New and emerging transport operators are finding it increasingly difficult to finance the purchase of a heavy-duty vehicle – which can cost millions of rands – as banks, who see transport as a high-risk industry, often want proof of income before agreeing to finance. “You obviously can’t show proof of income before you have the means of transport,” the Road Freight Association’s Gavin Kelly told FTW. This Catch 22 situation with the banks has arisen, amongst others, because many of those who see an opportunity to make money transporting goods do not properly understand what it takes to successfully run a transport operation and remain sustainable, in his view. For example, highlighted Kelly, many emerging operators were given contracts to transport commodities such as coal for power parastatal Eskom. “The problem is, they were given a set rate by Eskom and thought that was fantastic. They invested in the heavy haul trucks without a proper understanding of the maintenance or replacement costs which are quite substantial on some of the bad roads in South Africa,” he said, noting for example, that just to repair a tyre on a truck could cost in excess of R6 000. “When those contracts were cancelled and the transporters didn’t have any more contracts coming in, the banks were stuck with that bad credit,” Kelly explained. According to him road transport is, by its very nature, risky. “There is the risk of hijacking, the badly worn roads, the endless congestion delays and the fact that there is never a guarantee on loads,” said Kelly, pointing out that unless the wheels were moving and the truck had cargo, there was no money to be made. He said there was one “sad story” where an emerging operator bought a truck for a big project only to miss a deadline because he hadn’t fully understood the logistics complexities of moving goods from Point A to Point B. “The result was that word-of-mouth about his poor service meant he never got another contract.” A fleet financing insider told FTW on condition of anonymity that banks also all had their own risk profile. “Some banks want to know how well the applicant understands the industry, has he undergone training? Others are more concerned with a track record and won’t loan the money if there is a bad track record or if the applicant doesn’t have a track record. And yes, the hoops prospective transport operators have to jump through are getting higher,” he said. Leon von Benecke, director of operation support and safety for National Road Carriers (NRC) – which owns a fleet of close to 70 trucks – agreed that banks often only saw an investment in funding a transport operation as risky, but added that they themselves sometimes did not take into account the huge costs associated with running the vehicle. “Sometimes they are willing to finance a loan for the vehicle but this doesn’t extend to maintenance and upgrade and replacement costs,” Von Benecke commented.
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You can’t show proof of income before you have the means of transport. –Gavin Kelly
