Liquidations hit freight industry hard

Just as we forecast in FTW a month ago, liquidations in SA rocketed by almost 69% in January – hitting a total of 270 compared with 160 in the same month last year. According to our crystal ball gazer, Luke Doig, senior economist at Credit Guarantee Insurance Corporation (CGIC), this was broadly in line with his company’s own experience on overdue advised accounts and claims paid. The freight industry was a big sufferer in January, Doig told FTW, with a substantial (125%) increase in the official liquidation of transport, storage and communication enterprises – with nine such concerns closing their doors compared with four the previous month and four in January 2008. “Of these nine,” he said, “two were companies while seven were close corporations (CCs).” For the whole of 2008, there were 126 total failures in logistics – 36 (28.5%) being companies and 90 (71.5%) being CCs. For a comparison on the January stats for business demises, 14 construction firms were liquidated in January, up from five a year earlier (a +180% increase). “This sector may suffer further in the months ahead as the deepening slowdown may induce project cancellations and delays,” said Doig. “Delayed payments by the public sector for services rendered is another serious blight for the industry.” And, in the wholesale and retail trade, catering and accommodation, there were 75% more closures in January 2009 (91 from 52 a year ago). This, according to Doig, as consumer spending crimped in the face of a range of pressures, perpetuating the trend seen last year when 68% more failures occurred. Meantime, liquidation of financing, insurance, real estate and business services concerns also escalated strongly by 82% to 113 from 62 in January 2008. Doig says: “As a lagging indicator, liquidations can be expected to continue rising as 2009 progresses, despite interest rate relief. “Quite simply, the current payment extensions and ultimate defaults were to be expected and very little relief can be expected in the months ahead. “The problem for companies now is the dire necessity to continue selling, but to ensure that payment is received for their goods in order to maintain a positive cash flow.” Doig stressed that the logistics (transport) sector is set for another moribund year after 68% more closures in calendar 2008 compared with 2007. “Our experience leads us to expect at least a very difficult start to the year.”