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Turning theory into reality

The entrance of large listed companies in the market finds smaller privately-owned fleets vulnerable as the dominant players not only benefit from the advantages of bulk discounts on consumables but also enjoy large discounts on new vehicle purchases, as they are also vehicle franchise dealers. Apart from these advantages over smaller competitors, listed companies offer a range of additional services, such as vehicle Rental/finance, vehicle maintenance contracts, fleet management, logistic services, including DC warehousing and 3PL services, which creates dominance over the road freight market. However, there are a lot more serious macro challenges threatening the future of smaller, privately-owned Operators as South Africa is undergoing an ever increasing threat from Global and Domestic upheaval. Serious infrastructure shortcomings: electricity and water, not to mention poverty, debt and currency woes also adding to business challenges (in this regard, if your Crystal Ball isn’t foggy, you don’t have it switched on). So, perhaps what has worked well in the past could now lead to the demise of both small and large Carriers, and this requires a new brand of thinking.SA businesses (not only road transport Operators) need to carefully review their current structure and strategies in terms of short and long-term changes in their trading environments. We start by asking: are historical strategies still valid? Will they [historical strategies] support companies through the current radical changes taking place in our Macro environment? And, how will these changes affect the strategic relationships between Trading and Micro environments? Extra caution is needed here, because the road freight industry is particularly vulnerable as freight movement is primarily driven by supply and demand.In the coming months we will be discussing these and other issues, while looking at how a robust business strategy can be built around the principals explained in previous articles on the QUAD Initiative theory.We begin with identifying and mapping the strategic relationships existing between the three primary environments encircling the SA road freight industry namely: 1) The Macro environment 2) The Market environment, and 3) The Micro environment.

Turning Theory into Reality

Author: Hugh Sutherland2014/11/25

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Today’s highly capital-intensive SA road freight industry leaves shareholders with little or no option but to resort to asset financing when replacing and/or adding new equipment. Furthermore this precarious, highly competitive trading environment, only accentuates the risks associated with long term asset funding, especially where competitive forces hold margins to single-digits, leaving no room for loss of asset utilisation in the event of an economic downturn. This volatile market, therefore, necessitates astute asset management, and a close eye on break-even analysis, not only for the total operation, but also for each vehicle in the fleet. The industry is also severely challenged by the ravages of inflation affecting vehicle replacement costs over relatively short fleet replacement life cycles.

"The essence of formulating competitive strategy is relating a company to its environment", says Porter.

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