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Linfox warns of ‘unhappy hunting ground’ along eastern seaboard

Operators reliant on the eastern seaboard for their bread and butter are in for a tough 18 months

By Ruza Zivkusic | November 29, 2011

Linfox is warning of labour shortages putting a dampener on eastern seaboard operations, as insolvency firm Ferrier Hodgson tells the industry to brace for a tough 18 months.

Linfox CEO Michael Byrne believes the east coast of Australia is facing an “unhappy hunting ground” due to labour constraints, which he blames for rising costs.

He says businesses need to be more innovative, reduce component and inventory costs and increase the speed of smaller levels of inventory.

Byrne has also sighted a high Australian dollar – which has recently dropped against the greenback – as another negative influence on eastern seaboard operations.

“Overall, this means that the growth is unlikely to be strong, particularly across the eastern seaboard, which is traditionally a manufacturing area,” he says.

Ferrier Hodgson Partner Brendan Richards believes the next 18 months will be a challenging time for many in the industry, with demand in a number of sectors likely to soften.

“Those focused on the east coast of Australia are likely to experience a low degree of growth, if any, and increased volatility in demand,” Richards says.

“Operators with warehousing facilities are likely to see reduced levels of utilisation as customers reduce stock levels to limit their exposure to failing consumer or business sentiment in the event of a renewed economic slowdown.”

Richards says operators exposed to retail, electronics and fast moving consumer goods will have major concerns.

“The flipside is that there will be a continuing strength in the business with a focus on the resources sector,” he says.

Richards believes now is a good time for operators with strong balance sheets and cash reserves to evaluate potential acquisition targets.

“Conversely, operators looking to rationalise existing operations or to exit the industry by sale will find it increasingly difficult to realise proceeds beyond asset value,” he says.

In its latest Sector Insights: Transport and Logistics report released last month, National Australia Bank noted solid growth in the transport, postal and warehousing sector.

According to the report, it grew by 4.4 percent over the year to the June quarter, while transport alone grew by 6.8 percent.

Only the agriculture, forestry and fishing sector (12.9 percent) recorded stronger growth, which was mainly due to the large winter grain crop.

Global Markets Chief Economist Robert Henderson says the transport and logistics sectors historically do well when the economy is humming and tend to slow down when the economy is off the boil.

“It is true that parts of Australia’s economy have been suffering of late due to the strong dollar, which has resulted in some parts of manufacturing losing their competitiveness,” Henderson says.

“Cautious household spending behaviour creating very weak conditions in retailing has also been problematic for the economy. However, the mining sector is now leading a massive investment boom and much of the services sector is growing solidly.

“Despite the prevalence of negative press reporting, large parts of the economy are looking reasonably robust, so it is no surprise that transport has also been strong.”

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