Things are looking up after annus horribilis

The good news is that, for the express parcel industry, business is picking up and most international and domestic companies have seen growth in volumes and yields during the past six months. The bad news is that this growth comes off a low base, with the preceding year being the industry’s annus horribilis. For this industry the game of ‘Survivor’ has not yet seen its final episode and, locally, there are likely to be some casualties over the next year as some of the more highly geared express companies find that their weak balance sheets, poor cash management practices, and inability to stay away from high-volume lowyielding business affect their liquidity and, ultimately, their ability to stay in business. The improvement in market conditions will not come quickly enough for those who are thus weakened, and for those who haven’t cut their costs during the last year. There is a fear, though, that the growth is temporary and is partially driven by re-stocking of supply chains. The problem, too, is that even in the good times it’s an unforgiving industry. Highly competitive, the margins are tight and it’s a voracious consumer of resources – both physical and human. Most costs tend to be variable, so the dreams of achieving economies of scale remain elusive for most, especially in relatively low-volume economies such as South Africa. Express companies are key enablers of high-velocity supply chains where customer demands are high and companies need to be sharp to survive. Customers demand every shipment is picked up on time, that it is delivered on time and fully intact, that it is billed accurately, that it is accounted for and reported accurately, and that information must be transparently available on the internet in real time. Goods moving through express supply chains tend to be high value and need special security processes and controls. The business complexity is amplified when one considers the millions of shipments moving daily and the geographic spread of operations. The growth of businessto- consumer deliveries has opened new markets, but has brought attendant complexities. In South Africa, with our wide geographic spread, long distances, and low economically active population, the cost of these deliveries is relatively high and the customer’s appetite for high prices is low. The cost of regulatory compliance is a serious cause for concern, especially those that are specific to the industry. These range from ICASA’s operating permits to the Civil Aviation Authority’s new Part 108, 109, and 110 of the Civil Aviation Regulations. The latter has seen the costs of security inflate enormously and whilst everyone agrees that aviation security is an area of no-compromise, customers generally are intolerant of accepting additional charges. Also, the cost of sustainability has yet to be felt in South Africa, but the global players are taking it very seriously and the investments in our future are and will be substantial. The bottom line? The industry’s margins will be squeezed even tighter. Despite the complexities, there are many express companies that have got it right. Those that have got it right are those that do the basic job right, the first time. The cost of errors is legendary and, all too often, is caused by a lack of well defined process and poor training and execution. Those that have got it right exercise serious fiscal discipline and understand the importance of strong balance sheets and cash flow, and continually drive unit costs down.