Turning Theory into Reality
Today’s highly capital-intensive road freight industry leaves shareholders with little or no option but to resort to asset financing when replacing and/or adding new equipment. This precarious, highly competitive trading environment, accentuates the risks associated with long term asset funding, especially where competitive forces hold margins to single digits leaving no room for loss of asset utilisation in case of an economic downturn.
The volatile market needs astute asset management and a close eye on break-even analysis, not only for the total operation, but also for each vehicle in the fleet. The ravages of inflation affecting new vehicle and parts costs over relatively short vehicle replacement life cycles also severely affects Operators' viability.
The entrance of large, listed companies in the SA market also finds smaller privately-owned fleets vulnerable, as the dominant players enjoy large discounts on fuel, receive bulk discounts on consumables and also enjoy greater discounts on new vehicle purchases as many are also vehicle franchise dealers. Apart from these advantages over smaller competitors, listed companies offer a range of additional services such as: vehicle rental/finance, vehicle maintenance contracts, logistic services, including DC warehousing and in some instances, 3PL services which all create dominance over the road freight market.
However, there are a lot more serious macro challenges threatening the future of smaller privately-owned Operators as South Africa is undergoing an ever-increasing threat from Global and Domestic upheaval. Serious infrastructure shortcomings, together with electricity and water supply - not to mention poverty and debt with currency woes adding to business challenges, so “If their Crystal Ball isn’t foggy, they don’t have it switched on”. There is a strong possibility that perhaps what worked well in the past could now lead to the demise of both small and large Carriers, which calls for a new brand of thinking.
As SA businesses (not only road transport Operators) need to carefully review their current structure and strategies in terms of short and long-term changes in the trading environment, we start by asking:
Are historical strategies still valid?
Will they [historical strategies] support companies through the current radical changes taking place in SA's Macroenvironment?
How will these changes affect strategic relationships between the Trading and Microenvironments?
Extra caution is needed here, as the road freight industry is particularly vulnerable to freight volumes driven by National supply and demand.
In the coming months we will discuss these and other issues, while looking at how a robust business strategy can be restructured around the principals explained in earlier articles on the TTQUAD Initiative theory.