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CEO Talking Shop: Logistics and the business environment in Australia

It has been a very competitive year in Australia with the affects of the economic and financial crisis in the euro zone and the uncertain outlook in the US economy filtering through to both public and business sentiment in Australia.

Flexible global retailers continue to expand to meet the changes in consumer demands. There have been signs of exceptional growth in online retailing this past year. Australian consumers are attracted to the lower prices, convenience and wider range of goods available online when compared to those from bricks and mortar retailers.

Retailers are currently addressing challenges in many areas of the impact of overseas competition. Multi-channel supply chain capability, maintaining brand equity, creating a successful, efficient and happy customer experience through the use of technology; and how to provide efficient supply chains and reverse supply chains to keep up with customer demands is the focus of many retailer’s in Australia.

This has forced many of Royale International’s customers to reassess the way they do business and those that have been slow to act to the changes within the Australian retail market have had to reduce their shipping volumes as a result until they’ve reassessed and changed their approach.

Retail in Asia (RIA) asks Steve Nott, Director of Royale International Couriers Pty Ltd – Australia, how they see future growth and regional networking within the confines of a heavily taxed and regulated business environment and the continued strength of the Australian dollar.

RIA: Is there a positive outlook for 2013?

SN: Whilst Australia’s economy has been relatively strong during the past 12 to 24 months, it has taken a while for this strength to be reflected in consumer spending patterns. The Christmas period of 2012 produced a better than expected result for retailers and therefore, we believe this is a very positive sign for a return to consumer confidence for 2013 and beyond. We forecast that there will be a significant increase in Royale’s traffic volume as we get further in to 2013.

RIA: If so where do you see growth?

SN: Logistics companies are experiencing significant growth in parcel delivery due to the previously mentioned increases in online shopping. As such, we see a change in the composition of logistics business services. Centralising warehouses and directing consumer fulfilment capabilities will probably increase this year to help create a more direct warehouse to consumer delivery service that bypass stores and lowers in-store stock holding requirements. This area will be one of, if not the biggest, driver of growth within our industry over the next five to ten years.

RIA: In a competitive market such as Australia, where do you see your strengths lie?

SN: Royale’s ability to adapt quickly means we can tailor make solutions to customers that have needs outside the status quo, rather than waiting until it becomes a trend that we’re forced to act upon to compete. Many logistics companies function under very rigid service parameters which means they may not be as efficient to act to customer’s requests for changes in the provision of freight services.

RIA: Are there specific issues that Australian retailers face in logistic support and importation of goods and materials?

SN: Retailers are looking at how to provide efficient supply chains and reverse supply chains to keep up with customer demands. Many of the larger retailers here are calling for a lowering of the high value threshold for imports to Australia. One of the areas in which the incumbent retailers struggle to compete is that they import shipments in bulk and the values of their consignments easily exceed the AUD1000 high value threshold. These shipments then attract duties and GST pushing up their base costs for each product. When an individual imports a single item, quite often the item is below $1000 in value and this comes through duty and GST free.

The counter argument to this is that GST is just 10% of the value of the goods yet when comparing the prices for the same products between online ordering and bricks and mortar stores, the differences can be as high as 40-60% so reducing the high value threshold will have very little difference to people’s shopping patterns anyway as purchasing online would still be cheaper than going in to a store.

Additionally, reducing the high value threshold using the current import processes would create an extraordinary amount of more work and red tape for our industry and any associated increase in costs would have to be passed on to our customers which would create further stress to our retailing sector. The high value threshold was originally raised from $250 to $1000 because it was identified that it cost more to process an import at the $250 value through customs by both industry and Australian Customs than was being recouped in duties and GST by the government. Any change to the high value threshold will need to be carefully assessed to ensure that it is viable.

RIA: Why are more consumers moving to online retailing rather than visiting stores?

SN: I think it’s fair to say that there’s been a significant drop in overall customer service levels at the ‘bricks and mortar’ stores and people are voting with their feet. If the price is higher and the customer service is not good in the traditional store then people would rather wait for a few extra days and purchase online to save money. Customer service should be the number one focus of all the ‘bricks and mortar’ stores within Australia at the moment. When consumers are treated to outstanding customer service then price can become a secondary consideration as to whether to make a purchase or not.

RIA: What specific solutions do you provide for retailers in Australia?

SN: Retailers will need to adapt quickly and offer alternative shopping experiences to stay ahead of the competition, allowing them to compete on a global scale rather than existing purely in local markets. Royale’s flexibility enables us to be able to provide tailor made solutions to our customer ranging from later collection time to a Saturday delivery on an ad-hoc basis.

Avant-garde retailers are also making the most out of technological advances in order to ensure that the shopping experience is more efficient and enjoyable to their customers, so we too are also looking into developing multiple efficient platforms where our customers can access our services.

We also try to be as flexible as possible with credit terms and I personally work closely with our clients when they are financially stressed. It doesn’t do us any good to have our clients go under so we try to assist them in any way we can to ensure they stay in business. If they stay in business, so do we.

RIA: What do you think of the Australian logistics market when compared to the rest of Asia Pacific?

SN: Whilst Australia has a great deal of experience and expertise within the logistics industry, I think that the costs of doing business here, the regulation to business and the infrastructure of the industry make it far more difficult to offer cost effective solutions to customers compared to what can be achieved in places like China or India.

Whenever customers approach Royale about warehousing and logistic enquiries here, we usually mention our capabilities in other low cost markets as the savings to the customer can be significant. Of course, quality control is also important and for this reason we still see some customers preferring to store their product locally so they can monitor and meet their quality control standards directly.

RIA: Where are the trouble spots in Australia with regard to logistics and transportation?

SN: Cost and regulation are a big issue in Australia. With the strength of the AUD, many overseas businesses cannot afford to do business here and whilst the strong AUD gives Importers great overseas buying power, conversely our exporters have difficulty selling their products to overseas markets. The strength of the AUD is also stopping international businesses from investing in Australia, as it’s too expensive.

Compared to the rest of the world, Australia is heavily regulated with a variety of issues from OH&S (Occupational Health & Safety), workplace laws to local council regulations. It would be a massive benefit to Australia as a whole if we could cut a lot of the red tape associated with doing business here.

The Australian Transport Council and others in the logistics & transportation industry cite challenges to include:
• Poor industry image, perception and reputation
• Restricted career opportunities and reward options
• Gender diversity (high proportion of male workforce aged 45+)
• Underdeveloped recruitment and retention strategies
• Underdeveloped education and training structures
• Skills and labour shortages (e.g. as a result of mining sector growth)
• Unsatisfactory staff engagement

RIA: Is infrastructure (roads, ports, airports) still an issue and where are the worst places?

SN: One thing that does create some difficulty is that Sydney, which is Australia’s largest city, does not have an airport that operates 24 hours a day and this restricts the volumes of cargo that can move in and out of New South Wales. It’s quite a sensitive subject here and the State government has indicated they are looking into building a second airport to accommodate for the expected growth in the next 20 years. However, at this stage there is still no commitment to this.

 

CEO Talking Shop is the Retail in Asia section devoted to interviews with brand CEOs and retail industry leaders.

 

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