Australia’s Transport Network Delivers the Goods

If it is mined, manufactured, grown or imported into Australia, chances are it will join the vast volume of goods moving around this country courtesy of the integrated logistics industry. This technologically advanced complex web of seamless transport, storage and distribution services across Australia generates around $88 billion in revenue a year and employs over 357,000 people.

The total freight task (measured by the weight of goods multiplied by the distance transported) is expected to reach 412.8 billion tonne/kilometre in 2009-10. Over the last five years the size of this freight task has increased by 3.7% a year.

Road transport is the industry’s backbone. It generates nearly half the industry’s revenue and accounts for around 40% of freight movements. Road freight has grown by just 0.8% a year since 2004-05.

Rail is the transport mode of choice for long-haul and bulk freight. On a tonne-per-kilometre basis rail is estimated to be three times more fuel efficient than road transport. Around 78% of freight transport between Perth and the east coast is by rail. In contrast around 93% of freight transfer between Sydney and Melbourne is by road.

The industry is currently nudging up against the capacity constraints of existing infrastructure. While many billions have been committed to upgrading capacity on roads, rails and ports, the investment in unlikely to significantly ease congestion on Australia’s transport networks. The volume of container traffic alone is expected to nearly triple in the fifteen years to 2020. Double stacked containers on rail and an increase in the number of B-triple trucks on roads may be one of the easiest and most cost-effective means to provide some relief.

While infrastructure is strained, technological changes and the purchase by large operators of smaller transport companies beginning in the late 1980s have delivered an integrated and sophisticated supply chain. Technical developments have included Radio Frequency Identification (RFID) and barcode systems to monitor and track stock. This in turn has delivered cost and time savings, improved capacity utilisation and better management of inventory levels.

For the major companies in this industry, constraints may also have been reached in their capacity to expand in the Australian market. Over the next five years, the demand for logistics in the Asian region, where these companies have already built a solid international presence, presents further opportunities.

Within Australia over the next five years the integrated logistics industry will grow steadily by an expected 4.1% a year. Strong growth in freight volumes, high volumes of imports and exports, increased manufacturing activity, a larger population and increased outsourcing of the logistics function will underpin this performance. Rail freight will continue its renaissance as an alternate to road transport. The impact of any future carbon reduction policy upon this industry is likely to be significant, but it is currently unknown.

Similar industries include: Road Freight Transport, Road Freight Forwarding, General Warehousing and Cold Storage

New Media, New Methods

Paid advertisements are losing out to communication campaigns. The $1.9 billion Adverting Services industry is struggling to match the agility and ability of public relations providers to engage consumers within a changing media landscape.

The emergence of digital and new media, including web-enabled mobile phones, faster and cheaper internet, iPods and podcasts, pay-TV, new free-to-air channels and social networking websites such as Twitter, YouTube and Facebook has fragmented consumers viewing habits. Marketers are increasingly turning to public relations for more subtle methods to ensure their message reaches the target audience. To do this, public relations techniques are incorporating communications into media content that consumers choose to view and interact with. In particular, social media such as blogs, discussion forums, video sharing and social networking sites are a key avenue for public relations communications.

The mushrooming of this new media and its use to target specific audiences is taking its toll on mass media paid advertising in TV, newspapers, magazines and billboards. While paid online display advertising has increased strongly, many popular websites and social networks such as YouTube and Facebook have limited advertising so as not to turn away visitors. Additionally, the fear of viruses and spyware has caused consumers to be sceptical of online advertisements.

Public relations revenue has also been more resilient than advertising revenue during the recent dip in the economy’s fortunes. While marketing budgets tend to be one of the first items targeted in cost-cutting efforts, public relations services are often seen as more focused and therefore better value for money than media advertising. Additionally, some aspects of public relations such as communications with stakeholders can become more important during a downturn. As a result, public relations revenue is expected to fall in percentage terms by less than half that of advertising revenue over the two years to June 2010. Over the next five years, advertising services in Australia are expected to grow by an average of 3.0% a year. Public relations services, which currently generate less than a quarter the amount of revenue of advertising services will grow by an average of 3.4%.

Advertising agencies are not retreating in the face of this fall from favour. Rather, they are doing what they do best: reinventing themselves. They are acquiring public relations agencies, market research firms, digital advertising agencies and web developers to become diversified marketing communications companies. The line between public relations and advertising is blurring. Dominating both industries in Australia is Photon Group Limited, which is made up of a diverse network of around fifty independent marketing communication companies. Photon is an Australian company that generates more than 35% of its earnings offshore. Since its establishment in 2000 with just three companies, the group has grown rapidly through acquisition.

IBISWorld estimates that spending on online advertising will rise to account for over 23% of total media advertising spending by 2014-15, up from 14% in 2008-09. A growing share of digital marketing dollars will continue to be used to court consumers in non-traditional ways. Public relations will continue to weave their cyber spin.

Similar industries include: Advertising Services, Market Research Services, Public Relations Services

Engine of Growth Is Fuel Efficient

Last year Australians purchased 937,328 new cars with the Holden Commodore being the best seller. The transition to more environmentally friendly cars may be off to a slow start in Australia but the wheels are in motion. While hybrid cars are expected to account for just 1.1% of total retail sales this year, IBISWorld anticipates hybrids will account for around 13% of total car sales by 2020. That’s around 150,000 hybrid cars for the year

Consumers are gradually buying more fuel-efficient passenger vehicles at the expense of the traditional large Commodore and Falcons, and large SUVs. It is only in the last year that manufacturers have belatedly begun to recognise and respond to the significance of this shift in preferences.

Small and fuel-efficient cars have been available as imports in Australia over the past five years, but over the next five they will be manufactured locally. The new-to-market hybrid Camry hit the stores in February (with the help of a $35 million Government injection into its local manufacture). Toyota is hoping to sell 10,000 of these hybrid Camrys in 2010, around 10% of its total Camry sales. With the Government already committing to the purchase of 2,000, they are on track to achieve this. Holden launched the Cruze in 2009, imported from its Korean plant. It intends to manufacture the car domestically from early 2011. This move represents a radical shift by a big brand name manufacturer of big cars.

The main focus over the next five years will be on technical innovation to steer the industry into a green future. This investment will be steered by changing consumer preferences but powered by government funding. Current government assistance schemes stem from the New Car Plan for a Greener Future initiative, which will inject $6.2 billion into the industry between 2009 and 2021, while the Green Innovation Fund ($1.3 billion from 2009-10 for 10 years) will fund companies investing in research and development in emission reduction.

IBISWorld expects companies will use these funds to develop cleaner engines, hybrid technology, greener components, electric vehicle technology, and infrastructure to support the shift towards more fuel-efficient vehicles.

With every single car maker launching a fuel-efficient car in the next five years, the $100 billion automotive industry in Australia is expected to return to positive growth. Australian car exports currently account for about half of Australian production but less than 1.0% of global exports. One of the key reasons for this is the fact that our cars aren’t necessarily suitable for foreign markets, such as Europe, where people prefer small diesel vehicles. Fuel-efficient engine technology may allow local manufacturers to enter markets they’ve previously struggled to crack. It’s all fuel for thought.

Similar industries include: Motor Vehicle Mfg., Automotive Parts and Accessories Mfg. , Motor Vehicle New Part Dealing

Road Freight: Small Enterprises Make Inroads

Small road-freight enterprises have seen robust growth in previous years in what is becoming an increasingly crowded market. The stagnation of growth in the trucking industry during the previous year has not hindered small business which has come out relatively unscathed by staying competitive. Major players in road freight still dwarf these businesses but while industry giants like Toll Holdings and Linfox look internationally for continued expansion, smaller firms like Wridgways and Kings Consolidated have been making inroads by utilising aggressive pricing strategies for growth.

Despite economic conditions, Wridgways lodged revenue of $124.3 million, a record increase for six straight years in a row. Earnings were buoyed by its corporate removals division: Wridgways Move Solutions; and international division, Wridgways the WorldWide Movers, which saw increases in revenue of 48.0% and 16.5% respectively.

Kings Consolidated followed the trend of growth by acquisition with the takeover of Blue Circle Transport. Building on its 10.9% rise in revenue in the 08/09 financial year, it is expected that turnover will continue to increase by as much as 30% in the current fiscal year to $145 million.

Border Express and Allied Express both felt the pinch of the global financial crisis but managed to outperform the industry average drop in revenue of 6.6%. Although revenue declined for Allied Express for the second year running, reductions in borrowing costs have enabled it to more than double its net profit to $870,000. Similarly, Border Express implemented cost cutting measures by streamlining its human resources leading to an increased after tax profit.

Tepid revenue growth for some of these small firms did not immediately translate into higher profits. Decreased demand in domestic sales has forced firms to accept lower margins as competitors heavily discount on prices to win contracts. Compared to an industry average of 4.6%, smaller businesses were left scraping by on operating margins of just below 1.0% last year. Thus, return on revenue was largely unchanged for these firms with any revenue growth undercut by lower overall net income.

In line with strong performance in the past financial year, both Wridgways and Kings Consolidated far exceeded the industry average of 5.4% return on shareholders’ funds. Keeping in mind that significantly higher ratios may be attributed to the low amount of assets needed by firms to operate in this industry, it is nonetheless a useful metric to gauge the efficiency of firms’ ability to generate earnings.

Outlook
Smaller firms look set to capitalise on renewed freight activity in the domestic market as the economy eases back into recovery. As evidenced by Kings Consolidated last year, the benefits of economies of scale through integrated networks and acquisitions will continue to appeal to small businesses as they look to stay competitive against major industry players.

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Colin Blackhall, Managing Director of Kelato Animal Health

Name: Colin Blackhall
Title: Managing Director
Company: Kelato Animal Health
Website: www.kelato.com.au

This month, IBISWorld caught up with Colin Blackhall, Managing Director of Kelato Animal Health, to find out firsthand what’s going on within his industry.

Kelato Animal Health is recognised world-wide as a leader in the field of advanced horse nutrition and health products, and we have a strong commitment to continually improving and developing our quality equine range. We aim to provide benefits to consumers through improved animal health by providing quality and innovative nutritional, nutraceutical and healthcare products.

What challenges do you face?

We operate in an industry still recovering from the equine influenza crisis in 2007. Add the effects of the global financial crisis and an understanding of the degree of challenge that exists becomes apparent.

Hence the critical challenge is to manage expenditure and capitalise on opportunities in an unpredictable environment. IBISWorld reports help to remove some of this unpredictability.

How does IBISWorld help you overcome challenges?

The IBISWorld reports provide comprehensive and clear market information and data relevant to the industry in which we operate. Being specific to our industry is what convinced me to subscribe. I have found competitors to IBISWorld produce reports of a more general nature.

The information provides insight and helps to ensure we are commercially focusing on key trends and aspects of the broader industry in which we operate.