After a year like no other, operators face uncertain and demanding conditions
The freight and logistics industry is an essential component of the national economy, ranking fourth in terms of its contribution. The sector is also integral to business activities in all other industries, influencing both productivity and overhead.
But the impact of Covid-19 on freight movements is calculated to cost the sector an annualised decline of 1.3 per cent over 2020‒21.
At the same time digitalisation of freight and warehousing logistics promises increased efficiencies and decreased costs, but requires a skilled workforce to implement these innovations.
How the sector meets these challenges will influence business conditions across the board.
Pandemic impact
As ports were frozen in China in response to the outbreak of Covid-19 late in 2019 the effects hit the Australian freight and logistics sector. Delays were compounded by local restrictions, particularly the extended lockdown in Australia’s freight and logistics capital of Melbourne.
Transport businesses affected included warehousing and storage facilities, distribution centres and heavy vehicle maintenance and repair services through closure, stock or staff shortages or delays.
In July 2020, the federal government introduced a Freight Movement Protocol and Code to manage border control and enforcement of Covid-19 testing, contact tracing, personal protective equipment and self-isolation for drivers crossing borders.
As a result all businesses are now required to have a Covid safety plan. The extra security checks, hygiene and social distancing measures that have reduced workforces by about a third have further impeded operations.
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While these measures enable the industry to continue operations, productivity has been severely restricted. Strategy consultant Fiftyfive5 reports that 93 per cent of Australian truck-based operations suffered an impact on their business, while the Freight & Trade Alliance (FTA) estimated that movement restrictions would cause about 300,000 containers to accumulate at Australian wharves and prevent the unpacking and distribution of goods.
Many companies, such as logistics group Qube, which invested $1.8 billion in the Moorebank intermodal terminal in south-western Sydney and handles freight at ports around Australia as well as rail terminals and truck fleets, have scrapped their projected budgets because they don’t know when normal activity will rebound. We don’t have visibility of the road ahead.
Growing skills gap
Now that freight has started moving across the country again there’s that backlog the FTA predicted to deal with and that has brought the shortfall of skilled drivers into sharp focus.
Anecdotally we are hearing about larger operators looking to import drivers from New Zealand or even the United States.
It has come to the point where trucks are sitting around idle, not because of a lack of freight, but because there is no-one to drive them.
This also highlights the importance of ramping up the efficient vehicle combinations, enabling operators to carry more freight with the same amount of drivers required. This is a topic in itself which I will explore in more detail at a later date.
Meanwhile technology is revolutionising the freight and logistics industry. Digital technologies (such as tracking, inventory management and automation) have enabled market players to achieve greater economies of scale, and this will remain a major growth driver for the sector.
To meet these technological advances the transport sector will need to address
- Lack of digital culture and training
- Skills shortages and insufficient talent
- Data security and privacy.
The last point is significant. With digitalisation of operations cyber security is an increasingly relevant risk, especially since TNT and AP Moller-Maersk were targeted as victims of the NotPetya global attacks in 2018.
Insurance has an important role in managing uncertainty, and can help freight and logistics operators reduce their exposure to risks associated with delays and interruptions, and with the progressive digitalisation of their operations.
After a 30-year career in running her family’s transport business Gallagher National Head of Transport, Roz Shaw moved into an equally high-level role in insurance, drawing on her industry experience and knowledge of operating a large transport business.
Disclaimer: To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.