Is this the calm before the storm? Is a recession on the horizon, as we exit Phase 2 of the COVID-19 crisis? It’s fair to say that most road transport firms have weathered the crisis well, profitability has been retained by many, even with reduced turnover, due primarily to some very important circumstances and events.
These circumstances, namely bank support, Government funding and the lower diesel costs helped transport companies survive the storm. Most operators have not been asked to review rates downward due to lower fuel prices and demand for transport services have been supported indirectly by strong consumer demand (supported by the Government Wage Supplement) and other supports to industry has also meant that they have not yet tackled the tough decisions on future viability.
Because of the known economic effect this crisis will bring and the known fact that State and bank support will only continue for so long, the next stage in this crisis is to prepare for a national and global recession. This is a given without the possibility of a second wave of the Coronavirus, and while the handling of a second wave will be different and more focused, it still could have negative economic consequences. The question now is what can a transport business do to prepare now for what is building up ahead? While the transport industry is not currently in the eye of the storm, there will be many twists and turns in the road ahead.
Step 1 Refocus attentions on cost control and efficiency, as post-August, wage subsidies will end, diesel cost will increase and banks will want to see business plans on how the firm is going to maintain profitability and liquidity in a reduced market. This is not a time to chase extra turnover, just to keep units operating as low margin contracts over time will not work to lift the business.
Step 2 Take time for business analysis, see what sectors are most secure, look at increasing margins from these sectors and concentrate attention on the customers/sector that adds most to the bottom line and has long term prospects of survival. Concentrate on the top five most profitable customers and how their business will fair into the future and access what fundamental service offerings are needed to specialise in the retention and growth of this lucrative aspect. In offering additional logistic services that link the business with the customer and take out overhead costs that are duplicated.
Step 3 Many manufacturing and distribution businesses may now look at reducing/eliminating own account fleets or unproductive storage and handling. They may look at the logistics provider offering an enhanced service that eliminates the requirement for large inventory or multiple depots. The main point of contact with their suppliers and customers may be a specialist transport/logistics company, and here lies the opportunity. Also, by offering the best service that retains customer loyalty but still reducing cost will be the focus of all businesses in order to survive.
Step 4 Review the current fleet of vehicles in order to reduce operating and running costs and lower medium term risk. If the business is strong, it’s still appropriate to plan for optimum asset replacement as unlike the recession of ten years ago the huge asset purchase spree of two years prior to the last recession is not an issue now. The age profile of vehicle fleets has gradually improved up to this year and a prudent replacement policy will prevail.
Step 5 Spend some time reviewing administration and financial management ability and financial planning, as accurate and timely financial information that is processed and summarised well, to aid day-to-day business decisions is vital now more than ever before.