Transport & Logistics

A lengthening of the net working capital cycle driven by an increase in average DIO, somewhat offset by a lengthening of supplier payment cycles (higher average DPO).

The Transport & Logistics sector experienced growth in FY24, with 71% of our sample recording an increase in revenue. However, this only translated to higher margins for 60% of those operators as higher freight costs, labour constraints, and variable consumer demand impacted profitability. Those companies that previously relied on fuel surcharges to increase levies and protect margins also experienced push back from the market in FY24. Notably, 71% of our sampled companies saw EBITDA margins fall in FY24.

In terms of working capital performance, average DWC increased by 2.8 days to 26.5 days in FY24, due to average DSO and DIO increasing by 0.9 days and 4.5 days, respectively. The increase in DIO is largely attributed to M&A activity in the sector, with three of the four highest DIO movements the result of constituents’ acquisition of an inventory holding business. Our sampled companies countered the increases in DSO and DIO through a 2.1 day increase in average DPO, with 78% of the sampled companies that collected more slowly from their customers passing this on by paying their suppliers more slowly. Given the nature of input costs for the sector (fuel, storage, and subcontracted labour), the ability of operators to do this for extended periods is limited.

Whilst only 29% of the sample were able to reduce DWC in FY24, the average DWC was the lowest of all sectors covered. From an international perspective, our Australian sample companies also appeared to manage working capital well when compared with their overseas counterparts, with comparable figures to the US and Europe, and much lower DWC than the Asia sample. Looking forward, consumer-related pressures will continue to impact Transport & Logistics companies. Despite the demand challenges, there is a need for fleet renewal and asset upgrades. Whilst asset utilisation and process productivity remain key factors impacting the performance of sector participants, environmental and ESG considerations are becoming more evident.