Transport and logistics firms take the fast road to growth

The SmartCompany Dun & Bradstreet Industry Growth List for the transport and logistics sector reveals a fast-growing sector that is expanding through specialisation and acquisition. By MIKE PRESTON

By Mike Preston

The SmartCompany Dun & Bradstreet Industry Growth List for the transport and logistics sector reveals a fast-growing sector that is expanding through specialisation and acquisition.

It may be one of Australia’s oldest and most established industries, but the transport and logistics sector has experienced a pace and degree of change matched by few others in recent years.

A tidal wave of consolidation has changed the face of the industry as fast growing, mid-sized businesses gobble up the mum and dad operations that were once its bedrock.

That shift is reflected in the SmartCompany Dun & Bradstreet Industry Growth List for the transport and logistics sector, with the majority of businesses in the $10 million to $100 million revenue range.

The top of the list is peppered with small-to-medium-sized players: Basslink Logistics, Express Logistics Australia, Mermaid Marine Australia and Boyle’s Livestock Transport are just a few examples.

It is not just emerging companies that are doing well, however – some of the big fish have also prospered, chief among them industry giant Toll Holdings.

But while acquisitions are part of the growth story for most of the businesses at the top of the list, they are not the only factor. Especially for the smaller businesses, dominance of a relatively narrow industry niche has also been a key strategy.

Rob O’Byrne, managing director of industry consultancy Logistics Bureau, says these two trends – consolidation and specialisation – have characterised the transport and logistics sector over the past two to five years.

“Consolidation was really inevitable. There were too many players in a small market, and as greater international competition squeezed margins, rationalisation has continued,” O’Byrne says.

“Hand in hand with that has been a tendency for players to become much more specialised as an alternative way of maintaining adequate margins.”

Specialise or perish

Several businesses at the top end of the transport and logistics SmartCompany Dun & Bradstreet Industry Growth list fit the specialisation model.

Both Basslink Logistics (now called Totalcare Logistics) and Express Logistics have achieved some growth through acquisition, but both also have a distinct geographical niche.

The Express Logistics business has been built around servicing the trans-Tasman route, according to the company’s group commercial manager Dave Lovegrove.

The business’s focus on that niche has enabled it to combine significant organic growth and acquisitions to achieve impressive 80.4% revenue growth to more than $36 million in 2006-07.

“Express Logistics is the leading service provider of trans-Tasman distribution, freight and logistics services, and we have continued to lead this market over the past 18 months,” Lovegrove says.

Others have pursued specialisation within a service sector. Number 11 on the list, Paloga, is a specialised service provider to the floor covering industry, while number nine, Boyle’s Livestock Transport, has stayed true to its name.

“We have bought a few small businesses, but basically we specialise in moving livestock. We just want to specialise in what we do best, and it has worked for us,” Boyle’s director Anthony Boyle says.

Big players get bigger

Other high performers on the transport and logistics Industry Growth List have chosen the opposite strategy; working to make a virtue of sheer size and comprehensiveness.

The third company on the Industry Growth List, Toll, exemplifies this strategy. For the last 15 years Toll has pursued an aggressive strategy of acquisitions that has seen it become Australia’s largest transport and logistics company.

Despite its massive size – Toll’s revenue topped $7 billion in 2006-07 – the company achieved an impressive 68.7% growth over that period.

The scale of Toll’s acquisition program is illustrated by the fact that it now controls number four on the list, former Virgin Blue freight business Express Blue Air Freight, while the eighth business on the list, Patrick Autocare, is now controlled by Toll spin-off Asciano.

A transport industry analyst, who commented on condition of anonymity, says while much of Toll’s growth has been acquisition driven, it has also been able to achieve organic growth through the economies of scale those acquisitions have enabled.

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“There has been a huge amount of acquisitive growth, but the organic growth rate has still been fairly high, perhaps 7% to 9% consistently. It has been about targeted acquisition growth giving them scale and volume and increased network efficiency that has driven organic growth,” the analyst says.

The strategy has not been without its setbacks, however. Toll continues to grapple with the task of integrating its purchases into its existing business, analysts say, while it’s exposure to Virgin Blue (which is struggling to combat higher fuel prices) has seen the company’s share price tumble from above $11 at the start of this year to below $8 in recent days.

Logistics + mining boom = success

The transport and logistics Industry Growth list also reveals a third strategy several successful businesses in the sector have adopted; integration with the booming mining and resources sector.

Two businesses in the list’s top 10, Mermaid Marine Australia and Australia Western Railroad (now a part of Australian Railroad Group) are service providers to the resources sector, while a relatively high proportion of businesses on the wider list are based in the boom states of Western Australia and Queensland.

Despite eschewing the acquisition strategy so enthusiastically pursued by other businesses in the sector in recent years, Fremantle-based oil and gas industry logistics firm Mermaid Marine still managed 54.3% revenue growth to more than $103 million in 2006-07.

Chief executive Jeffrey Weber says the booming activity in the oil and gas fields of the North West Shelf of Western Australia has fuelled the company’s growth.

“We are quite unique in Australia in that our core business is boats and servicing the oil and gas industry,” Weber says. “Our positioning in the industry as activity has grown has been to our advantage, but it has also meant there have been no logical acquisitions for the business.”

Challenges ahead

Businesses that achieve high growth in the transport and logistics sector over the years ahead will have to figure out how to overcome two key obstacles – soaring petrol prices and the skills shortage.

Rising petrol prices are putting the squeeze on margins, with those companies that are unable to pass the increased costs on to customers – mostly smaller firms – finding conditions particularly difficult.

The experience of one of the list’s top 10, Boyle’s Livestock Transport, reflects that of many other smaller businesses in the sector.

“Fuel costs are a huge concern. Fuel has gone up 20 cents in the last six weeks – five years ago fuel was 25% of turnover, now its 40%. Redoing your costings to make that work is pretty tough,” Anthony Boyle says.

As for the skills shortage, the industry will continue to struggle with the fact that it is not seen as a glamorous or lucrative career option by many school leavers.

Mermaid Marine’s Jeffrey Weber was one of several company leaders and industry experts to identify the skills shortage as a major concern for the sector.

“The skills shortage is a huge challenge for us. We compete for workers with the resources sector in a state where unemployment is already very low, so bottlenecks in terms of people and the infrastructure to support them are obstacles we have to overcome,” Weber says.

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SmartCompany Dun & Bradstreet Industry Growth List for the transport and logistics sector

Compiled by Dun & Bradstreet using information from its commercial database of more than 2.7 million companies.