Ireland 2023 Transport Sector report

Access valuable insights into the transport sector's current state, risks, and opportunities with our exclusive industry report written by our senior risk underwriter from Dublin, Tony Gordon. Ireland 2023 Transport Sector report A strong sector facing new challenges. The transport sector has proven remarkably robust over the past number of years. [Asset Included(Id:1435173810867;Type:AT_Media_C)] There has been a low level of insolvencies across all subsectors and our risk appetite reflects this. However, the sector will be facing a number of serious challenges in the coming 12 months. This is partly due to constant fluctuations in fuel prices, significant labour shortages (particularly for LGV drivers) and increasing interest rate charges which has led to an increased cost base. Weakening consumer sentiment as European economies fight inflation is leading to a slowdown in demand, particularly from e-commerce providers, impacting the sector. Brexit's impact continues Increasing costs and delays There remain challenges which arose from Brexit which has led to a transfer of business from the UK landbridge, to new direct ferry routes from Ireland, to mainland European ports. Imports from the EU will be subject to new red tape from October, after the U.K. government announced its new post-Brexit border proposals. Imports of plant and animal products considered to be a “medium risk” — including meat, dairy, and fish — and foods of a non-animal origin considered to be “high risk”, will need to have health certificates from October. There is also likely to be new physical checks at the U.K. border from January, adding to both costs and delays for the sector. Ro-ro (roll-on/roll-off) traffic to the UK is down 22%, since Brexit, while direct traffic to Europe is up 94% and now accounts for 33% of all ro-ro traffic outside Ireland. This has led to new entrants to the ferry business, with increased routes to Europe and increased competition. Subsectors Affected Reduced profit margins All of these issues are putting pressure on profit margins. Given that just 1% of all freight in Ireland is transported by rail, the impact of these challenges falls primarily on the road haulage sector, followed by the maritime/ferry businesses. Key Insolvency Statistics Anticipated increase in transport insolvencies According to Deloitte, H1 2023 saw a 30% increase in corporate insolvencies compared to 2022, with insolvency levels returning to 2019 levels after a period where government support led to artificially low rates. Only 4% of insolvencies in H1 were transport related but this is expected to rise in H2 2023. Insolvency practitioners report an increased interest in the SCARP process and we anticipate the number of businesses going through such procedure will increase in the year. Environment (ESG) Businesses impacted by new regulations Road haulage is responsible for 20% of the state’s greenhouse gas emissions. The sector has been challenged with reducing those emissions by 50% by 2030, requiring massive investments by businesses in the sector. New fuel sources such as electricity, biofuel and hydrogen, still in relative infancy, will have to come to the fore. The government has pledged to provide significant funding to meet these targets, announcing 35 billion euros in capital investment. Transport companies will need to rapidly invest in new technologies and new vehicles. Access to new sources of funding will become vital and companies that cannot meet these targets might face insolvency. It is still a way off but we might see smaller businesses unable to get the necessary new vehicles, potentially resulting in them being taken over by larger players or simply ceasing to trade. 6 Month Prediction Looking grey From a low base, we will see an increase in insolvencies in H2 2023. Atradius Approach Looking for engagement Despite the challenges noted, our risk appetite remains strong in the sector. In the past 18 months, we have seen a demand for increased credit limits on transport companies to reflect increased prices and/ or extended payment terms. To meet this demand, we are looking for more engagement between businesses and our underwriters and we are increasingly sourcing more up to date information. This information will allow Atradius to provide increased support for this important trade sector.