Liquidations in freight sector rocket

The liquidation rate in the freight industry leapt up to almost double that of 2012, according to Luke Doig, senior economist at Credit Guarantee Insurance Corporation (CGIC). In 2011, he told FTW, the broad logistics sector experienced 189 business closures out of an annual total of 3 559 liquidations – or 5.3% of the total. In 2012 the logistics sector accounted for 5.9% of all liquidations (161 of 2 719). “But,” he added, “in the first two months of this year, that share has jumped to 10.7% (55 out of 516 closures). “One could argue that this reflects the state of play in the broader economy currently. There are rising input costs (especially fuel); consumers are struggling amidst relatively high levels of debt to disposable income of 76% (despite low debt servicing costs); there is meagre external demand; a souring of labour relations across many sectors; and declining confidence levels.” Against the backdrop of ongoing eurozone strife and a domestic economy that will battle to match the output of last year, the operating environment in the logistics sector is likely to deteriorate further as the year progresses – and failure rates will rise accordingly, according to Doig. Although the official figures for industry and business in general showed an apparent decline in overall liquidations last year, Doig felt that might need some explaining. “Many would have been surprised to hear that official liquidations fell by 23.7% in 2012 compared to 2011,” he said. “This despite the fact that the economy bore the brunt of weak external demand and falling output domestically.” What one has to take into account, he added, is the business rescue provision in the new Companies Act. “Until the middle of last year, this was directly responsible for about 40 fewer liquidations per month,” he added. “However the number of firms applying for business rescue almost doubled thereafter – and this goes a long way towards explaining the apparently illogical, sharp decline in year-on-year business failures in 2012.” And, to measure the value of this lifesaving procedure, the success rate of firms applying for business rescue that have completed or exited the process, is reportedly around 55%. The effect of the rather poor conditions of the moment might very well be reflected in the fact that the start of 2013 produced a turnaround in liquidation trends. The first two months of 2013 saw a 29% hike in formal liquidations. And there is a pessimistic outlook for the rest of this year, according to Doig. (The March 2013 liquidation figures will be released by Stats SA on April 22.)