Large Australian heavy freight trucking business, Redstar Transport of Melbourne, collapsed in the run-up to Christmas, unexpectedly throwing hundreds of people out of work and stranding cargo in the depot after the company ran out of money.
Rumours of Redstar’s impending demise started swirling around the Australian trucking industry a few days before the news actually broke. Worries about the company’s financial troubles were whispered to FreightWaves over coffee in Sydney just after the middle of December.
Then, on December 20, concerned parties started posting rumours on social media. Truckers began making anxious reports to the local Transport Workers’ Union. It publicly warned that drivers were being told to return their loads to the nearest depot. The union also claimed that other transport operators had been instructed to cease work with Redstar.
Something was definitely going wrong.
Then it was official.
Professional services firm PwC Australia issued a statement on December 21 that it had been formally appointed as the liquidator to Redstar Transport.
It was all over for Redstar.
Around 400 staff were suddenly and unexpectedly thrown out of work. And over Christmas, too.
Local transport companies Linfox, ACFS, and Toll are attempting to find jobs for ex-Redstar employees, according to multiple sources.
Running out of money; financial pledges made
PwC Australia revealed that Redstar was so low on funds it could not even afford to appoint a liquidator; however, transport operator Toll and local bank ANZ made financial pledges that allowed PwC Australia to be officially appointed as the liquidator.
That formal step is particularly important for the ex-employees. Under Australian law, the federal government can activate a safety scheme where it can step into the shoes of a destitute employer and pay up to 13 weeks of wages, holiday pay, redundancy pay and payment in lieu of notice. However, under local law, that safety scheme can only be activated if the employer is officially in liquidation.
“PwC is taking a risk by accepting this appointment, however, somebody needs to stand up for these 400 employees and make sure their entitlements are calculated and paid… as soon as possible. The liquidators thank Toll and ANZ for making financial pledges which allowed the liquidators to consent to the appointment. Now that the company is in liquidation, employees will be able to have their entitlements paid by the Federal Government’s Fair Entitlements Guarantee Scheme. It is heartening to see some companies take their social responsibility seriously,” the liquidator said in a statement.
Redstar’s collapse, while immediately awful for the employees and expensive for cargo interests, may have a wider significance.
Unions prosecute a narrative
The transport union is vigorously advocating a narrative that Redstar collapsed — along with hundreds of other small transport operators — because of the abolition of the Road Safety Remuneration Tribunal.
“The Federal Government is to blame for the financial squeeze put on companies like Redstar Transport after it scrapped a road safety watchdog that held wealthy companies to account for their transport supply chain. Since the abolition of the watchdog in 2016, hundreds of transport operators have become insolvent…The main reason for the insolvencies was inadequate cash flow… The crisis in trucking has brought too many transport operators to their knees. This is yet more evidence that the Federal Government’s abolition of the [Tribunal] was nothing more than a free pass for the big end of town at the expense of operators being able to survive and pay their workers. These insolvencies are on their conscience,” the union said.
The Tribunal set pay and employment conditions for road transport drivers in the domestic road transport industry between 2012 and 2016. It set payment and deductions for owner-drivers and created workplace health and safety obligations, minimum pay rates for owner drivers, entitlements for unpaid time off and provisions for hirers and supply chain participants to audit supply chain contracts, according to the Australian employment regulator, the Fair Work Ombudsman.
The Tribunal was set up in July 2012 during a Labor Party-administered federal government. However, there was a change of power in 2013 when the opposing Liberal-National Coalition won the federal election. The Liberal-National government abolished the Road Safety Remuneration Tribunal in April 2016.
Political watchers are now expecting the Coalition to suffer a heavy defeat in the next general election, due in the first half of the year, following a string of unfavourable polls and decidedly adverse electoral losses. Australian political pollsters are forecasting a 4.5% swing to the Australian Labor Party, which would comfortably put it in power.
Shadow transport minister Anthony Albanese told delegates to the December 2018 National Party Conference that Labor will restore “safe rates” to the domestic trucking industry if it wins the next election. So restoration of the Tribunal, or something like it, is the official policy of the party most likely to win government at the next election.
A different inference…
Meanwhile, corporate executives draw different inferences into the state of the industry. One industry executive told FreightWaves that there had been numerous acquisitions in the sector by businessmen from outside trucking. While these businessmen undoubtedly have commercial acumen, they lack the detailed insight gained from long experience running trucking firms and tend to run into cash flow problems, he suggested. The executive added that more trucking companies could run into problems in the future.
Official statistics throw an interesting light on the subject of business failures. Insolvencies in the Australian transport, postal and warehousing sector averaged 441 a year over the last five years. The highest number of insolvencies during that period was in the 2014-2015 financial year when 500 insolvencies were recorded. The low point recorded during that time took place in this financial year as 375 insolvencies have been recorded (so far). The nominated cause of business failure, across all industry segments, is interesting. Inadequate cash flow or high cash use was nominated in 49.2% of failures; poor strategic management in 45.8% of failures and trading losses in 39.3% of failures. These figures are mostly unchanged since last year.
At this point, we do not definitively know why Redstar collapsed other than the immediate fact that it ran out of money. The liquidator will investigate and produce a creditors’ report which might be made public in the future by one of the creditors.
Prior to its collapse, Redstar offered long-distance express and time-sensitive road freight in single, b-double, b-triple, double road train & triple road train combinations. The size of the Redstar fleet is unknown at the time of writing. However, it is widely reported in the local media that, as at December 2017, the company had more than 250 prime movers and 700 trailers following an acquisition of another trucking company.
Redstar was formerly headed by the duo of Sean Williams and John Dixon, both of Melbourne. Williams was a director/owner of Redstar from 2013. Prior to that, he was formerly the chief financial officer of Silk Logistics Group for five years and four months. He held senior corporate management roles in the asset management and pharmacy sectors before that. Dixon was also an owner/director of Redstar for the last five years and was group managing director at Silk Logistics for three years before that. In previous roles he held directorships with recruitment business “Skilled”, Westgate Logistics and stevedore Patrick Corporation.