Liquidations in freight industry slow down

The freight industry has financially fared rather favourably this year, with liquidations falling by over 19% in the year up to October compared to the same period last year. In a special study for FTW of the recent financial history of the transport, storage and communications sector, Luke Doig, senior economist at Credit Guarantee Insurance Corporation (CGIC), said: “The logistics sector felt the impact of the financial crisis early. It saw a sharp 65.8% jump in corporate failures in 2008, but this plunged back to only an 8.7% increase in 2009. However, in that year, the country as a whole bore the brunt to a greater extent – with liquidations spiking at an increase of 25.2% as the economy contracted by 1.5%.” But in the years after 2009, the overall economy recovered and total liquidations declined – dropping by 3.4% in 2010 and by 10.8% in 2011. It was a different statistical history for the logistics sector, however. Failures escalated by 18.2% in 2010, and only began to ease back again to 16.7% in 2011. So this year’s 19.2% decline in liquidations, from 172 in January-October, 2011 to 139 in the same period this year, is heartening news for the freight industry. But the old adage – “Statistics can tell a lie” – seems to have come into play. “It must be noted that the advent of the new Companies Act on 1 May 2011 and the business rescue provision (Chapter 6) did distort the 2011 and 2012 figures,” said Doig. The figures show that total liquidations for the year-to-October have declined by 18% and those for logistics firms by some 19.2%. But it must also be taken into account that Companies and Intellectual Property Commission (CIPC) figures indicate that 713 cases of business rescue have been registered to date, or almost 40 a month, according to Doig. “A sample audit by CIPC reveals a 55% success rate for companies that have concluded their business rescue operations,” he told FTW, “with 38% being liquidated and 7% still under business rescue. “A rough guess would indicate that this provision may have, in fact, saved some 20 logistics firms this year that may otherwise have been liquidated. “Nonetheless the slowing economy will present challenges aplenty, not least for logistics firms who will face ultra-competitive conditions both at home and abroad.”