Industry Issues, Transport Features

What the collapse of Scotts means for the future of Australian logistics

The recent collapse of Australia’s largest cold chain logistics company Scott’s Refrigerated logistics has sent shockwaves through the transport world. ATN spoke to logistics expert, Associate Professor Flavio Macau, to learn more about what this could mean for businesses left in the lurch.

Earlier this month Scott’s Refrigerated Logistics entered voluntary administration with local accounting firm KordaMentha initially placed in charge of overseeing the process and sorting out a buyer for the company. As of publication, however, no buyer has yet been found for the company and the 1,500 ex-employees are likely to be left without employment.

The loss of such a larger player in the Australian logistics environment leaves many of its clients in a vulnerable position. They likely would have enjoyed competitive rates from the provider and now as they look for new companies to work with may, understandably, fear being forced to pay more. Meanwhile competitors of Scott’s will benefit from the lack of competition. 

Associate Professor Flavio Macau is an Associate Dean at the School of Business and Law at Edith Cowen University in Western Australia. Prof. Macau says smaller businesses may need to leverage their relationships with other cold chain suppliers to survive in the short term.

“Smaller businesses will begin having conversations with transport companies conceding that they may not be able to afford large increases in contracts now but in the long term they are a safer bet than larger clients in terms of profitability.

“Cold chain logistics operators do not want to see too small-to medium suppliers go out of business as a result of Scott’s collapse, because that’s where they can find bigger margins. 

“Operators must consider that smaller business may already be doing it tough, and this event followed by an increase in transportation costs could be the deciding factor that sees them enter bankruptcy,” Prof. Macau says. 

Larger clients of Scott’s, such as Coles and Woolworths, are likely to be in less trouble as they have the resources to implement contingency plans. Dr. Macau does point out, however, that all is not lost to smaller businesses as they’re more  nimble than the big supermarkets.

“Smaller businesses are more flexible and creative with how they handle a crisis. They’re likely to become very resourceful as they find ways to deal with the new situation that they’re in,” Prof. Macau says. 

As far as the Scott’s competitors are concerned, it is reasonable they might consider themselves in a privileged position now. They will be in a very good position to negotiate rates and they may take the opportunity to make more money than they did previously. 

Prof. Macau has a warning, however, saying operators should be cautious as they risk falling into the “growth trap”. 

“Cold chain companies will see this moment as an opportunity to expand their business.

“I would encourage such businesses to be cautious, preparing for a rainy day that will inevitably come. They should invest to improve their business while growing in a controlled way. 

“Often companies that grow too quickly find they are suddenly faced with new challenges they are not prepared for,” Prof. Macau says. 

Certainly, it would be easy for cold chain logistics companies to become greedy with the new situation they find themselves in. A level-headed approach, however, is the better option.

“These businesses should not aim to con their clients into accepting rates that are too high. Things change and the situation may be reversed in the near future. Businesses should collaborate rather than ‘extract revenge’ in the next opportunity so to speak,” Prof. Macau says. 

Prof. Macau says that for the larger businesses affected by Scott’s collapse, the supermarkets, it is likely they will use this time to explore strategies they may have overlooked in the past. 

“These companies are going to have to pay a premium to replace Scott in the short to medium term anyway, so they may explore unique options that were too difficult to try before like further investing in their own fleet of cold chain vehicles,” Prof. Macau says. 

While the industry works on recovering from the shock collapse of such a large company many commentators are using this event as an example of the dire condition the transport industry is currently in. Industry bodies are also calling for widespread reform before more companies go under.

Prof. Macau says there were several factors that led to Scott’s collapse most of which are also affecting the rest of the transport industry but that have a larger impact on cold chain businesses.

“Scott’s was not in a strong financial position to start with. The rising cost of fuel with the war on Ukraine and the ongoing driver shortage post COVID has meant their costs have gone up while their service quality may have suffered. 

“In addition to this they have had to pay very high electricity rates due to the crisis in the electricity market on the east coast of Australia. Refrigerated warehouses require a lot of electricity to run.

“Finally, many of its contracts with larger clients such as supermarkets are for very long terms. When you are hit by cost spikes in a matter of weeks, you may not be in a position to pass on these rising costs as quickly,” Prof. Macau says. 

With so much economic pressure on the transport industry many companies are in “survival mode”. The end of Scott’s will be a timely reminder for businesses that not even the biggest player is safe, so companies must modernise and make themselves more flexible and resilient in times of crisis.

New technologies will no doubt play a large role in better protecting the transport and logistics industry. Prof. Macau says digitalisation is the best thing businesses can do for themselves right now. 

“While electric transport vehicles might not be around the corner, creating solid digital architecture is something businesses can do right now to find efficiencies and better protect themselves.”  

Associate Professor Flavio Macau is an Associate Dean at the School of Business and Law, Edith Cowan University. In the past 10 years, Flavio supervised 20+ research projects; lectured 70+ units to 2,500+ students; published one book, three case studies, and 10+ international peer-review articles; assisted 120+ short-term consulting projects.

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