TOPIC 3 (Continued)
What you really need to know to optimise your operation
It operates in a highly-competitive, low margin business environment
Is the Sun setting on the future of the road freight Industry in South Africa?
How do you see the macroeconomic climate affecting the year ahead and how do you intend to respond? Here are a few suggestions that might be worth considering:
Given the uncertain status of the economy, there seems little hope for early recovery in 2020, so it’s going to be a challenging period for stakeholders to remain confident, especially those in the low-margin road freight industry.
Softening demand for road freight in SA (currently around 8% on last year) will tumble already weak rates. It’s been a long time coming so although the economy has survived massive challenges over the past decade, indications are that Government has run short of ideas (and money) to hedge the huge SOE losses seriously threatening essential services worsening the already serious (around 30%) unemployment catastrophe.
The 0,6% drop in 3rd quarter growth is not the sort of situation road freight operators are in a position to accommodate, especially around this time of the year, and if the retraction in new vehicle sales is any indication of what lies ahead, shippers are ready to take advantage of excess capacity in the market, so rates are bound to soften.
Question how this situation is likely to worsen in your industry sector. Is it time to think of alternatives?
Assess your competitive business strengths/weaknesses. Begin focusing on where and how to best exploit your strengths. By necessity, be surgical about removing weaknesses
How well do you understand negative economic growth is most likely to affect your clients and which clients are likely to create the greatest positive/negative impact on your margins in 2020?
Needless to say; be extremely conservative about incurring additional debt. There could be a lot of negative movement in the market as recessionary trends take effect
Decide on which clients to focus and which to phase out (leaders and losers)
Scrutinise your break-even points and Return on Capital Employed before Interest and Taxation (ROCEBIT) for each client. Seriously consider dropping those where break-even is greater than 80% of sales, and/or the Asset turn ratio is below 1,50
Identify departmental weaknesses that could hinder business growth and/or negative contribution to margins
Is it time to consider moving the goal posts? (seriously review your traditional trading environment/culture)
Avoid associated risks with mergers and acquisitions, they are bound to create win/lose situations
Whatever decisions become necessary, don’t “buy business”, it will only hasten insolvency!
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