Be flexible and grab staff: 2010 survival guide

Date: 14.12.2009

<font color=red><b>THE RECOVERY</b></font>: Business markets will improve in 2010, but only "flexible" operators will capitalise

By Michael House and Jason Whittaker | December 14, 2009

The downturn is over, but the upswing could be a long and bumpy road for transport operators in 2010.

Cautiously optimistic economists say markets have bottomed out and freight carriers can expect volumes to increase into the New Year.

But, as Citigroup market watcher Phil Campbell warns, domestic volumes are still well below 2008 levels.

"It’s more a case of things getting less worse than substantially better," says Campbell, who monitors transport companies including Toll Holdings for CitiGroup.

He says there is "general agreement" that restocking will not return to 2007 levels given tighter inventory management.

"2010 will be the new normal rather than 2007/08," he says.

AMP Chief Economist Shane Oliver predicts growth will pick up by about 4 percent next year.

"There is a recovery in the housing and construction industry," he says, "and this amongst improvements in other industries such as mining and public infrastructure should see transport improve. Exports will also pick up which will benefit transport operators somewhat."

The recovering economy will put pressure on labour markets. Oliver says the transport industry could be hit hard later next year.

"Even if you think of people like mechanics, more of these people were working in the mining sector before the downturn and may look to return there once conditions improve," he says.

MORE CONSOLIDATION?
Cashed-up players will look to consolidate more of the market, but finance may still be difficult to come by according to Campbell.

"I think the bank market is still pretty tight in terms of financing," he says. "We will need to see a sustained recovery before this situation improves."

He says transport operators will pick their targets carefully.

"I think there will be selective M&A [mergers and acquisitions]," he says. "Toll in particular is very focused on pan-Asian expansion, partly given customer demand and partly for regulatory reasons given its high domestic market share.

"The bigger operators seem to be very selective in M&A and in some cases more focused on offshore acquisitions. Alternatively, some are looking at picking up contracts rather than buying businesses."

Of the lessons learned from a difficult 2009, Campbell says flexible operators are smart operators.

"I would still be taking a conservative approach and trying to variabilise [sic] the cost base as much as possible," he says.

Oliver warns businesses to keep a close watch on spending and debt levels – particularly as work starts to pick up.

"They need to balance the growing opportunities with the market going forward," he says.

"Companies will also have to think a bit more broadly. I think going forward operators will need to find a balance [in their spending], rather than increasing spending or cutting it back."

Have you seen the market pick up? What does 2010 hold for your business? Leave your comments below, or contact us via e-mail...

More on the economic outlook for the transport industry and what operators can expect from 2010 in the January edition of ATN magazine, out next week.