The current recession has seen some funders tighten their lending criteria, making it all the more difficult for prospective truck buyers to get new units on the road. While economic activity may have slowed in recent months, it’s business as usual for fleets who run according to best practices and who embrace the principles of self-regulation, says Kathy Bell, Head of Truck, Bus and Trailer Sales at Standard Bank Vehicle and Asset Finance, interviewed here by Paul Collings. 

South Africa’s banking sector is an integral part of the transport industry, not only facilitating the funding of vehicles on rental, lease and installment credit agreements but also in assessing the business plans presented by operators when they seek to start or expand their fleets. 

“The first item that our team of specialists at Truck, Bus and Trailer Sales considers when an application for truck and trailer funding is submitted is the viability of the transport contract,” says Bell. “We suggest that the operator should have a direct contractual relationship with a reputable contract provider and as a rule, advise against sub-contracting as the operator cannot secure the contract nor negotiate better contract terms as they are reliant on a contract with no security of ‘tenure’.” 

The Truck, Bus and Trailer Sales team has been instrumental in ensuring that solid transport funding applications are evaluated, Bell continues. 

“The team has been doing this since the mid 1990s and has acted as a ‘specialist input channel’ with the express purpose of ensuring that the operator has submitted a sustainable and viable opportunity for the bank’s credit department to assess. It is the role of the specialists to filter the business plans and the total package to ensure that all the relevant facts are on the table and that it contains substance and merit. 

“The objective is to assess the viability of the relevant operator’s contract by stress-testing the projected cash flows and to ensure that all the operational controls will be in place, like systems to manage cents per kilometre costs and all relevant input costs be they fixed or variable. Transport is a 24/7 type operation and the operator needs to have the business geared to deliver to the service level expectations of the customer and plan for maintenance on trucks and trailers to ensure up-time and availability of the fleet.” 

Margins under pressure

A worrying trend in these challenging times with diminishing volumes is the extent to which it appears that some operators are undercutting their rates to secure more business, says Bell. 

“Margins are tight and further cuts may lead to operators compromising on their maintenance costs and may do so at the expense of safety components and may even encourage overloading of the operator’s fleet.” 

Bell has been involved in transport since 1987 from truck rental to large commercial transport operations and has much wisdom to share with her clients. 

“I’ve learned from some of the best in the business and this experience, coupled with my Transport Diploma from the University of Johannesburg, ensures that this knowledge and experience is applied and shared. The opportunity to apply the theory in practice in both freight and public transport applications has provided me with an insight into the risks and rewards that transport operators have to deal with from time to time,” she says. 

Vehicle selection is of utmost importance for any successful operator, Bell adds. “Our team suggests to operators to source their vehicles for usage or ownership from truck dealerships and manufacturers who understand transport and can  ensure that the correct vehicle/trailer specification has been applied to accommodate maximum payload and complete adherence to the road transport regulations.” 

With relationships in place with various suppliers of trucks and trailers, Bell says she is “impressed with the depth of staff training that some of these suppliers and manufacturers provide to ensure the right vehicle for the right application.” 

Selecting the right brand is also a key factor and having the support of a network is vital for any operation that wishes to deliver exceptional and reliable service to its customers. Services and products like extended warranties, maintenance/service plans and mobile workshop support should form part of the criteria in choosing a supplier, advises Bell. 

Assessment process

The specialist assessment process also considers how operators propose to manage their day-today business. “Applicants must demonstrate their professionalism and that their operations and infrastructure is suitably equipped to handle the risks and challenges that are a key component of commercial transport,” she adds. 

“We get down to the basics when it comes to evaluating a transport application, from ascertaining if daily vehicle safety checks and preventative maintenance procedures are scheduled, to planning for CoFs and even whether the operation uses telematics/onboard computers to monitor its drivers and vehicles. In essence, we want applicants to express the cost of the total operation on a Rands-per- kilometer basis and that they have ready access to each and every vehicle’s running costs.” 

In tough times like these, Bell stresses the need to have contingency plans in place. 

“Maintenance contracts help preserve cash-flow and bring a degree of predictability to the operation. It’s easier to plan ahead when you know what your costs will be in the months and years ahead. Ultimately, transport is now a ‘deregulated’ environment compared to the old permit system and therefore, to illustrate their viability, operators need to prove that their management systems and processes work effectively to ensure adherence to legislation and safety factors for vehicles and their drivers,” she says. 

Owner-Drivers

According to Bell, a development programme was established at Standard Bank many years ago which is premised on the principle of true skills transfer and empowerment. 

“With a transport contract from a corporate-sponsor and the financial skills backing of an approved management support company, the owner-driver has the best chance of succeeding in their own venture. The bank is also involved in a ‘hand-holding’ process to ensure the channels of support are properly established.” 

South African Breweries has had great success with its owner-driver programme as, says Bell, “the drivers know what they’re doing as they have had access to various phases in the process to learn so they understand transport and distribution and are guided by the management support company in terms of the finances of their business.”

Some challenges

A trend which is cause for concern is the fact that aspirant transport operators manage to secure contracts with absolutely no experience in this field. 

“Clearly, the criteria to secure the contract is not based on solid and substantive service and experience and must surely be viewed with caution,’ Bell advises. “When one considers that freight transport is viewed as a high-risk enterprise with high failure rates, one must ask why?” 

There can be no argument that macro-economic factors have led to reduced freight volumes, to the detriment of the road freight industry. 

Says Bell: “We have noticed a  significant drop in the volume of applications sent into the specialist channel for assessment. The approach from many funders at present is to assist where possible to ensure that requests to re-spread funding obligations are considered, again on the back of solid and substantive information. 

“It is in times of need that operators can appreciate the value of having made provision for vehicle replacements, engine overhauls and the like. It is encouraging to see many operators making financial contingency plans to see their operations through the tough times. 

This is not always the situation with some operators paying dividends without factoring in all elements of the business cycle. Financial prudence, patience and a passion for transport may well be the keys to a transport business surviving the next 12 to 18 months,” Bell concludes.