The decision to place Scott’s Refrigerated Logistics into voluntary administration earlier this month, further compromising national supply chains and the jobs of 1500 of the company’s transport workers, was met with surprise by many sectors of the community.
How could a company that had such a successful track record and commercial partnerships with some of Australia’s biggest and best-known grocery and supermarket retailers suddenly go under? Surely, they were too big to fail, some thought.
For those of us that live, and breathe transport every day, the decision may not have come as a surprise. However, it didn’t make it any less confronting because what happened to Scott’s is what keeps transport operator bosses around Australia awake at night.
For some time, industry stakeholders like the VTA have been highlighting the multiple challenges facing operators that, left unaddressed, could prove a reckoning for many. Let’s unpack these:
Fuel – After wages, diesel is the biggest cost faced by operators, and it’s also the most variable, as we have seen in recent years. The high cost of diesel is another cost operators need to pass on in full through the supply chain, however some have not done so in the interests of retaining customers. The impact of the previous government’s six-month fuel tax cut and operators having to negotiate ATO payments because of the associated fuel tax budget decision affected cash flows for many.
Geo-political tensions – Russia’s war against Ukraine continues to wreak havoc on global supply chains and tensions in southeast Asia and the Taiwan Straits is seeing fewer ships coming to Australia. Production of AdBlue, a key engine additive, was severely disrupted when China banned exports of urea in 2021. While supply has been restored, the industry continues to experience flow-on effects of disruption, as well as higher prices.
Labour – freight operators are still desperate for workers, which is an issue that existed long before the pandemic. Our industry lags others when it comes to finding, training, and retaining qualified workers. Heavy vehicle licencing reform is the key to making a career as a professional and well-paid transport worker attractive to school-leavers, young women and men, and those looking for a career change.
High inflation & interest rates – there are few parts of the economy that haven’t been impacted by high inflation and 10 consecutive months of interest rate hikes. What makes a bad problem worse for freight operators are the already razor thin margins in place, making it harder to pass on higher costs. Investing in new equipment and maintaining equipment is even harder in a high inflationary environment.
Customer pressure – freight customers are putting unprecedented pressure on transport operators to reduce their costs so that they can maintain or even reduce prices for consumers. This is unsustainable and will ultimately do more harm than good for our economy. The larger volume freight customers have a responsibility to offer contracts that are sustainable and viable for operators so that the whole supply chain doesn’t collapse around us.
In the immediate aftermath of Scott’s’ collapse there was hope that a buyer for the business might quickly be found. However, as we all know now, a Scott’s ‘White Knight’ wasn’t to be, and administrators have commenced selling remaining assets to pay creditors.
Encouragingly, the broader transport industry is stepping up to support customers in the cold storage supply chain, with many reports surfacing of retrenched staff being hired by other operators. One of the few silver linings of having labour shortages is the opportunity for the Scott’s workforce to be quickly redeployed, for which we are grateful.
For state and federal government’s that have ignored or haven’t heard the alarm bells from transport associations about these persistent challenges, Scott’s must be their wake-up call.
In the lead up to the May federal budget, and as the states and territories prepare their own subsequent budget papers, the VTA will be advocating for financial relief and concessions for operators. Low-hanging fruit like limiting any increase to the road user charge, increasing fuel tax credits to offset higher diesel costs, and capping registration increases, are practical things governments can do now to alleviate pressure on individual operators.
In the long run they will also support our industry and its customers and help to maintain the living standards consumers expect.
Peter Anderson is CEO, Victorian Transport Association