The responsibility for moving cargo ranging from commodities to fresh produce across the length and breadth of South Africa and across national borders will continue to rest on the shoulders of truck operators who face major challenges to their ability to remain sustainable, says Toni Fritz, Head of Vehicle and Asset Finance, Business and Commercial at Standard Bank. In this article, she sketches the bank’s outlook for the year ahead.
South Africa is home to thousands of transport operators who vary from single vehicle operators to owners of large fleets and ‘owner drivers’ who provide a valuable service delivery to large corporate companies. What they have in common is the vital role they play in all aspects of our economy. In rural areas they are often the sole link between farmers and their markets and are vital cogs in helping support local business. At a national level, truckers are the people who move imports and exports across the country to destinations and ports.
Already beset by fluctuating fuel prices, increased operating costs and ever-shrinking margins, the industry has had additional operational burdens placed on it this year.
During 2015, the long-awaited uptick in interest rates kicked in and adding to the woes has been a fluctuating Rand – currently testing new lows against the world’s major currencies – and the drop in demand for commodities caused by a lack of demand and record low prices.
For the transport operators dealing in the movement of coal, iron ore and other commodities, the economic downturn has seen the number of loads decrease. Pressure on the viability of contracts has increased and the possibility of lower cost operators sparking bidding wars for contracts has been heightened.
All this is nothing new to an industry that has coped by reducing tariffs, extending operational hours and lengthening the replacement cycle of vehicles. The negative, of course, is that this means increased maintenance costs and, in instances where margins are cut to ‘bare bones’, skipping of maintenance all together, which is likely to lead onto increased hazardous incidents.
Looking forward into 2016, many operators will be looking at more of the same for the next 12 to 18 months. Many business owners will need to invest in new strategies to cope with conditions that promise to be just as challenging as those of 2015.
The forecasted core focus areas for 2016 will include:
- Consolidation across the industry with some smaller operators falling by the way. Operational mergers, acquisitions and subcontracting will strengthen as the leaders in the industry move to increase market share in a highly competitive but still fragmented, market.
- Cost efficiency challenges that will be met through further extending the lives of fleets, delaying the normal replacement cycle and endeavouring to have as many vehicles that are ‘freehold’ operational within a fleet so that margins can be optimised.
- Another cost-control mechanism would be the increased use of technology to monitor driver behaviour, manage compliance with routes and optimise fuel consumption while reducing maintenance costs.
- We foresee that operators may look to diversify their business activities, looking at the total value chain and offering services to part of the value chain to sustain business income levels.
- Complying with legislative changes. There is increased emphasis on safety and it can be expected that new regulations pertaining to this and other key industry activities could be forthcoming in the future.
- Looking across South Africa’s borders for balance sheet growth and un-serviced markets.
Taking a step back from the industry and assessing what it will require to be sustainable and grow will become increasingly essential for industry partners like Standard Bank. It can be expected that transport operators will look towards their partners – primarily financial institutions – for support and assistance. For us, the emphasis will be on the development of solutions that will assist owners in terms of, but not limited to:
- Seek to increase fleets on the back of new medium and long-term contracts-decisions that have to be made swiftly to ensure that they remain competitive and can grow their market shares.
- Alternative models to the traditional lease and instalment options for obtaining new vehicles.
- Assistance with identifying and financing technologies as a comprehensively-packaged bank offering to reduce a myriad of risks, while benefitting customers with ease and convenience of one-stop banking.
- Financial services such as insurance to reduce the risks inherent in operating cross-border.
- Awareness of legislation and pending legislation changes.
- Assistance with driver training providers.
Despite the challenges facing the transport sector, it remains the national lifeline – an activity that will increasingly impact the lives of all South Africans. The challenges will be many but the industry will continue to operate and grow.
Partnerships and industry ‘think-tanks’ that cross the artificial barriers within the sector and promote discussion and understanding will play an important role in finding credible solutions to problems.
Standard Bank has instigated and participates in many of these group discussions and is also a strong supporter of bodies promoting safety and operational efficiencies in the industry. We believe in the future of the transport sector and will continue to offer support and practical assistance where we can.