Freight demand has outpaced the financing built to serve it
By Darren Steenkamp, Transport Sector Head, Merchant West
Capital intensity is a defining characteristic of the transport sector. When operators secure new contracts or encounter growth opportunities, the investment required in trucks, trailers and working capital can exceed the capacity of any single funding relationship.
This challenge is relevant in South Africa, where constrained rail capacity continues to push freight onto the road network. As demand for road freight grows, access to capital becomes a critical enabler of economic activity.
When viable operators cannot finance fleet expansion or equipment upgrades, freight capacity is added more slowly and economic opportunities are deferred.
The economics of fleet expansion have also changed over the past decade. A trailer that cost approximately R613,000 in 2019 now costs upwards of R900,000 today, an increase of almost 50% in seven years.
At the same time, manufacturers have improved transport productivity through Performance-Based Standards (PBS) configurations, enabling payloads of up to 50 tonnes per trip compared to approximately 36 tonnes for a conventional side tipper.
Achieving these gains typically requires more than a trailer upgrade; operators often need a larger, more powerful horse capable of moving the additional load.
While the long-term economics are compelling, largely through lower fuel and labour costs per tonne moved, the higher cost of both trucks and trailers must be absorbed upfront.
The result is a growing gap between what is economically rational over the life of the asset and what many operators can practically finance today.
For many transport businesses, the real constraint is the ability to finance growth quickly enough to meet demand. Operators are winning contracts and expanding customer relationships, yet the capital required to add trucks and trailers often lags behind the opportunity itself.
When fleet expansion is delayed, freight capacity is delayed. With transport underpinning the movement of goods throughout the economy, the effects extend far beyond any individual operator.
Access to capital therefore determines how quickly productive capacity can be added to the economy.
When viable transport businesses are unable to invest, growth is postponed rather than lost.
The financing challenge is a question of capacity and timing. A common example is an operator that secures approval from an OEM finance house or commercial bank for seven of the ten trucks required to fulfil a new contract.
The gap is the portion of the fleet that requires an additional source of capital. In these situations, we perform a complementary role as a supplementary financier, providing the incremental funding required to bridge the shortfall and allowing operators to reach the capacity needed to execute on contracted growth.
Timing can be equally important. One established agricultural transport operator was preparing to take delivery of new trailers when a sharp increase in diesel prices increased operating costs.
Capital earmarked for the equipment deposit was redirected to maintain day-to-day operations. The investment’s underlying economics were unchanged, though the operator’s cash flow timing had shifted.
We structured a facility that removed the deposit requirement, so the trailers entered production on schedule and a temporary working-capital constraint did not become a long-term limitation on growth.
These are natural consequences of operating in a capital-intensive industry where growth and cash flow rarely align. Effective transport financing requires an understanding of how assets generate returns and how working capital and seasonal cash flow needs shift during growth.
The most effective financing structures are built around the economics of transport itself, ensuring viable growth opportunities can be funded when they arise.
In transport, growth depends on two things: demand and the ability to fund capacity. Demand creates the opportunity while capital determines how quickly that opportunity can be realised.
When efficient operators can access funding at the right time, goods keep moving and the broader economy keeps growing.
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