Innovate to keep on trucking

“Innovation with a focus on sustainable business practices will be key to success – with early adoptors holding a potential competitive advantage” – Dean Evagorou

ANZ analysis shows increased revenue growth and improved returns in the sector during the 2022 financial year.

Industry operators were able to partially pass on inflationary expense pressures to end-customers, protecting margins in 2022. However, competition remains high and the ability to continue doing so (within a softening economy) will be tested in the short-to-medium term.

Revenue growth & ebitda margin

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Trading conditions were choppy as headwinds started to intensify. As a result, we’ve seen consolidation of smaller players continue with a notable shift in some of the drivers for M&A activity towards assets and staff – driven by continued global supply constraints strangling capex, alongside worker shortages and a strong labour market impacting trading capacity.

The investment opportunity for future growth

Historically, rail freight has grown at a faster rate than road transport but this trend is expected to reverse in the coming decades.

Australian rail vs. Road freight volume

Billion-tonne-kilometres

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To take advantage of this anticipated growth, road transport operators will be heavily reliant on investment in fleet, technology and infrastructure with a notable reliance on Governments and automotive manufacturers.

Investment has been a fundamental challenge for the sector in the past. Australian operators’ relatively low capex spend correlates with a high average fleet age – the average age of vehicles typically utilised for road transport across Australia in 2022 was 11.62 years – further highlighting the importance of investment going forward.

Capex/sales

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If the Australian road transport industry had kept relative pace with median global capital investment, the Australian industry would have spent an incremental $9 billion from FY2018 to FY2022.

Technological innovation will be key to improved sector productivity and efficiencies. Following a trend seen in the US, driverless vehicles and drone deliveries are expected to pick up momentum, as well as AI utilization, improving real-time visibility within supply chain logistics.

With an increasing national focus on ESG (Environmental, Social, and Governance), sustainable operating practices will become an ever increasingly important consideration for road transport sector operators.

This trend means significant capex will be required as operators upgrade and update their fleet – which currently contribute a significant proportion of emissions in the sector.

While the sector will be somewhat reliant on innovation and infrastructure investment to drive emissions reductions, early adopter operators could be at a competitive advantage, as larger corporations look to how they can reduce their ‘scope 3’ (value and supply chain) emissions.

Innovation with a focus on sustainable business practices will be key to success with early adoptors holding a potential competitive advantage.

Click here for the full ANZ Client Insights and Solutions Road Transport Industry Report. 

Dean Evagorou and Aidan Kenworthy, Associate Directors within ANZ Client Insights and Solutions.

Source: ANZ Client Insights FY2022 Road Transport paper, “All Eyes on the Road Ahead”. If you would like to read more about this research, you can contact dean.evagorou@anz.com