There are many factors that can severely impact business operation costs – technology is evolving, sustainability is a concern, and digital usage is at an all-time high. Investments are now forced to cover wage growth, service costs, fuel prices, and consumer demands, leaving little disposable income for improvements elsewhere.
Haulage companies have especially taken a hit, as a report from November 2023 found that 463 haulage firms went bankrupt in the previous 12 months. Fast forward 6-8 months and evidence suggests that this trend continues.
What financial implications directly affect the transport and logistics sector?
There is concern within the transport and logistics sector that suggests external factors, such as Brexit border controls, increased industry competition, and reduced consumer spending, has impacted productivity, trading volumes, and most significantly, revenue. As a result, this has led to haulage companies struggling to repair balance sheets from legacy debt acquired since before the pandemic. This could also have a lasting impact on directors, shareholders and funders.
Hire purchase agreements are at the heart of the transport and logistics industry. The Bank of England initiated a monetary tightening cycle in 2021, which hugely inflated the price for hire purchase agreements. These agreements are essential for financing fleet renewals, and the industry itself is desperate for first rate cuts, despite inflation reducing to the Bank of England target. However, it would still take several years for the haulage industry sector to finally reap the benefits from any relief towards monetary policies.
For haulage companies that rely on invoice discounting, the benefits experienced during periods of growth (when cash is received as invoices are raised) become a disadvantage when trading volumes decrease. Add this to other market pressures, such as the inability to transfer inflationary pressures to customers and rising operating expenses, invoice discounting impacts profits and a business’s creditworthiness. Consequently, companies may request higher advance rates on invoices, which conflicts with funders’ risk models, as they struggle to maintain cash flow in a declining market.
How haulage firms can mitigate these risks
There are several proactive measures businesses in the haulage sector can take to mitigate any financial risks with useful data analytics also at their disposal before bankruptcy is even a consideration.
1. Understanding your current situation as a business
Understand your financial position by regularly reviewing your profit and loss, balance sheets, and cash flow. This will give you greater insight into your operational costs and how your business performed in previous years compared to the present. It also allows the opportunity for forecasted statements, which can be utilised as guidance if correctly prepared and robustly tested.
2. Use your trading knowledge as a negotiation tactic
It may be possible to lower funding rates by explaining your situation and outlining your strategy to your funders as a bargaining-chip. The reporting and analysis found above should help assist you with your proposal on how you will overcome industry challenges.
3. Taking a step back to ask yourself critical questions
As simple as this may be, taking a step back and viewing your situation from an outsider perspective can open your mind to anticipate potential challenges and find solutions to on-going problems.
Following your report findings or forecasted statement, ask yourself these questions:
- Are you too reliant on certain customers?
- Are you underachieving in certain sectors of operations once all factors are considered?
- Do you have any processes in place where you can track feedback from an unsuccessful conversion following a quote?
In conclusion, it is essential to stay on top of your financial management through best practices and clear communication, where thorough planning and analytical data is used in preparation to mitigate risks. Especially within the T&L sector, the key to progression is to act with early intervention and host open-minded discussions between your advisors and lenders. Where in-case of a difficult scenario arises, you put your business first and discuss realistic outcomes in support of longevity within the industry.
How Menzies can help:
Menzies LLP has a dedicated team of advisors that help clients grow and manage their business. If you are looking to ensure you are managing your finances correctly, please contact one of our experts to see how we can help.
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