FINANCE

It’s no secret that banks are once again checking in with their road transport clients to see how the Ukrainian War is impacting on their financial health. Transport is seen as high risk as it’s at the mercy of spiralling input costs, not least the price of fuel – both diesel and AdBlue - which has gone crazy. If we do have a significant reduction in the world economy, that recession will have a significant impact on Irish transport firms, no matter what sector the business is operating in.

Here are five main areas to concentrate on to weather an impending financial storm and improve the bottom line if, as predicted, the impending recession hits.

Any transport business that does not have timely and accurate management accounts and cash flow control is fortunate to be operating in a sector that has exceptional margins, but inevitably the day will come when competition will challenge this. If the firm’s management does not have strong financial control, then the road to ruin is fairly well certain. The operators that have best in class margins have the uppermost financial management information to base their decisions on. These businesses use all the transport management tools and link these to give real time financial data. Even when negotiating with customers re current and future rates, the ability to extract current relevant financial data from the business re cost of operation and individual customer margin is crucial for success in retaining overall business margin.

Any transport business that does not have fuel surcharges in place for the majority of its customers cannot realistically expect to weather this financial storm unscathed. When the level of cost increases is passed on to end users of transport services by the global shipping brands, it puts the obvious need for fair and transparent fuel surcharges to be in place with customers. Any customer that cannot or will not entertain a fuel surcharge mechanism is really a customer to put to the top of the list to review in order to ascertain that customer’s margin, long term fit in overall business and what other profitable opportunities exist if not servicing them.

Step 3 is to review rates on a continuous basis. Many of Ireland’s most profitable transport firms have built their balance sheet value on continuously fine tuning their rates and customer base. Small increases combined with regular and constant customer monitoring means that they do not suffer the cost lag or margin drop when input costs increase. Because these companies have margin built in they stay ahead of the rest by way of buying power. Because they have margin and good rates they do not compromise on quality of service, and because they keep a strong communication with their customers, their service and efficiency is tailored directly to what their clients need. By failing to regularly review rates in this time of spiralling cost increases, the profit margin will only go one way - down. Currently more than ever before, customers needs service continuity.

Step 4 is to review business productivity and operational efficiency. Again it’s no secret or surprise that the high margin businesses really extract the most from their assets, whether that’s the owners’ and managers’ concentration on running the business, the planners’ and schedulers’ efficient allocation of work, or the standard and workflow achieved from the drivers operating within a well-managed and efficient business. A business that achieves a good margin from being efficient is easier to stomach by its customers than an inefficient operator that charges the same or higher rates but cannot operate profitably.

The final step is cost control and management. Continuously profitable Irish transport firms benchmark themselves against the best in the industry and always look to improve on all costs and efficiencies. Remember the 80/20 rule - that we spend 80% of our time on the less important but easier tasks and at best 20% of our time on the difficult tasks. It is easy to see that those focused and driven owner/managers just work on the difficult but key tasks that really effect margin, for example rates, customer profile, tackling driver availability, surcharges and cost control.