Thousands of owner-drivers to exit over 20 years

By: Steve Skinner

ANZ forecasts the number of trucking operators to drop from 41,000 to 33,000 in the next two decades


The leading lender to the trucking industry forecasts the number of operators to shrink by a fifth over the next 20 years.

ANZ Bank expects most of those operators to be single driver owner-operators.

The forecast is regardless of whether there is any Road Safety Remuneration Tribunal or something similar.

In an industry characterised by "fierce competition", ANZ says its analysis of a sample of nearly 50 private and public companies indicates that the bottom quarter of them are running at a loss.

"This is not sustainable," says Tim Suffield, associate director, client insights and solutions, with ANZ. "This is another reason why there will be more consolidation in the industry.

"Forecasts suggest – and it’s not just the ANZ – that there could be up to 500 businesses per annum over the next three years which will no longer exist … and a lot of them are single operators.

"There are going to be opportunities for a lot of larger operators, middle-sized operators, to take on these contracts, take this business and make it more profitable as it integrates into their business."

Suffield presented the startling projections to the Australian Trucking Association’s annual conference on the Gold Coast last weekend.

ANZ is the leading lender to trucking, with more than $1 billion invested.

"The assumptions that underlie this are very much in line with other industries where we have got a lot of fragmented operators that are running in very small parts of the business, with extremely fine margins," Suffield says.

"It doesn’t take a lot for these businesses to have a few cash flow incidents which are going to cause financial distress on them and eventually their businesses are no longer going to be viable.

"Does that mean they’re not going to have a job? Well no, they’re still going to need to be in the industry; the number of employees is going to grow … It’s just the number of operators that is going to shrink.

"So you need operations with efficiencies of scale and you need to make sure you’re not running at negative margins."

Suffield says median earnings before interest and tax are currently running at a touch over 4 per cent; and for the top quarter of businesses, return on capital is good.

He says challenges for all operators include technological innovation and increasing compliance costs.

"There’s a lot of additional costs that have come into the business now that weren’t there 10 or 15 years ago. You have got increased access (costs), you have got increased safety, you have got increased licensing, you have got a number of factors that need to be considered rather than just fuel, depreciation of the vehicle and financing charges."

Suffield says that equipment utilisation does not necessarily propel profits. "The old adage that rubber on the road equals money is not necessarily true."

The trucking industry is currently running at about $40 billion a year in revenue, which ANZ expects to more than double to $85 billion over the next 20 years. It says the industry is growing at more than 3 per cent a year.

"Demand is growing so why are we making less money" Suffield asked, without professing to have the answer. "We’re working very hard but as an industry are we actually making the money and the returns that we deserve?"

However Suffield painted a positive picture for trucking over the long term, as well as for the broader economy.

For one thing, there are no immediate substitutes for trucks: "Air, rail and sea are not going to take over the trucking industry."

He adds: "Corporate Australia has grown into a much more complex beast when it comes to supply chain management, and the trucking industry is absolutely critical to this.

"So just-in-time inventory management; corporate Australia wants things delivered quicker, they don’t necessarily know when they want it either, so you need the foresight or ability to forecast where you’re actually going to find your next deal."

To cope with growing demand Suffield estimates that the industry will have to find at least $3.5 billion in extra capital over the next five years.

He says with lenders traditionally accounting for just under half of funding, almost $2 billion in extra equity will be needed.

For more from Trucking Australia 2016 check out the August issue of Owner//Driver.



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