Lequidations on a downward trajectory

The incidence of liquidations in the freight industry appears to be on a declining trend when compared to the overall development in company closures across the entire country, according to Luke Doig, senior economist at the Credit Guarantee Insurance Corporation (CGIC). “Logistics sector failures accounted for 4.2% of total bankruptcies last year,” he told FTW. “This after having picked up in 2011 and 2012 when the figures read 5.3% and 5.9% respectively.” However, Doig pointed out, it is apparent that there is a seasonal spike in the first quarter of the year. Q1’14 saw 40 out of a total of 509 liquidations emanating from the freight sector, or 7.9% compared to the 8.4% seen in Q1’13 (67 out of 801). “One could argue that the 36.5% fall in total liquidations in Q1’14 (509 compared to 801 in Q1’13), as well as the declining trend in total closures over the past three years, is somewhat at odds with the overall state of play in the broader economy,” he added. “Escalating input costs (fuel/ energy and labour); consumer spend under pressure as interest rates begin to rise; low confidence levels domestically; rising labour tensions; and increased regulatory intervention all point to a difficult operating environment.” And, according to Doig, the relatively new business rescue provision (introduced in May 2011) has served to skew the official liquidation data somewhat. “So,” he said, “the improvement noted in total failures has to be tempered. “Furthermore, if one considers that debt judgments against businesses rose from R1.075 billion in 2012 to R1.14bn in 2012 and further to R1.272bn in 2013, then one gets a better feel for payment defaults. In fact the average value per judgment rose from R23 584 in 2012 to R31 004 last year, a 31.5% rise.” He argued that there had been a notable number of large corporate insolvencies over the past 12 months that had served to distort these figures somewhat. “Notwithstanding that,” he added, “the business environment has to date been held hostage by the myriad negative factors highlighted above. “If sentiment improves and improved business confidence can lead to higher investment levels, then an improved outlook may be in the offing.” But, what he described as “the headwinds” for consumers are unlikely to abate soon and ongoing labour strife poses another threat. “This latter point disrupts the supply or productive side of the economy, preventing the freight industry from taking advantage of gradually improving global demand.” Doig then posed the question: Can the new government do anything to alter this balance of opposing forces so that the country at large can grow at a much faster pace than the current moribund 2%? His reply was short and sharp. “We need it to.” INSERT & CAPTION If sentiment improves, an improved outlook may be in the offing. – Luke Doig