Transport industry finance expert Donal Dempsey answers some questions that every Bus/Coach & Truck operator is asking – Can my business survive?
The key question being asked by many involved in transport this week is can my business work through this crisis, how is the road haulage industry coping as a whole financially and what will be the new norm for our industry in the future.
The first question can be answered by saying that the transport sector is a critical industry and for once it’s receiving due recognition. There is both support from Government by wage support (which the majority are availing of) and a host of other incentives that are common to all industries. Equally important is that all banks and finance houses are assisting in business support.
Looking at other sectors, some have taken a higher margin to offset the reduced turnover, however, this obviously is not available to the haulage industry and the best advice is be cautious not to fall into a process of chasing work at loss making rates, just to cover overheads. Remember this is a quickly changing environment and while an end is not in sight, a strategy of rate reduction and reliance on low cost diesel could quickly come back to bite into the future. Because the wage incentive is so strong, and it’s dependant on turnover reduction to qualify, this may be enough to offset work poaching that will not be financially viable long term.
Now more than ever having realistic and accurate financial projections that are updated regularly is absolutely critical. Before making big business decisions know where the firm stands, project the financial effects of reduced turnover/Government support and where the cash flow of the business will be. Many clients get hung up on the loss of value of assets parked up. Don’t, it’s a non cash item, the finance houses will delay payments and in the future, there will be plenty of time to work those assets during their economic life.
The transport industry as a whole is coping well financially. Up to this point, Quarter 1, 2020 was strong for many, the uncertainty of Brexit (now nearly forgotten) meant that the massive capital investment of the previous bust did not happen. Many transport firms have built up strong balance sheets (especially over the last 4 years) and the fact that when the first approaches were made to banks and finance houses the support was there, so that the industry is not positioned badly to weather this storm. The fact that most transport firms are still working and as an industry and that transport is an essential industry have all been key to business owners rolling up the sleeves and getting on with business.
Final question is, what will be the new norm? It’s obvious that much of the retail industry and hospitality will not return for a long time. Bulk haulage will continue but perhaps at a reduced level, the further potential for home deliveries is enormous (with the use of eircodes and technology this will progress further to increase efficiency/reduce carbon footprint/lower costs). Opportunities will arise as this pandemic has shown weaknesses in global supply, so stock holding of key products and efficient next day nationwide distribution will be put in place. (Look back at the oil crisis to see why Ireland has a refinery and fuel stock pile in this small island).
There has also been a gigantic leap forward in technology usage, the peak traffic rush may not return as more and more staff work from home. Remember it takes 65 days for a new habit to materialise and this will soon reach that in lockdown. With the onset of new technology the opportunity to reduce waste and use the logistics industry to achieve this are endless.
Bottom line this week is take all supports that are available, know financially where the company is at and where it is going. Stay positive and use the new free time to keep updated on the new norms and what lies ahead for the future.
Top Financial Tips
- Keep Communications open with Bank/Finance Houses
- Get applicable State supports
- Keep control of debtors
- Reduce any spend possible
- Mind best customers
- Make critical decisions on staffing
- Re-do budgets and cash flows