Little taking fuel and wage cost rises 'seriously'

Toll Managing Director confident about approach to union talks

By Rob McKay | February 24, 2011

Just about all measures were heading north in Toll Group’s interim results released today but some were more welcome than others.

Of concern were outgoings, with direct transport and logistics costs up from $1.7 billion on the previous first half to $2.2 billion and the company saying that "cost pressures relating to energy and labour costs are potential risks".

Employee benefits expenses jumped through the $1 billion mark to $1.1 billion from $856 million.

Fuel, oil and electricity costs rose about 50 percent, from $107 million to $160.3 million.

Repairs and maintenance costs recorded a more modest rise of $10.2 million to $72.2 million.

Floods were expected to cost the company $12 million. Though $19 million of that would be recovered from its insurers, the future cost of insurance was a bleak outlook.

Managing Director Paul Little says the company was taking the fuel issue seriously, given ship-owning companies and airlines surcharge its forwarding arms and there is a direct impact on road freight and its own maritime costs.

Little pointed out that FedEx had reported difficulties in passing on the surcharges and Toll had found "there tends to be a lag in how quickly we recover those" as prices increase but Toll tended to "square the ledger" when fuel prices fall.

On labour costs, he said Toll was in enterprise-bargaining agreement talks presently.

"I’m confident we will see and outcome there that will see a stable period in labour costs in our business for the next three years or so," he says.

"It’s appropriate that we will then have an ability to forecast labour costs to our customers, particularly those contracted customers we’ve got.

"And I don’t have an issue with concerns relating to those labour costs running away and becoming a problem in our business.

"I think the major unions and the major and the major transport companies in Australia have a very solid approach to renegotiation of labour costs and that’s what’s happening at the moment."

While Little was quick to hail Toll’s 7 percent organic growth, he underlined that it had always been an acquisitive company and that the times suited that ethos.

There was presently a shake-out at the small to medium end of the traditional trucking spectrum that would lead to the larger firms picking up distressed operators.

A number of them - with turnovers of $100 million to $200 million annually -
that did not have the requisite "disciplines", were "mainly driven by cost competitiveness and, in the current environment, with the volumes flowing from the Australian economy, many of these companies have found it impossible to continue", he said.

The company, meanwhile saw no near-term end to the two-speed Australian economy and expected it to continue to influence the relative performance of its domestic businesses.

"The outlook for the retail environment over the next six months is far from clear as is evident from the recent market commentary coming from key Australian retailers," the firm says.

"Conditions are expected to remain challenging in the near term for Toll businesses exposed to the retail and auto sectors, with a continued focus on superior customer service, costs and productivity.

"Other sectors of the non-resources economy appear to be fairly stable, although cost pressures relating to energy and labour costs are potential risks."

Toll Global Forwarding is expected to expand further following recent acquisitions and we remain optimistic about the opportunities for continued growth and improving returns from the Group’s offshore businesses.

The company will continue to grow through strategic acquisitions to further develop on key trade lanes and build greater scale.

The resources sector offers strong growth opportunities over the medium and long term as major infrastructure projects are developed both in Australia and throughout Asia.

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