Freight industry liquidations drop

Although many economic signs are not looking too pretty, liquidations in the logistics sector (transport, storage and communication) in the first half of the year actually took a big drop on last year’s comparative figures, according to Luke Doig, senior economist at the Credit Guarantee Insurance Corporation (CGIC). “Currently,” he told FTW, “there are a range of contrasting indicators regarding the health or otherwise of the economy at large.” Man-days, for example, lost due to strikes in the first six months of 2014 exceeded the total recorded for calendar 2013. And, when the metal and allied industry losses are included, the 2010 record of 14.6m man-days lost may come under threat. “And,” Doig added, “who is to say that other strikes are not possible?” While the country may avoid a technical recession when second quarter gross domestic product (GDP) figures are announced later this month, Doig believes that a 2014 outcome for growth exceeding 1.5% will be an achievement in itself. “Cumulative interest rate hikes of 0.75% will likely dampen consumer appetite, while high wage settlements and the weak exchange rate are adding to inf lationary pressures. Indeed more rate increases are likely over the next 18 months. But the temperate rate of likely interest rate increases abroad implies that the domestic hiking cycle will similarly be moderate. “High unemployment levels, weakening disposable income growth, electricity constraints – together with higher tariffs, potential rating downgrades and policy paralysis or opposition – all point towards an ongoing difficult operating environment.” Looking at the figures, Doig noted that official liquidations had revealed a 21% decline in the first half of 2014 compared to the first half of 2013, with personal sequestrations down 3.3% over the same period. Of the 1 078 closures recorded to date, 59 were in the logistics sector, with 51 being voluntary and eight compulsory. “Firstly,” he said, “this compares very closely to the incidence rate seen in the first half of 2013, when 77 logistics failures were seen out of a total of 1 364 liquidations – with both accounting for approximately 5.5% of all closures. “Secondly, while not too much can always be read into the voluntary vs compulsory split, the high skewing towards voluntary may itself be an indicator of strains within the sector.” His company’s experience so far this year has revealed an earlier post-fiscalyear- end surge in payment defaults, a number of unusually large defaults, as well as a rising trend of corporate fraud. “Our default payment leading indicator (overdue advised accounts from policyholders) was 15.5% higher in number and 52% higher in value in the first half of 2014,” he said. “Similarly, our claims experience was 13.8% and 23.6% worse in number and value respectively.” Doig also pointed out that this came off a 119.5% hike in domestic claims payments in calendar 2013, which was impacted by one of the largest corporate defaults in history, namely that of the First Tech group. Doig stressed that, currently, the pharmaceutical, food, building, construction and steel industries had been particularly hard hit. “The steel industry is yet to return to full functionality and the fallout from the strike is set to yield further casualties,” he said. “Following on the 127.6% rise in average claims values last year, 2014 has seen a continuation of this trend. “We have noted a return to more normal levels in our internal adverse indicator of late. But we retain a cautious view, given that the outlook for the remainder of the year – and indeed into 2015 – remains mixed. And, as such, risks are similarly elevated. “One bit of good news is that fuel costs are likely to fall next month on the back of lower crude oil prices. Current over-recoveries to August 13 amount to roughly 61 cents per litre in the case of petrol 95 ULP and 12c/l for 0.055 diesel.” INSERT & CAPTION Official liquidations revealed a 21% decline in the first half of 2014. – Luke Doig