One of South Africa's leading truck financing institutions, Absa, believes that accelerated capital spending on infrastructure by government will see consumer spending-driven growth being replaced by investment-driven growth, which may boost the transport industry, enabling new entrants into it and creating opportunities for expansion of existing operations. 

"It appears that the increased building and construction activities leading up to 2010 created a sudden demand that outpaced the supply, with a number of suppliers expressing a concern over the low stock levels and unavailability of certain models," says Bennie Groenewald, of Absa Business and Corporate Asset Finance Division.
 

Government expenditure on construction projects will continue to drive demand for tippers, mixers and dropsides.

Do some research
According to Chris Herbst, National Manager Corporate and Business Asset Finance at Absa, "a limited number of operators are cash flush and currently able to purchase assets outright. It is here where the correct financing of assets will remain a key element to a successful business operation. The finance decision though, is not one that can be made in total isolation and should be made only after proper analyses and advice on a number of key elements. Engage and obtain advice before committing to huge debt obligations." 

The lifeblood of an enterprise is its working capital and a good rule of thumb will be to have access to at least three months working capital, to be able to demonstrate this to the prospective bank, preferably supported by financials, cash flow statements and contracts in hand to prove the ability to service the loan for the term of the agreement, he adds. 

Fixed interest
"Align cash flow with the repayment frequency through the correct structuring. Skip payment periods should only be negotiated to accommodate slack periods or seasonal shutdowns. Structuring may be applied to any of the finance products, whether it is an installment sale, financial lease or rental agreement. Interest rates charged by the bank may also be fixed for the term of the agreement, eliminating the risk of fluctuating payments due to interest rate hikes and this eliminates any uncertainty in terms of future commitments and cash flow." Herbst continues. 

"Be aware of dubious punters of transport contracts, analyse the contracts carefully and test the reality of it by doing proper in depth research," warns Herbst. "Consult your financial advisor and the supplier of the vehicle. All reputable manufacturers have simulating models and programmes to verify the viability in terms of the intended application and operating cost, as well as recommending the right vehicle suitable to the particular contract." 

Secure supplier commitment
The Acquisition of transport equipment is capital intensive and assets should be effectively utilised by proper scheduling of trips, allowing sufficient time off for maintenance. "Enter into service and maintenance agreements with your suppliers to ensure their commitment. These should also if possible include your fuel and tyre suppliers," Herbst advises.

The growth in the commercial vehicle parc has placed a squeeze on the availability of certain skills needed in the industry such as drivers and diesel mechanics. The use of a reputable bank-approved dealer or supplier for the vehicle, with proper warranty back up, spares and after sale service is the only way to go, argues Herbst.
 

Employing skilled drivers and regular servicing by accredited dealerships will ensure highest resale/residual value for a used truck

Insure comprehensively
"Ensure to plan and make provision for the unforeseen by mitigating the risks of total loss, downtime or credit shortfall through appropriate insurance products," he says. "Most registered financial service providers can assist the prospective buyer with cost effective risk mitigating solutions.

"No vehicle will last forever and transport operators should decide on, provide and plan for the replacement cycle. Banks normally enquire about the replacement policy of a prospective or existing transport operator. Once again, reputable suppliers and dealers should be able to assist in the determination of the appropriate economic timing to replace the vehicle, taking into consideration the application it was used for. If in doubt, talk to your asset financier for advice, they deal with this situation all the time and are really able to help out," concludes Herbst.