This week it’s all over the media, bigger even than Bill English resigning, Fletcher Building is in serious financial trouble.
There are losses in the millions, and urgent action will probably be needed to save this giant New Zealand business.
It’s a timely reminder to us all, especially those in the road transport industry.
It’s great to get all the big jobs, but it’s even more important to make sure you can make a profit, not just turnover.
Today, we’re seeing all sorts of pressures being put on companies to reduce their prices to keep work; and practices like fixed-price contracts are locking suppliers into a pricing structure that they can’t adjust if and when circumstances change.
Of late, I’ve heard from several companies that major transport companies have taken work from them at greatly-reduced rates.
This is the problem, getting work at any cost.
In many cases, the work is handed on to owner-drivers who supply the trucks and the labour, and have an all-too-regular habit of failing.
That’s despite the work of our trade associations who provide excellent costing models. But their warnings are being ignored and owner-drivers are still entering into contracts that are extremely risky.
This practice is going a long way towards dropping freight rates to unacceptably-low profit margins.
There’s a very well-known business ideal that suggests that companies should regularly assess their business and eliminate the bottom 20 percent.
In other words, get rid of the 20 percent worst-paying jobs you do. The idea behind it is that you can then put more effort into your 80 percent of better-paying customers and also look at new business prospects that deliver better returns.
Road transport is a business that is running on very low margins in general and is facing issues like driver shortages and costly plant replacement to keep up with changing regulations.
All of this should indicate that rates need to rise, prices need to go up.
Stop subsidising other companies’ profits by working for uneconomic rates.
On top of this, operators are being pushed into accepting delayed payment. If your profit is already low or non-existent, then delayed payment has just made things worse.
You still have to pay your wages on time and the Road User Charges can’t be put off, so you’re funding these jobs until you get paid and that chews up interest.
If companies want delayed payment then it should be acceptable to charge them interest as, let’s face it, they’re using you as a bank – and banks charge interest.Don’t let your business get in a situation like Fletchers’. You probably haven’t got other business units and millions of dollars of assets that will allow you to negotiate your way out of it with the banks.