It’s still early days but we are starting to see some of the changes our members have been feeling across both the economy and our industry now showing up in some of the industry indicators.
The ANZ Truckometer Heavy Traffic Index fell by 5.2 per cent in June. The annual percentage change using a three-month average was 0.9 per cent down. This was the first negative change in the annual rate reported since June 2023.
The seasonally adjusted Business NZ Performance of Manufacturing Index (PMI) was 41.1. A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. This figure was down from 46.6 in May, and significantly below the long-term average of 52.6. It was the lowest non-COVID lockdown monthly level of activity since February 2009.
If readers are in any doubt of how to put those numbers in context, the report title “Freefall” seems an apt description.
To be fair, this should be no surprise. Our regular counsel and expert on the financial markets, economist Cam Bagrie, has consistently made it clear at our transport events over the last couple of years that things will be getting tight, and in essence we should be expecting a reset across transport companies.
Cam’s view, which I agree with, is that well-managed companies will be better placed to ride out the tough times than those that are not so well-managed or are highly leveraged.
However, I also think there is another key part to that equation in regards who survives and who doesn’t, and that is the role and actions of our members’ customers and clients.
Before coming here I had various roles that gave me good visibility on transport rates for bulk fuel transportation. That gave me a good appreciation that it takes considerably more effort and cost to run a transport operation incorporating “good practice”. By good practice, I mean doing things like (but not only): paying drivers well, having good trucks, using good technology, monitoring and managing performance, and providing a good culture and working environment. An additional challenge is that regardless of the best intent, operators need to find the capability and expertise to deliver that “good practice” – and that skill and knowledge appears to be becoming scarcer.
It doesn’t matter what the sector or activity – fuel, logging, bulk, livestock, or general freight – it costs significantly more to run a business with good practice.
With the downward cost pressure we are seeing, and I fear we are only seeing the start of this, it is almost unavoidable that we will see a reluctance by some of our members customers to continue paying for higher level of services.
Despite the increasing pressure being placed on transport operators, it is pleasing to see many operators continuing to invest in safety. So far, we have over 160 drivers enrolled in the Rollover Prevention Workshops that will take place in Napier, Gisborne, Whakatane, Rotorua, and Mount Maunganui at the end of this month. This is a fabulous turnout and it shows great commitment in safety and their people from all those operators.
The government has made it clear that it wants to see value for money. It’s concerningly, particularly when the benefits are sometimes hard to quantitatively demonstrate, that could lead to procurers of transport services letting go of their current transport service providers and replacing them with operators who are doing the bare minimum.
In some cases, procurers will choose the lowest price and those operators will be charging lower rates because they are avoiding costs by circumventing the rules, as well as their other responsibilities and obligations. In the worst cases, those fringe businesses will also involve worker exploitation.
We will be advocating across the business sector to raise awareness of this risk. I don’t believe procurers of transport services can accept no responsibility for not paying a fair rate.
It would be naïve of us not to think this isn’t a significant risk, and unfortunately I think there will be a period where we will see a net loss in the quality of transport services provided across the sector. How that shows up in terms of levels of service, resilience and safety, only time will tell.
In the meantime, I would urge operators to carefully consider the quality of the relationship they have with their key clients. While it’s no guarantee, having a high-quality relationship that so you can have an honest and transparent discussion with key clients about the cost pressures and risks, can’t hurt.
