Compliance issues squeeze industry margins

It’s no longer about small parcels and urgent documents. The express industry is about reliability as much as speed, which is why the local market is experiencing rampant growth. FTW takes a closer look. Further consolidation on the cards JOY ORLEK THE LOCAL express freight industry is riding the crest of a wave, with growth in the region of 20% per annum. It’s no longer about small parcels and documents for emergencies, says SA Express Parcel Association executive director Garry Marshall. “That’s just one of the elements. “The express market can be defined as anything from 100 grams to 1000 kgs and is more about fast and reliable distribution of products. In a country where infrastructure deficiencies add up to congestion and subsequent slow delivery, companies often use it for reliability rather than speed. “It’s a component of the supply chain and slots in parallel with other supply chain methodologies,” says Marshall. “For example an importer may be shipping his product to South Africa by sea, but some of that product may be needed for early production – express then becomes a complementary supply line.” But while the industry may be “growing like a weed”, profitability remains a key issue as environmental, compliance and security issues put pressure on the bottom line. An increase in the number of mergers and takeovers is the likely outcome as companies battle to achieve the economies of scale necessary to drive down costs. Marshall warns of tough times ahead, despite the unprecedented growth. FICA, the Postal Regulator’s act and aviation security are all forcing additional cost structures on an industry whose margins are already squeezed. “Coping with legislation like FAIS demands super-qualified sales and administrative people and this has a knock-on impact on companies which have to beef up their organisations to cater for these demands. Similar heavy overheads have to be borne by smaller companies, which is why the trend towards consolidation continues.” Internationally the norm is for express organisations to grow at 3-4 times GDP growth, says Marshall. That means in South Africa it should grow at a rate of 9-12% a year. “But the industry here is growing at 20% because of local conditions related to infrastructure and congestion.” This has also impacted on target markets. While historically the express industry catered largely for business to consumer (b to c) transactions, it’s now more of a business to business (b to b) market, with companies creating separate individual operations within their organisations for b to c transactions. “A key concern from a business perspective is the management of risk, and a key risk area for business is the supply chain,” says Marshall. “Having reliable, trusted and secure supply chain partners is therefore imperative and one of the reasons for the industry’s growth, particularly in South Africa. “A fundamental rule is that if a parcel is sitting on the floor it is a security risk. There’s less security risk if it’s in transit. The express industry has the right infrastructure in place from an IT perspective, and integrated operational systems where people handle more of the freight themselves and therefore take responsibility. And that’s what makes the difference.”