Straining the Chain: The Dire Consequences of Unsustainable Freight Practices
In recent times the industry has experienced more actively than ever with what many would call a ‘drive to the bottom’. With a strong focus on ‘cost of living’, the pressure on the industry to continually cut freight rates—despite rising costs—remains largely unrecognised and misunderstood by the government.
Driving down fleet incomes to unsustainable levels threatens to undermine the efficiency and safety of our supply chain. If this downward pressure continues unchecked, it could significantly damage Australia's competitive edge in global supply chains.
Driving down the income of fleets to the point of being unsustainable is going to further erode the efficiency and safety of our supply chain. If this behaviour remains unchecked, it will have a significant effect on any comparative distinction Australia may hold in our supply chain. This means that if the current trend of cutting freight rates and reducing fleet incomes continues without intervention, it could harm Australia's reputation or competitive advantage in global supply chains.
The resulting imbalance from the misuse of market power with freight rates will continue to adversely affect everyone in the supply chain—manufacturers, logistics providers, repairers, and others—until government authorities show strong resolve to address and stem this behaviour.
During the 1990s, political leaders from both sides demonstrated leadership, vision, reform, courage, and occasionally 'industry sacrifice' to implement disruptive changes. These efforts resulted in significant productivity growth, enhanced sustainability, and increased investor confidence in the road freight industry, effectively preparing us for the 21st century.
However, since 2007, productivity growth has stagnated, barely moving the needle from 0% to ½%. Fleets are now facing contract terms of 90 to 120 days, and instead of rates rising to at least cover costs, freight rates are regularly being reduced by 3% each year.
Legislation should prevent escalation and “it should not make matters worse”. In response to the increasingly declining rate spiral, there is growing discussion about practices like SHAM contracting.
If the chain of responsibility and industrial entitlements were properly addressed at the appropriate points within the market, we wouldn’t be experiencing a constant cycle of replacing one problematic behaviour in our supply chains with another.
In the road transport sector, sham contracting can manifest when a transport operator engages a driver as an independent contractor while maintaining control over their work conditions. The road transport industry, which relies heavily on contracting arrangements, must be vigilant in preventing sham contracting to protect both workers and businesses.
Recent research from the ACTU reveals that the number of workers on sham or "dependent" contracting is at record highs, now outnumbering genuinely independent contractors. Over 565,000 contractors are unable to subcontract their work, a key indicator of true independence. This explosion in sham contracting underscores the need for reforms to protect all workers and ensure fair labour practices.
This practice of sham contracting is not only unethical but also illegal in Australia.
Transport fleets should ensure that workers are correctly classified as employees or independent contractors based on their actual working conditions and responsibilities. This involves understanding the legal definitions and criteria that distinguish employees from contractors and is called the ‘whole of relationship test’.
Drafting detailed contracts that outline the nature of the working relationship, including roles, responsibilities, and entitlements, can prevent misunderstandings and legal issues. These contracts should be regularly reviewed and updated to reflect any changes in the working arrangement.
While authorities have a lot of enthusiasm to enforce measures targeting the symptoms of an unbalanced market, the issues just spread from one part of a system to others, causing broader effects beyond the causal issue. It is now crucial to focus on the underlying contract terms and rates to address the rising use of sham contracting being used to lower costs.
Addressing the unchecked decline in fleet incomes, implementing robust legal protections against sham contracting, and fostering a fair, transparent marketplace are vital steps toward sustainable growth.
History has shown that courageous leadership and strategic reforms can transform industry challenges into opportunities for innovation and competitiveness and QTA applaud the Prime Minister’s initiative on productivity reform and strongly encourage that the road freight industry with its vital role to the economy be properly represented at the table.
The future resilience and integrity of Australia's supply chain hinge on decisive action to rectify the underlying issues threatening our industry.
QTA provides Employment Relations services and advice for employers in the road freight industry.
For support and/or more information, please contact Jim Challis, QTA Employment Relations Manager, 0408 411 231 or jim@qta.com.au.
