Up in the air: what lies ahead for road transport?

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Drones, unmanned aerial vehicles, are one of the more spectacular risks facing the road transport industry. No longer just science fiction, with companies such as Flirtey in Australia and Amazon’s Prime Air in the US set to launch in 2015, it is easy to see that the transportation sector will need to evolve or get left behind on the ground.

"The industry will need between 1.1 billion and 4.5 billion through to 2018-19."
Mark Ganz, Director of Insights, ANZ

The immediate challenge however is more mundane. Existing low profit margins have seen consolidation in the industry with just 0.1 per cent of companies accounting for more than 40 per cent of sales.

Research by ANZ’s Client Insights and Solutions team shows the $50 billion road transportation industry will require significant funding if it is to take advantage of emerging opportunities and capitalise on increased efficiency.

Currently, the industry’s success depends on the success of its downstream markets, with 27 per cent of customer markets in manufacturing, 19 per cent in retail and 13 and 12 per cent in wholesale and construction respectively.

Transport traditionally is a very fragmented industry. Most companies currently operate short haul services with just 17 per cent operating nationwide. Recognising the difficulties in customer offering however, many small-scale players have started to join forces and realise the immense efficiency gains that can, and need to be, achieved in order to maintain profitability.

There is a lot at stake. The total profit pool up for grabs in 2018-19 will be $4.3billion. The Bureau of Infrastructure, Transport and Regional Economics (BITRE) Freightline report expects road transport volumes to almost double between now and 2030.

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Several niche markets are now opening up to the transportation sector, including medical or specialised transportation services. The growth in online retail is similarly a good news story for road transport as it is for Australia Post.

However, risks abound. Weakness in the supply chain, high competition, regulation and cost inflations in wages and fuel all combine to make the road ahead a rocky one for the sector. Substitution to rail in particular will chip away at road’s share of the overall transport pie. Soon too, will drones.

Key to managing these risks will be strong cash flow management, cost management, labour retention and efficiency. Most importantly, ensuring that trucks on the road remain safe will be crucial.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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