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Financial Distress in Australia's Transport Industry

Posted by Revive Financial on Aug 22, 2019 11:20:11 AM

The road transport industry plays a key role in enabling Australia’s economic activity. Without the capacities and capabilities provided by the transport industry, no passengers or freight would move. Australia would literally come to a standstill. The industry has an estimated revenue of $95.4 billion and employs nearly half a million people.

Due to tough economic conditions, many transport business owners are facing financial distress with some facing insolvency and being forced out of business. The Australian Securities and Investments Commission (ASIC) report on insolvency statistics found 339 businesses in the transport, postal and warehousing industry entered an insolvency appointment in the 2018-19 financial year. The largest of these being the collapse of Redstar Transport in December 2018 threatening the jobs of its 400 staff.  The issues aren’t limited to Australia, with talk in the US of a transport industry recession.

Key Causes of Financial Distress in the Transport Industry

ASIC’s report says the leading causes of business failure is inadequate cashflow, poor strategic management and trading losses. In our experience, there are a number of specific factors contributing to the enormous pressures the industry is currently facing.

  • High fuel costs,
  • A competitive industry suffering from an oversupply of operators undercutting prices,
  • Reduced work available and customers refusing to increase rates to cover your costs, leading to unprofitable routes,
  • Drought and poor weather affecting agricultural haulage, and
  • Cashflow difficulties due to regular fuel, finance, wage payments and maintenance costs, while waiting for customers to pay.

Signs that Your Transport Business may be Insolvent

Understanding when your business is not performing well and detecting the early warning signs of operational and financial distress is key to preventing business failure. Some early insolvency warning signs include:

  • An inability to meet subcontractors and fuel suppliers’ debts within trade terms leading to increased dialogue with suppliers,
  • Missing finance payments by their due dates,
  • Using BAS money to cover temporary cash shortages like wages or fuel bills,
  • Delaying maintenance and servicing of trucks,
  • Increased use of personal credit cards to pay for business expenses,
  • Deteriorating relationship with your bank and financiers,
  • Inability to obtain more finance from your bank, and
  • An increased level of worry about a business’ financial circumstances.

Act Early to Avoid the Risk of Insolvency

The future can seem hopeless when you’re dealing with these issues and trying to manage cashflow and suppliers. But acting early can save you from liquidation. A business turnaround can help stabilise cashflow and return your business to profit. A turnaround exercise for a transport business will often include:

  • Cashflow management including finance as necessary,
  • Profitability measures through analysing monthly overheads, upcoming lease events, cents/km running rate and route profit margin analysis,
  • Negotiating with key customers for volume and pricing adjustments,
  • Workforce analysis to ensure reliability and safety, and
  • Fleet utilisation assessment and rightsizing.

Revive Financial Can Assist

The best thing you can do to ensure the survival of your business is to get professional help. You know your business best, but the stress of running it can cause short-term decisions which may harm the future of the business. Acting early and seeking out financial advice from an experienced professional who understands the transport industry and the pressures you face will drastically increase the options available for your business to survive. At Revive Financial, we help businesses Australia-wide who are facing financial difficulty. To get your business back on track, get in touch with our team today for a free consultation on 1800 560 558.

Topics: Director Advice

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