Of finance and minefields

Of finance and minefields

Operating a transport business can be challenging without the right finance partner at your side, especially in times of economic uncertainty. But vehicle finance is not necessarily a minefield, writes GAVIN MYERS.

South Africa’s commercial asset industry has taken a positive turn, despite continued global economic uncertainty. So says Marcel de Klerk, Absa Retail and Business Bank’s head of business markets. A variety of factors are leading others in the finance industry to be just as confident about the coming period. According to De Klerk, these include: an increase in capital expenditure by the vehicle and asset manufacturing industry, increased employment in the sector, and both export and domestic vehicle sales showing growth of more than 15 percent year on year.

These factors are currently reflected in the very businesses the vehicle and asset finance industry serves. Says Kathy Bell, head of transport solutions, Standard Bank Vehicle and Asset Finance: “My team and I provide support to our sales and credit teams, and our approach is centred on risk-based fleet audit vetting, and a systems and controls verification process. It is certainly very exciting to see the depth and profound professionalism evident at many of our large and small transport operators.”

In the current climate, De Klerk notes that key business fundamentals should include cost and efficiency, management of replacement cycles and the use of technology. “Subsequent to the economic downturn, transport operators have refocused their attention on managing costs – especially operational – as well as increased asset and operational efficiency. This is set to continue into the foreseeable future on the back of an uncertain economic recovery as margin pressure necessitates revisiting business fundamentals,” he notes.

Of finance and minefieldsBell agrees, and it is only after comprehensive discussions with customers to unpack and understand every aspect of their business that planning is done around the funding cycles and requirements for the year ahead. “In essence, our role is to provide funding when required, which involves lots of advance planning and discussions with the customers,” she says. “We visit every customer, inspect their depots or sites, and verify systems and processes to control the loads, vehicles and drivers. We thereby also assist the customer to maximise payloads, transport efficiencies and cost containment.” It is this, Bell says, that leads to a positive funder-partner relationship.

So what does it take to be awarded the finance needed and build such a relationship with one’s finance partner? The process is structured but straightforward. In the case of a new relationship, once an appointment is made with the relevant financier, the customer will be visited and issues surrounding the business discussed – from vehicles, systems and controls, to products to be transported, customer base, transport costs and cost-containment measures. The operator must almost prepare for an audit of every aspect of their business.

Importantly, Bell points out, a vehicle and maintenance policy, as well as driver training and a safety policy, need to be in place. “New entrants also need to have worked in the transport and supply chain field, and have a working knowledge of all regulations and processes,” she says.

This is important because a contract secured from an approved contract provider will form part of the application; this is so that the financier can determine the viability of the revenue stream and feasibility of the cash flow projections. Further, working capital and deposits help indicate preparation and planning aspects over time; so too does a well structured business plan highlighting skills and experience. Clearly, banks do not simply hand out money – concerns about the quality of the operations, skills and capacity will always be a factor, says Bell.

De Klerk points out that on the side of the operator, choosing the right vehicle for the job to keep operating costs to a minimum (including fuel, maintenance and toll fees) remains a critical factor when looking to purchase and finance vehicles. And the matter of toll fees is certainly a big factor – he notes that the debacle and expected implementation of open-road tolling in Gauteng, as well as general toll fees expected to be increased throughout South Africa during the year, make careful vehicle selection and fleet management more important than before. Says Bell: “We need to know how something like fuel [and tolling] is managed and paid for.”

What then are banks expecting customers to do this year? “Based on our knowledge of our customers, the replacement cycles of fleets and prospective tenders, we are confident that we are prepared for our customers’ funding requirements this year,” says Bell. “Projections are on track for a similar number of units in the various segments, while cross-border transportation into Africa continues to grow exponentially, with abnormal loads forming a large base in this market.

“However,” she cautions, “all projections can be influenced by factors such as delays in projects being implemented, natural disasters affecting the supply chain and economic decline in the markets we service.”

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FOCUS on Transport and Logistics is the oldest and most respected transport and logistics publication in southern Africa.
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