Margins have picked up for trucking businesses, according to research from ANZ Group
A continuing spike in truck sales, along with overall increased margins and revenue, are the major themes for 2018 in trucking, according to ANZ associate director of client solutions Timothy Suffield.
Suffield recently released ANZ’s annual economic report into trends in the road transport industry and the key signs are good.
“The demand for trucking has continued and our figures show we have top-line growth for the first time in a while. It means that the actual revenue the sector is generating in total has increased, which is a real positive,” he says.
A consequence of that is that margins have picked up for trucking businesses, something that wasn’t happening 12 months ago.
“We’ve seen a noticeable increase across the board with margins improving, and that’s a direct result of a growing top-line,” Suffield says.
“The fact that businesses have been able to increase their revenue base while keeping their expenses relatively flat has led to them being able to generate better margins.”
Check out Suffield’s research from a 2016 survey here
Suffield says it’s good news across the board, due to the increase in the capex for businesses.
“It means buying new equipment, investing in new technology, investing back into the business, now that there’s more cash available to do so. We see it as a really positive story for the industry as a whole,” he says.
The growth in truck sales, such a feature of the last couple of years, is set to continue. Suffield puts this largely down to the fact Australia has an aging fleet.
“The average age of a truck here is around 14 years, compared to the UK, which is eight years, and France and the US, which is around 6.5. So Australian fleets are, on average, twice as old by international standards,” he says.
It can only lead to one thing, and that’s operators buying new trucks, something Suffield sees a positive for the industry: “Small and medium operators get to the point where their running, maintenance and repair costs are basically equivalent to the financing costs of purchasing a new vehicle, meaning they’re better off buying a new vehicle.”
It’s something many operators seem to agree with, especially considering the savings of fuel based on more efficient vehicles, as well as the benefits of new technology that’s become such a feature of modern trucks. Suffield does acknowledge buying a new fleet, or even a single new truck, is easier for larger businesses.
“A larger business can spread the capex over a period of time, whereas if you only own a couple of trucks buying a new one is a considerable investment,” he says.
Smaller operators face other challenges. The trend is towards consolidation, with larger businesses taking over smaller ones, meaning that even though the industry grows overall, the number of operators shrinks.
“Smaller operators who can’t provide service on the scale larger ones provide will eventually be folded into some form of a larger business,” Suffield says. “It doesn’t mean jobs are disappearing, it just means you won’t have as many small operators running their own businesses.”
Another factor small operators need to aware of is concentration of risk.
Suffield warns against relying on one or two big customers, which leaves the bargaining power with those customers and will inevitably mean getting squeezed on margins. The final point he wants to stress to businesses looking to remain competitive is to get compliant, and fast.
“When you tender, you now have to focus on safety standards and compliance, something that was never the case in the past. Having a premium offering in compliance is so important when it comes to winning contracts. If you have a compliance breach, which results in you losing a contract, that’s likely to have a knock-on effect. Lose one and you could lose them all.”
But the signs are good, going forward, and Suffield says smart operators have every reason to feel buoyant about the future: “The need for road transport services isn’t going away. And even though debt is increasing the industry is about to service that due to the increase in profitability. So for businesses looking to invest and grow it’s a good time right now.”
Check out some of the data from the completed research in the below infographic.
This infographic was originally published by bluenotes, ANZ’s newsroom for insights, opinion, research and news about the economy, financial services, investment and society, from within ANZ and outside. Read more at www.bluenotes.anz.com