LOGISTICS

Having battled through a particularly tough 2008, the logistics segment is facing an even tougher 2009.

Although the fallout from the global credit crunch has seen the price of oil tumble from extraordinary highs ($US160/barrel in July 2008) to around $US35 per barrel earlier this year, freight volumes are falling sharply.

The result will be an incredibly competitive market this year, with margins squeezed to their limit. Trucking industry revenue is likely to fall a further 3.4%, profit will remain around 0.2% of revenue and IBISWorld predicts around 5500 jobs will be lost.

Opportunities:

• Clamping down on trucking costs will help protect paper-thin margins and many operators will aim to lower average speeds, follow less-congested alternate routes and reduce periods of braking and acceleration.
• By ensuring trucks are fully loaded, costs per unit will be reduced, and back filling loads will become far more important as employers look to boost their return per truck, and per employee.
• Taking trucks out of operation will reduce excess capacity.
• Toll Holdings and Linfox have both commented that there are numerous acquisition opportunities in the market, and more companies are likely to pursue these to improve economies of scale.

MINING

The current crisis will hit our largest export industry hard, with demand for (and the price of) minerals likely to be weak for at least the next couple of years as recession in developed economies slashes demand for a range of manufactured goods that are the mainstay of our mineral export segment.

Staff are currently being retrenched by practically all of the industry’s players, including OZ Minerals, Macarthur Coal, Xstrata and Rio Tinto. Of BHP Billiton’s near 6000 global redundancies, more than half will come from Australia – particularly at the loss-making Ravensthorpe nickel mine.

A total of around 9000 jobs have vanished from the industry so far since the crisis hit, with further job cuts likely.

However, new mining projects based on coal seam methane gas in Queensland may help insulate Australia somewhat from the effects of the global recession. Plans are already underway to construct facilities in Gladstone to convert gas to LNG for the export market.

This financial year, IBISWorld expects overall industry revenue will enjoy its fifth consecutive year of growth – soaring by more than 50% on the back of much higher prices for coal and iron ore, a weaker Australian dollar and last year’s higher production levels.

However it is predicted overall mineral production will show little or no growth next financial year, and only weak growth in 2010-11, when demand begins to rebound.

Beyond 2011, IBISWorld predicts demand will rise, however the negative impact of lower prices will be only partly offset by higher output levels, resulting in a 4% fall in annual revenue.

When strong demand from China and India re-emerges, coal and iron ore producers will again be the main beneficiaries. Industry revenue and gross profit will still fall at average annual rates of around 5% until 2014.

Opportunities:

• Companies that will succeed through this crisis will be those that take a long-term view and embrace strategies to lower costs. In addition, those that are not already overleveraged may find this the ideal time to resume more aggressive growth strategies and take advantage of acquisition opportunities in an environment offering attractive value equations.
• Mining organisations may benefit from shifting their focus to supplying the expected growth in global infrastructure projects, such as those earmarked in the $US1.7 trillion fiscal stimulus packages.
• Continue divesting project interests in conjunction with the offer of commodity offtake rights.

TOURISM

While the decreasing volume of travellers is one of the most significant issues facing the tourism industry today, the level of industry expenditure is declining at a far greater rate, as discounting becomes rife.

As the global economic recession continues to spread, IBISWorld predicts this year domestic visitor nights will slide by a further 3.4% to 270.8 million, compounding a 2.6% decline last financial year.

Visitor expenditure will decline by around 5%, and given that this component accounts for 75% of total expenditure, data indicates the decline in this segment will hit the industry hardest.

This year, IBISWorld anticipates international arrivals will fall by 7.5% to 5.12 million, with a particularly marked decrease in visitors from the US, Japan, China, India, Europe and Britain.

The number of Australians heading overseas is also tipped to fall by 7% to 5.4 million, with long-haul destinations hit the hardest. Flight schedules – and therefore seat numbers – are also being dramatically reduced as demand drops.

Opportunities:

• Focus on providing attractive packages with value-added extras without discounting the brand too far as it may be difficult to revive it when the market recovers.
• By not cutting all advertising and promotional expenditure, companies can try to maintain “top-of-mind” presence with customers. Many companies will look to stay in touch with previous guests to promote “exclusive” specials.
• Continue to form strategic alliances to participate in more cost effective promotions with government tourism bodies, as well as with airlines and local operators to offer discounted accommodation along with airfares.
• Place more unsold stock on an online bookings site at favourable prices to generate sales.
• Continue to focus on customer service since the memory of a bad experience will outlast the current climate.