Rate wars threaten industry sustainability

Rate stability is crucial if transporters are to provide a reliable standard of service to their clients as the “doing business at all costs” approach – which results in price wars – is not sustainable. That’s according to Carl Webb of Project Logistics Management (PLM), who says that roads are deteriorating and damaging vehicles as too much cargo is being transported by road due to poor rail infrastructure. “The end result is damage to vehicles. And with the increased number of vehicles required during peak periods, any downturn in volumes results in price wars amongst transporters just to keep the wheels turning. This means there is less money available to properly maintain vehicles and transporters are demanding more from their drivers,” says Webb. “Transporters start running at sub-economic rates, requiring them to generate more turnover with the same fleet of vehicles, with a foreseeable drop in service delivery. “While the client sees the drop in price as beneficial, the inevitable drop in service delivery has a longer-lasting effect on business, especially during these economic times when stocks are kept at a minimum, and delays in deliveries can and do have a negative effect on business,” says Webb. He believes the recent closure of large transport companies demonstrates that service delivery is crucial to the sustainability of a business. Unfortunately there are still transporters/brokers who believe that the short-term gains outweigh the long-term risks, he says. “This places the rest of the transport industry in a position where they either cut their rates or suffer a drop in revenue. This will however be a short-term problem, as companies cutting rates will not last more than a few months, as evidenced in the last few years,” says Webb. “We are maintaining our rates, especially with long-term quotations, as the clients will be caught short if they base their tenders on the current cut-throat rates on offer. Fortunately there are still people who believe that a sustainable service level does cost more, and strive to provide that service to their clients. “ Webb also notes that there is an increase in over-border cargo. And as South Africa’s neighbours continue to spend on infrastructure, project cargo volumes remain stable although he’s seen a definite downturn in general cargo over the past few months. INSERT & CAPTION The recent closure of large transport companies demonstrates that service delivery is crucial to the sustainability of a business. – Carl webb