Outlook for Road Freight Transport
Employing over 142,000 people across Australia working in over 40,000 businesses, this sector transports non-bulk freight by road. Larger vehicles cross states whilst light commercial vehicles complete the final stages of delivery. It's a critical part of the supply chain, particularly for manufacturers and retailers. Total Revenue in 2019 is expected to have reached $46.8 billion, rising as demand grows. We explore the outlook for these companies and the sector's opportunities and threats for the new decade.
The last five years has seen domestic freight grow, in part fuelled by transporting imports to wholesalers. Road freight dominates against rail, water and air in all but the longest freight routes.
Intrastate transport makes up 55.9% of Road Freight transport. These are mainly larger trucks transporting food. Droughts have increased volatility of demand with an overall decline being seen. Interstate, on the other hand is growing, taking goods from the ports in Melbourne, Syndey and Brisbane across the country. These again are larger vehicles with well paid drivers. The urban services is the least profitable area for road freight due to less-efficient smaller vehicles, increased congestion and difficulty in getting a full truckload for the return journey. Demand, though, is growing driven by urban population increases.
There is good diversification across all sectors of the Australian economy. Crude materials, including scrap and chemicals, have traditionally been the the largest road freight area but this is starting to decline whilst manufactured, primarily imported goods transportation has increased.
The number of Freight transport companies has shifted towards NSW and VIC. The loss of car manufacturing has reduced SA demand for services and crude resources are also down in QLD and WA. These trends towards more urban focussed businesses are expected to continue. 93% of the market are smaller enterprises which is in part due to subcontracting by the larger companies. The larger companies and customer wield considerable market power in determining freight rates.
Whilst the demand has grown, the profit margins have fallen linked to declines in fuel surcharges and high internal competition. So how can Road Freight Companies thrive in future.
- Operators need to make the most efficent use of their capacity
- Control of costs and debt collection
- Look for long term contracts
- Have the best people
- Know the market, customer needs and put the right pricing policy in place to attract more business
It is anticipated that demand will continue to grow over the next five years to increase business revenue to $50.4 billion by 2024.
Wage costs are expected to rise at a faster rate to attract new employees. Fuel prices are also expected to rise, which may not always be fully passed onto customers where competition is most intense. This, in part, is also likely to drive increasing consolidation. This will provide greater scale and efficiency to businesses.
Competition on the longer routes will depend on the speed of development of the proposed new rail programs.
* Source: IBISworld Road Freight Transport. Our Insight report excludes couriers and large in-house fleets used in mining, contruction and retail.
With opportunities out there for ambitious companies, here's how Classic Funding Group can help.
Funding Prime Movers and other Equipment
With most profit being made from longer journeys, either expanding the fleet or improving fuel efficiency is key. Loans are available to fund trailers and trucks together with equipment for maintenance and loading. To support subcontractors, who may look to source older or smaller vehicles, these can also be quickly approved for finance.
Other ways to help include providing funds for business mergers and takeovers. A cash boost can be provided from sale-back of existing assets.
Where cashflow needs support, a Debtor Finance facility can be put in place, to alleviate fluctuations in orders or rapid expansion. With Cashflow Finance solutions help is available providing a range of options for start ups to larger businesses.
We've helped hundreds of road freight businesses across Australia and have excellent secure funding lines in place to help you.