Transport sector struggles on all fronts

Bankruptcies are rising sharply, according to Statbel figures. And transport companies are being hit hardest. The number of bankruptcies within the transport sector in Belgium has increased by more than 50 percent since the beginning of this year. Neither are things looking good for the future. First Brexit, then the covid-19, now the war in Ukraine. The limits have been reached.

The war is hitting transport companies doubly hard. On the cost side and also through the disruption of supply chains. Since the world went into lockdown because of corona, supply has never returned to normal. And it is not expected to anytime soon. Although port waiting times have decreased and delivery times are slowly improving, the bottlenecked supply system will remain disrupted at least until 2023 (and even longer if the war continues).

On the cost side, the picture is not rosy either. Fuel and wages are the most important cost items for transport companies. Although the price of a barrel of Brent oil has fallen below USD 100, it is still well above USD 65, the price of a year ago. Add to this the increase in wage costs on 1 January by 3.21%. At the beginning of next year, wages will rise again by more than 10 percent.

It would be a logical response for carriers to simply increase prices. If only with a temporary surcharge due to the current exceptional circumstances. But therein lies the problem. The competition is so fierce that customers simply switch to another (cheaper) carrier. Businesses are ruining each other as a result.

Ultimately, the question for every company is: what is the final benefit? The result was already minimal in the transport sector and it will become even less, if any profit is made at all. Across the board, businesses are consuming their assets. Operating capital is under pressure so extreme remedies are being sought. Like paying incoming invoices later. Debts are also increasing. All this cannot be sustained for long. Allianz Trade expects an explosive increase in the number of bankruptcies in the transport sector (and elsewhere as well).

Of course, small businesses are more vulnerable. The smaller the businesses, the less opportunities they have to spread fixed costs (such as planned maintenance, office buildings, insurance, overheads, etc.). To keep the average costs low, a lot of driving has to be done. This is difficult when there is a shortage of staff. The bargaining position of smaller businesses is also weaker. In short, they have less fat on the bones, so they are hit harder when a few large bills are unpaid.

But large businesses can also crash hard. If one thing stands out in recent years it is that it is precisely the larger businesses that are collapsing. “Too big to fail” is no longer true. And that is extremely worrying. Large businesses can drag a whole string of other businesses down with them. Three major Belgian players (50-99 employees) have already gone bankrupt this year.