Road transport: changed conditions ahead

Critical

Transportation and storage represent about 5 per cent of Australian GDP.  To put that into perspective, Mining and Finance respectively represent less than 10 per cent each - and have been shrinking in recent years.

"The rapid evolution in e-commerce, widely distributed manufacturing chains and larger logistics networks should drive demand for trucking.” - Timothy Suffield

The road transport sector generates around $A40 billion annually in revenue. From an employment perspective, there are more than 40,000 business in the sector with half of these business represented by owner drivers with just one truck.

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Meanwhile, road transport is becoming increasingly important as complex supply chains grow in scale, on-time inventory management becomes the norm and on-line sales grow.

All these themes are heavily reliant on the efficient transportation of goods right across the supply chain.

Consolidation

Our report The Road Once Travelled, a road transport economic and benchmarking analysis, identifies some key themes:

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• The industry will continue to consolidate due to increased competition and increased operating costs. Although the industry will consolidate in terms of the number of companies, it will provide an increasingly greater and more efficient service.
  The number of employees in the sector will continue to grow subject to no disruptive technology shock (driverless vehicles/drone etc) or regulation change. 
• Leverage and debt usage has grown in the sector over recent years however there has been a sharp decline in CAPEX investment resulting is Australia carrying the oldest average fleet age on record at roughly 14 years.

To put this into perspective, the average age of the trucking fleet in USA and Great Britain is 6.5 and eight years respectively. Australia’s aging fleet is not sustainable! 

Interestingly, recent ANZ research indicates a 32 per cent increase in total imports of transport equipment for calendar 2017 suggesting this worrying trend may be narrowing.

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• Diversification may appear attractive but investing outside of pure road cartage doesn’t make sense for everyone.
  
  A number of companies have invested into storage and other vertically integrated services and are not generating a sufficient return on their capital. 

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• Trucking businesses which heavily rely on sub-contractors are winning market share through price cutting.
• ANZ predicts the sector will have to invest in excess of $A3.5 billion over the coming five years.

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Timothy Suffield is an Associate Director, IIB at ANZ