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S uppose the British road transport industry finally persuaded the government
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to give it an essential user rebate on diesel—which it then had to pass on to its customers for fear of accusations of being nti-competitive. Sounds ridiculous? Not in Lustralia.
In July zoo() the Australian government itroduced its own version of VAT, known as ie Goods and Services Tax—or GST for hort. The story bears uncanny similarities ) our current economic and political scene, s well as the UK's own experience in introucing VAT But well let Simon Skazlic, eneral manager fleet at K&S Freighters' cad office in Melbourne, tell the story.
"Over the past io years a number of iberal governments in Australia have ttempted to introduce a GST In the early days many people say that the then-leader of the opposition and Liberal Party, John Hewson, lost an election, and even a career in politics, trying to sell GST to the country "A couple of elections later Liberal Prime Minister John Howard, who didn't initially run on a GST platform, added it to his campaign on the expiry of his first term in office. The economy was running along fine, interest rates were corning down, unemployment was on the down and the country's finances, all in all, were looking good," reports Skazlic.
"Also, we had a wave of emotion on illegal immigration amongst other things, so you had an election run on a number of issues— not just GST But the timing was right for a GST. If you were going to do it, it was then— or never. Howard got re-elected and took it as a mandate to introduce a GST," However, as Skazlic explains, Prime Ministerial backing for the new tax was only the beginning of the battle. When the GST bill reached the Australian Senate or Upper House) the government, in Skazlic's words, "had to cut a deal with the Democrats to pass the legislation. This is where it all got tossed around a bit! The Democrats didn't want GST on food. Equally, they had a strong environmental streak However, diesel doesn't have a strong environmental sound to it, and with all this cooking away, the ordinary person was still concerned that prices in general would go up as a result of introducing GST."
Fuel grants
To counter any inflationary pressure from GST, the government introduced the Diesel Alternative Fuel Grant Scheme (DAFGS) in order to ensure that the cost of transporting goods around the country by road didn't go up. Initially due to expire in 2002, DAFGS was subsequently extended and now expires next June.
"It was open knowledge how the [DAFGS] scheme worked," says Skazlic. "The government expected you [the transport operator] to pass on savings arising from the introduction of CST. There were also savings in the area of parts, amongst other items, due to sales tax on these items, which was abolished again with the introduction of the GST."
So far so good—but unfortunately it went pear-shaped for Australian operators when, having been given an i8.2centsilitre rebate out of a typical diesel price of 8o-85 cents/litre, they were asked to give it back to their customers, "as a saving to the country".
Thus what should have been a bonus to hard-pressed hauliers turned out to be anything but. "You have all your customers who know what you pay for fuel. And you have the government telling everybody that life under a GST is better. It's a double-edged sword," rues Skazlic. "If you don't pass on the savings and your competitors do, you're out of business. Keep the savings and the ACCC [Australian Competition & Consumer Commission] is all over you for not passing them on. Either way, you lose!"
Acceptable returns
With an annual fuel bill representing 1245% of its turnover, K&S is increasingly operatMg "open-book" contracts in a bid to secure acceptable returns.
"More and more, we're using open-book accounting with customers," reports Skazlic. "If we're having a bad time, we have to show it to them—if we're having a good time, then we have to show it to them too! On invoicing, we have cost indices showing the breakdown of costs, typically on fuel, and we have to declare profits and margins to customers." K&S's average return on revenue is 5io%. According to Skazlic: "You've got to be questioning if you want to be in it for less than ro96—and the days of more than to% have gone!" Yet despite all this, the company remains a powerhouse down-under, generating a group revenue of close to A$225m (03.3m) in 2001 with increased profits before tax.
Founded in 1945, K&S is seen as a leader in innovation—it bought one of the very first reefer trailers to be seen in Australia and recently invested more than A $8m (L3m) on its own IT operation and freight tracking system, developing logistics contracts with the likes of Kimberly Clark. During the seventies and eighties, it enjoyed phenomenal growth and today K&S's main freight activity is in the paper, steel and timber sectors along with general distribution, rail freight and 7o,000m2 of warehousing "dotted across Australia".
It also operates one of the biggest company-owned fleets in Australia, running some 5oo trucks and 850 trailers on Interstate (long-haul) and local depot distribution. Within the K&S fleet are a large number of "B-doubles"—the quintessential Aussie rig consisting of a tractor pulling two semi-trailers at up to 62.5 tonnes GCW. Chairman of K&S (and its biggest shareholder) is Allan Scott, who also owns Scotts Transport in Australia,
Recruiting problem
K&S currently employs over i000 people, although recruiting drivers is as much a problem for Skazlic as it is for his UK counterparts. "Recently it's become a struggle to attract people into tile industry. Not too many young people want to drive trucks and a lot of our work is night work," he confesses. "The generations corning up find that their wives want to keep them at home."
K&S's line-haul (long-distance) drivers certainly cover some distances, but then Australia is a big country. "From Perth in the west to Brisbane in the east it's 4,7961cm, and top to bottom, Adelaide to Darwin, is 3,085krn," explains Skazlic. The company's 15o interstate prime movers cover in excess of soo,000-Goo,000lcm each a year. while its local depot fleet can notch up dose to 20 million kilometres annually. In addition to Goo movements a week for its own trucks on interstate work, K&S also employs countless numbers of sub
bies—mainly small fleets and owner-drivers.
Under Australian rules, HGV drivers are allowed to work 14 hours within 24 but remain limited to 12 hours' actual driving. Keeping drivers legal is an issue for all operators.
Drivers can receive major fines for infringing the law on hours, speeding or overloading but according to Skazlic: "Fines are not the issue—it's the chain of responsibility. The enforcement authorities will look at everyone from the fork-truck driver up to the MD." However, professional companies like K&S can be granted special industry accreditation if they consistently show high standards in driver management, safety and maintenance and vehicle loading.
The Australian enforcement authorities' policy of "three strikes and out" includes not only the sanction of fines and jail sentences—but also the de-registration of an operator's vehicle. "Any company can be put on 'notice'," maintains Skazlic. "And the authorities are keen to show that it can happen to anyone. This has meant that third-party and directors' insurance is becoming very hard to find."
All in all, it sounds very, very familiar...