Home FleetWatch 2021 OperatorWatch Why do we transport for miniscule margins?

Why do we transport for miniscule margins?

3416
0

Open Letter by Clint Brook, Managing Director, Logico Logistics

The following is a letter received by Clint Brook, MD of Logico Logistics. With his permission, FleetWatch is publishing it as an open letter to the industry as he touches on a very topical and sore point, namely, the low margins being achieved by transporters in the trucking environment. Read what he has to say and feel free to put forward your thoughts on the subject. Responses and comments can be emailed to the Editor of FleetWatch at fleetwatch@pixie.co.za.

I cast my mind back about 20 years and reminisce about the days when transport was lucrative and an almost elite industry. This was the era of an abundance of medium to large privately owned transport companies dotted around the map serving industry well and creating a healthy and competitive environment.
 
The benefits of this healthy model were far reaching: safer roads, rested drivers, reduced claims as well as reduced mileage, accidents, and hijackings. All this was the outcome of more realistic rates taking away the need to sweat assets to make a miniscule margin. The economy was far healthier in those days and as a result, the hijacking threat coupled with morally challenged staff was of insignificant risk.

The economy certainly has played a role. However, I argue that it’s not the primary influencer. One needs to consider the risk and reward spectrum – a widely used measure for common sense business decisions. Let’s look at the common N3 Durban-Johannesburg corridor.

Using round numbers, the average transporter loads for R10 000. The likely margin on this is around 5%. Your asset value (truck/trailer) to execute the load is around R2.5-million. The load value is likely R1.5-million.

In an instance where you’re hijacked and you recover your assets only and lose R1.5 million of load, your risk/reward ratio is 1:0.00033. If you lose everything, like we see when units are taken cross border or get burnt which is now the ‘national protest of choice’, the ratio is 1:0.000125. Strategists suggest the ideal risk/reward ratio to be around 1:3. So why do we transport for miniscule margins?


The answer to this question is surprisingly obvious. It is because we have allowed this to happen to ourselves! One may argue that prices are driven down by operators that run illegal and unroadworthy rigs; or that corporate clients award contracts/loads to the cheapest competitor. These are true factors but ultimately, we have allowed this to happen.

Why do we participate in reverse auctions? Why do we allow below cost rates out of non-metro areas? Why do we cut each other’s throats on on-line load platforms designed to benefit the customer only? And why do we do this for ratios that start at the third decimal place?
 
The answer seems glaringly obvious to me but would take an enormous amount of courage and cohesion from the greater transport community to affect. Writing this carries its own risk but I, for one, am growing increasingly frustrated. What can transporters do to correct this? I look forward to your informed responses.

Sincerely

Clint Brook

Managing Director, Logico Logistics

Related Images:

LEAVE A REPLY

Please enter your comment!
Please enter your name here