National Road Carriers
WATCH OUT FOR MARGIN DESTROYERS IN 2022
James Smith
By James Smith, COO of National Road Carriers Association
O
UR INDUSTRY OPERATES ON VERY SLIM MARGINS and the room for error is limited. Any cost increase can destroy your cashflow and result in business failure if not addressed quickly. It is certain 2022 will see significant cost increases for transport businesses: Capital costs will rise as the global shortage of new heavy trucks and the raw materials required by body and trailer manufacturers lead to price increases. We can also expect to see an increase in interest rates as they are used to constrain inflation. Global supply chain issues that commenced in 2020 because of COVID are still with us in 2022 and all international freight companies are expecting them to continue throughout the year – and into 2023. It is possible we will not see international shipping rates and timetables return to pre-COVID levels until 2024. Locally the cost of labour will rise as the skilled staff shortage gets worse. Restrictions on immigration caused by COVID, coupled with a very low unemployment rate, will further squeeze the already tight labour market. Additional pressure will result, as roles that can be filled by unvaccinated workers become harder and harder to find. Fuel prices will continue to fluctuate with the trend towards higher prices likely, especially as shipping costs rise. As business owners, it is vital you understand how these cost inputs impact your business. Every business is unique, so the impact of a cost increase will vary considerably. If you have not done so already, get a cost model done that highlights your high-impact costs and what impact
increases to these will have on your business. Review any contracts you have with your customers and ensure there is a mechanism that allows for rate adjustments should costs fluctuate. Also make sure you understand what triggers these mechanisms. Be aware these rate adjustment mechanisms work for cost decreases as well. Tools such as a fuel adjustment factor calculation can be a useful way to ensure costs are recovered consistently, despite fluctuations in fuel pricing, to enable a business to remain sustainable. Labour will be one of the big ones in 2022, so look to establish a way to recover increases in labour costs. Often overlooked is the subtle drain on margins caused by increasing congestion, both on roads and at customer sites. Surcharges and waiting time charges are ways to encourage productivity. Make a commitment to understand your costs and to put in place trigger points that require action. It may be possible to minimise the impact of any cost increase by improving efficiency or productivity. If your customers can reduce waiting time or improve utilisation then cost increases could be minimised. Don’t rely on others to do this as every business is unique. Pick up the phone and contact one of the NRC team on 0800 686 777 if you need any assistance, as we have templates and tools you can use. 2022 is looking to be another challenging year, so be prepared for changes and know your business so you can react quickly to whatever is thrown your way. T&D Truck & Driver | 99
