National Road Carriers Association

WATCH OUT FOR MARGIN DESTROYERS IN 2022

James Smith

By James Smith, COO of National Road Carriers Association

OUR INDUSTRY OPERATES ON VERY SLIM MARGINS

and the room for error is limited.

Any cost increase can destroy your cashflow and result in business failure if not addressed quickly.

It is certain 2022 will see significant cost increases for transport businesses: Capital costs will rise as the global shortage of new heavy trucks and the raw materials required by body and trailer manufacturers lead to price increases. We can also expect to see an increase in interest rates as they are used to constrain inflation.

Global supply chain issues that commenced in 2020 because of COVID are still with us in 2022 and all international freight companies are expecting them to continue throughout the year – and into 2023. It is possible we will not see international shipping rates and timetables return to pre-COVID levels until 2024.

Locally the cost of labour will rise as the skilled staff shortage gets worse. Restrictions on immigration caused by COVID, coupled with a very low unemployment rate, will further squeeze the already tight labour market. Additional pressure will result, as roles that can be filled by unvaccinated workers become harder and harder to find.

Fuel prices will continue to fluctuate with the trend towards higher prices likely, especially as shipping costs rise.

As business owners, it is vital you understand how these cost inputs impact your business.

Every business is unique, so the impact of a cost increase will vary considerably.

If you have not done so already, get a cost model done that highlights your high-impact costs and what impact increases to these will have on your business.

Review any contracts you have with your customers and ensure there is a mechanism that allows for rate adjustments should costs fluctuate. Also make sure you understand what triggers these mechanisms. Be aware these rate adjustment mechanisms work for cost decreases as well.

Tools such as a fuel adjustment factor calculation can be a useful way to ensure costs are recovered consistently, despite fluctuations in fuel pricing, to enable a business to remain sustainable.

Labour will be one of the big ones in 2022, so look to establish a way to recover increases in labour costs.

Often overlooked is the subtle drain on margins caused by increasing congestion, both on roads and at customer sites. Surcharges and waiting time charges are ways to encourage productivity.

Make a commitment to understand your costs and to put in place trigger points that require action.

It may be possible to minimise the impact of any cost increase by improving efficiency or productivity. If your customers can reduce waiting time or improve utilisation then cost increases could be minimised.

Don’t rely on others to do this as every business is unique.

Pick up the phone and contact one of the NRC team on 0800 686 777 if you need any assistance, as we have templates and tools you can use. 2022 is looking to be another challenging year, so be prepared for changes and know your business so you can react quickly to whatever is thrown your way. T&D

The vital importance of contracts

Simon Carson

By Simon Carson, Road Transport Association of New Zealand chief operating officer

NOT TOO LONG AGO, TRANSACTING BUSINESS WAS FAIRLY

easy. Two people carried out a trade, and both parties honoured their word, often over a handshake at their local.

But in the 21st Century, most people are all too aware of the long history of deal-breaking and lawsuits that have taken place all around them, most without any form of contractual agreement in place.

In your transport business, contracts are critical: They outline expectations for both parties, offer protection if those expectations aren’t met, and lock in the price that will be paid for services. They can also make allowance for fluctuating cost factors, such as fuel and fuel adjustment factors (FAFs).

Having a written contract in place means that everyone knows what is expected of them and makes it easier to resolve any disputes that might arise.

In the past we have seen unrest in transport sectors where large manufacturing and processing businesses have successfully operated using a plethora of transport operators to service their cartage and delivery requirements.

These large businesses have then introduced mandatory systems and operational platforms, unworkable credit payment terms, and margin-eroding administrative fees.

When your transport business is unprotected by a contract, and these factors are rolled out, they are very likely to stick. Don’t get me wrong….there is often opposition from operators, but seldom does a protest succeed.

Contracts are best kept simple, and should include the following: • Full scope of work to be performed, including all deliverables; • General timeline or, if possible, due dates for each milestone; • Payment amounts and terms; • The circumstances under which the contract can be terminated and how that will be handled; • A non-compete or non-disclosure clause, if required, and; • Terms related to failed obligations.

Once this is in place, a glance over it by your lawyer should allow the contract to be quickly signed and finalised. RTANZ can assist you with legal advice through our longterm legal partners, Wynn Williams. Once you have an initial draft of the contract document, you should be able to simply update it with your customers.

Over recent months, I have been watching social media sites with some interest. It is more and more common now to see individuals and businesses alike advertising work available for transport operators.

Only last weekend I saw a business advertise for a seven-cubicmetre, 2000-kilogram agricultural machine to be moved from Christchurch to Invercargill – a distance of about 550 kilometres.

The advertiser keenly stated: “I am prepared to pay up to $300 for this work!” In minutes someone had accepted the job – and was followed closely by operators who slowly undercut each other in an attempt to get the work.

The lowest bidder, of course, won the work. He would pick the goods up two days later, deliver in another two – and, as a result, was $195 dollars better off for his efforts. Ironically, GST was not mentioned.

This really was a classic race to the bottom and is an example of something no-one wants to see happening in an industry where service is, more and more, becoming paramount.

It’s been a tough year, where resilience and positivity are key factors in weathering the storm and coming out the other side as bigger and better businesses.

I would like to thank members for their support during 2021 and wish each of you every success for the year ahead. T&D