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Transport and Warehouse Industry Faces Doubling Insolvencies Amid Border Challenges and Rising Costs

TSLTransport and Warehouse Industry Faces Doubling Insolvencies Amid Border Challenges and Rising Costs
  • Adverse economic conditions are hitting the transport and warehouse industry. In 2023, insolvency affected 546 companies, a 100% increase from the previous year.
  • The problem continues to be the situation on the eastern border, but new challenges and costs have arisen since February on the western border – at the United Kingdom’s border, as well as increasing road toll rates within the EU since March.
  • The industry has over 34,000 unreliable debtors, and their arrears amount to PLN 2.9 billion. Payment deadlines for invoices in the TSL (Transport, Shipping, Logistics) are the longest in the economy.
  • The industry faces numerous challenges, entities that secure high financial liquidity will be in a better position than their competitors who neglect this aspect.

In 2023, as many as 4701 Polish companies went bankrupt (Coface data). The number of insolvent companies was almost 2,000 more than the previous year. The transport industry is one of the leaders for insolvency growth last year. The TSL industry, along with trade, construction, and services, tops this unenviable ranking, registering a significant increase in insolvency – up by 546 companies, representing a 100% year-on-year change.

Data from BIG InfoMonitor and BIK database show that the overdue debt of road freight companies increased by nearly 196 million PLN or 10.7% within a year (from November 2022 to November 2023). At the end of November 2023, the amount of unregulated payments from credit installments and invoices in the TSL sector amounted to PLN 2.9 billion. This is a significant amount given the total revenue for the entire TSL sector in Poland is around PLN 375 billion (in 2022). The backlog affects over 34,000 active, suspended, and closed companies.

A large part of the debt arises from endlessly postponing payment dates. It starts with negotiating the most distant transfer date after completion of services. According to data, in the TSL sector, this is already more than 21 days on average, the longest of all industries. However, this is an average, in the transport industry, 45% of invoices have a payment term of one month or longer. There are cases of three months. After 60 – 90 days, it’s easy to “forget” about such a transfer, so the overdue debt arises, explains Jerzy Dąbrowski, a board member of Finea, a microfactoring company specializing in TSL financing.

However, the number of companies seeking to settle with their contractors as quickly as possible, instead of endlessly postponing payments, is increasing. This is to prevent leading them to bankruptcy, which in the case of forwarding would result in the need to search for a new carrier. The instrument supporting this strategy is discounting, which, thanks to the involvement of an additional financial entity in forwarding and carrier settlements, allows maintaining healthy economic relations for all transaction participants, says the expert.

Failure to secure quick payments creates further problems with meeting obligations. As many as 1/4 of micro, small, and medium-sized transport companies had financial liquidity problems in 2023. The reasons are primarily delayed payments from customers. At the same time, according to ERIF BIG and Apfino research, even 34% of companies feel pressure from their customers to issue invoices with deferred payment deadlines. Especially for small companies, delaying payments over time can be particularly disadvantageous, especially in an industry that already dominates in exceptionally long bill settlement terms.

Continued issues in the east, worsening situation in the west

One of the causes of the growing TSL problems is the difficult situation at the eastern border and unfair competition from Ukrainian carriers. They can offer better prices as they are not subject to EU requirements regarding wages or working hours. Recent government actions and declarations from Ukraine give hope for a solution to this problem. However, the prospect of securing the operation of carriers in the east overlaps with new problems in the west. Road tolls for trucks in Germany recently increased (by 83%), and by March 2024 all EU countries will have to raise them.

Another change occurred in February at the border with the United Kingdom. From January 31, 2024, changes in the rules and requirements for goods imported into the UK market came into effect. It is necessary to have appropriate certificates when transporting animals and animal-derived products, as well as plants, fruits, and vegetables. Failure to fulfill the new obligations may result in the transported goods being stopped at the border. Additional border checks will certainly occur, which will extend the waiting time to cross the border, and this means higher costs. Penalties for lack of appropriate documents will also be introduced in three months.

Transport, and indirectly also the warehouse industry, faces many challenges. Besides the lack of employees and high operating costs in Poland, new fees and formal requirements in Western Europe will negatively affect profitability. Competition with companies from the old EU will soon become even more difficult due to the tightening of CO2 emission reduction targets for the sector. Polish companies always had a modern fleet, but now fleet modernization is a huge cost. Companies that do not undergo this process must, in the long term, expect to lose the ability to operate in western markets. In the face of such challenges, it is important to meticulously control revenues and prevent arrears. Both on the revenue side (agreeing to a long wait for a transfer for completed service) and the expenditure side (settlement with ZUS, US, leasing companies, and fuel suppliers). Where payment terms cannot be shortened, you should support yourself with appropriate financial tools, such as factoring, continues Jerzy Dąbrowski from Finea.

The level of unreliable payers in the TSL industry is at a high level of 11%, suppliers and contractors must therefore be careful with whom they cooperate. According to research, ERIFF for the second half of 2023, about 61% of companies verify their customers before cooperation. If such verification unfavorable, they can resign from cooperation. According to the AON Report – Global Risk Management, Reputation loss is among the ten most serious risks for business, with only half of companies having a preventive plan. This also argues for diligently settling obligations and using tools to shorten payment terms.

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