There’s an unfavourable economic environment for transport businesses at the moment. ATN sat down with industry experts and working operators to find out what’s most important to their bottom line.
Earlier this month the federal government announced its long awaited increase to the road user charge (RUC), stating that it would raise the charge for heavy vehicles by 6 per cent over each of the next three years in line with inflation.
Many industry bodies came out publicly in opposition to the increase, both the National Road Transport Association (NatRoad) and the Victorian Transport Association (VTA) immediately criticised the decision.
NatRoad CEO Warren Clark says the increase is unconscionable and would sound the death knell for some operators, many of them reportedly running on a profit margin of just 2.5 per cent.
“This is a cruel blow to operators already under extreme stress who are desperately trying to stay viable,” Clark says.
“In February, NatRoad called for a freeze on charges next year and for increases in the two financial years after that to be limited to 2.75 per cent.
“We note that the ministers say they’ve struck ‘the right balance’ between cost-recovery of and the need to minimise impacts on a vital industry.
“In effect, they’ve given a final push to those businesses that are already teetering on the edge,” Clark says.
VTA CEO Peter Anderson says the transport ministers’ decision to increase the road user charge by six per cent clearly shows the inflation genie is still at work putting upward pressure on prices of goods and services in the economy.
“While on the one hand it is disappointing ministers went against the advice of the transport industry for a more measured 2.75 per cent increase, the provision of future increases over three years does provide some certainty and will assist operators in setting realistic prices,” Anderson says.
Combined with the increase to the RUC is the government’s decision to end the instant asset write-off scheme that allowed transport companies to write off part of the cost of new assets they purchased, such as new trucks.
Cameron Byrom’s family runs a transport business out of Perth which specialises in supplying transport, logistics and project management solutions to many industries including oil and gas, mining, construction and civil to name a few.
Byrom says for his family’s business the instant asset write-off scheme was a handy financial tool to have at the time but didn’t too drastically affect their businesses decisions.
“We were prepared for the scheme to be coming to an end this year, it hasn’t changed any of our plans now that we know it is ending.”
Byrom says that overall, Combined Logistics considers itself to be on top of most of their costs, for a small business, so much so that they’re generally able to pass on costs to customers, to a reasonable degree of course. Which is why, luckily for them the increase to the RUC isn’t too much of a headache either.
“We are always honest and upfront with our clients; we like to be very transparent about cost increases that we have to pass onto them, so they know we’re only doing it because we have to, not just to make more profits.”
Luckily for Combined Logistics, they do not sign themselves up to any fixed term contracts, mostly due to the nature of their work which is often irregular and doesn’t lend itself to longer contracts, which Byrom says is just as well for them.
“Other businesses out there are more suited to bulk commodity work which is the type of work that usually gets those types of fixed contracts.
“For our type of work, however, our pricing changes per job and it just wouldn’t make sense.
“But honestly, it seems high risk to tie yourself into long-term fixed prices like that when so many of a businesses’ costs can quickly change.”
Byrom says it’s his family’s rich experience in the industry that makes them generally more risk averse than other companies.
“We usually overestimate our costs to account for any unforeseen circumstances or cost rises that might occur.
“I think overall the industry is preoccupied with the notion that it has to be very lean.
“A lot of customers appreciate our service and are willing to pay more for the premium level of service that we offer.”
Indeed, Byrom’s parents have a wealth of experience in the industry having worked in it for more than 30 years. His parents have the confidence and experience to be happy keeping the company the relatively smaller size that it is and not pursuing endless growth and expansion.
Byrom says even if they were interested in expanding though, at the moment the cost of equipment and land would make it very difficult to commit to it.
“The current labour shortage is a big issue for us at the moment, as it is with most other transport companies,” Byrom says.
Mark Chapman director of tax communications at H&R block says in the many transport businesses will not be pleased about the increase to the RUC.
“The current environment is very unfavourable to transport businesses, there are many rising costs that may affect their bottom line,” Chapman says.
“The reasoning for the increase to the road user charge is that the extra funds will be used to improve the roads. Because of the budgetary pressure on the government at the moment it will be looking for ways to raise extra revenue.
“Business will have to bear this extra cost themselves or pass it onto their clients if they are in a position to do so.”
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Mark Chapman is the director of Tax Communications at H&R Block.
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Chapman says many businesses may miss the instant asset write off scheme that ends this year and he warns that all assets bought under the scheme need to be delivered and in operation before the scheme ends for them to qualify.
Chapman urges transport businesses to apply for the government’s temporary full expensing scheme which will be around until the July 1 this year.
“Plenty of assets will qualify for temporary full expensing, all businesses need to do is make the purchase this tax year and make sure the asset is installed and in operation.
“The government could have maintained this scheme going into next year, but they have chosen not to so businesses should take advantage of it while they can.”