Stern warning from transport expert

29 January 2009

Stern warning from transport expert

Transport operators need to take a close look at their pricing strategies if they are to survive in the current market, according to leading transport and business turnaround specialist Trevor Thornton.

Thornton, the chairman of business advisers and chartered accountants Grant Thornton, said that although fuel prices were falling, transport costs were rising faster than the cost of inflation.

“The reality is that transport costs actually need to increase. There has been a focus on the fuel price but other costs have been rising and are now not being offset by the declining fuel price.”

Thornton said transport operators had been accepting lower margins for some time but it was not viable to keep doing this.

“They have been absorbing higher costs for a long time already, and now their businesses are becoming unsustainable. They can’t do that forever.”

Thornton’s comments follow a report from the Road Transport Forum NZ, which shows that transport costs were rising faster than inflation. Comparing the December 2007 quarter with the corresponding period in 2008, it found that overall costs for trucking operators rose by more than six per cent. This contrasts with the annual CPI movement for the September 2008 quarter of just over five per cent.

He said transport operators were facing rising costs across the board.

“Current business conditions require transport operators, who mostly have been unable to recover the full impact of fuel prices, to manage their business closely,” Thornton said.

“They need to recognise the effects of not pricing properly and recovering their increased cost of doing business. Naturally, it is much harder to increase prices in a market with stagnant or reducing demand. Customers look at declining diesel prices and think that transport costs should also be falling.

“Missing targets for a month or two is not usually fatal but action needs to be taken to remedy the problems.”

Thornton advised transport operators to gain a closer understanding of their monthly business results using Road Transport Forum benchmarking information to assist. Benchmarking data is available in conjunction with the Road Transport Association on 0800 BIZRTA where transport operators can obtain an initial 15 minute free consultation on their business issues.

ENDS

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