity.

That could be offset by a rise in export-related movements due to the weaker Australian dollar, and Sebastian says local produce volumes may also increase.

He insists the weaker dollar does not equate to a weak local economy, despite stock market crashes here and overseas and looming recession conditions.

"It is likely that we will see a slowdown but I don’t think we will get into a recession," he says, also predicting two more cuts to interest rates of 50 basis points (0.5 percent) before Christmas to bring the cash rate down to 5 percent.

"Buying Australian and exports will help to insulate the slowdown domestically."

But the weak dollar is not good for fuel prices. The instability in the currency is keeping diesel prices high, despite oil recently dropping below US$80 per barrel.

Other analysis suggests Australia’s transport and logistics sector can look forward to "particularly vibrant" growth over the next decade.

Analysts from Business Monitor International, which publish annual global business forecasts for most industries, predict diversified growth across all modes, with the overall value of transport and communications growing to US$51.65 billion by 2012.

Transport giant Toll Holding’s "international ambition" will aid in growth, they say.

Road haulage freight will achieve average annual growth of 4.2 percent, the group reports, but capacity will hold back further gains.

Meanwhile, mineral and energy-related volumes will continue to grow, with the latest report from the Bureau of Agriculture and Resource Economics (ABARE) predicting a 50 percent surge this year.

Coal, oil and LNG will be the mainstay of $90 billion in energy exports, analysts predict, with the energy sector catching up with mining.

Mineral exports are forecast to raise 25 per cent in 2008-09.

Better farming conditions will also see crop exports rise by 24 percent, ABARE reports.

Wheat, barley, canola, pulses, sorghum, sugar and wine will lead the charge, though meat and livestock export volumes are tipped to drop 3 percent.

You can also follow our updates by joining our LinkedIn group or liking us on Facebook