BFM Fears Wave of Insolvencies in the Logistics Sector Due to Oil Embargo

The Federal Association of Factoring for SMEs (BFM) fears that the oil embargo against Russia, pushed by the EU Commission, could lead to another significant increase in fuel prices. This would hit many of the nearly 70,000 German logistics service providers hard – after the COVID-19 pandemic and the energy price explosion, many fear for their existence.

(Berlin) For some time now, transport and logistics associations have been warning of a wave of insolvencies among their member companies. With an oil embargo against Russia, as currently promoted by the European Commission, this could finally roll in. Fuel prices in this country would likely rise again, overwhelming many medium-sized logistics companies. Recently, the situation had eased somewhat: The average diesel price at public filling stations was €2.02 per liter on April 24, according to the Federal Statistical Office. This is a slight decrease from the peak of €2.33 on March 10, but still at a high level. The second relief package approved at the end of April by the government, which includes a temporary reduction in energy taxes and short-term loans, is considered insufficient by industry representatives, such as the Federal Association of Goods Transport, Logistics and Waste Management (BGL), to alleviate the existential threat.

Challenges in the Industry Are Compounding

Since the outbreak of war in Ukraine, the logistics services sector, which according to the industry association BVL includes more than 70,000 mostly medium-sized companies, has been struggling with massive problems. These not only concern the skyrocketing fuel prices – many of the drivers operating on German roads also came from Ukraine. Understandably, they have returned to their country and are providing important assistance there. However, this further exacerbates the situation for transport and logistics. According to associations, there is already a shortage of nearly 80,000 drivers. Additionally, the situation regarding new talent is difficult, and the popularity of the industry among potential trainees is hardly optimal: According to a recent survey by Amazon and the University of Applied Sciences Würzburg-Schweinfurt, young people under 26 perceive career prospects in the logistics sector as worse than those over 50. The industry must work sustainably on its image. However, there is often a lack of the necessary liquidity for measures regarding recruiting and positioning as an employer. Especially since the acute challenges are financially hardly manageable and the reserves of many companies have been depleted by the COVID-19 pandemic.

Making Working Capital Management Crisis-Resistant

“Medium-sized logistics companies urgently need strategic tools to maintain the necessary working capital for current challenges. Government aid measures will hardly be sufficient given the numerous challenges,” says Michael Ritter, Chairman of the Federal Association of Factoring for SMEs (BFM). Regular receivables sales as part of factoring are therefore a suitable means to make working capital management crisis-proof in the current situation. Factoring helps companies become independent of payment terms. “Especially SMEs that work with large companies repeatedly report long payment terms of 60 or even 90 days. Factoring partners, on the other hand, provide liquidity immediately. This allows transport companies to respond quickly to short-term changes in fuel prices and calculate more reliably,” Ritter continues. While many contracts allow for the inclusion of fuel price fluctuations through a sliding price clause, the reaction speed often lags behind current events: Funds are only available at the end of the agreed payment term. Factoring, on the other hand, often provides liquidity within one or two days, thus ensuring more room for maneuver, for example, regarding advance payments.

Risk Prevention and Strengthening as an Employer

“Factoring also strengthens the risk management of logistics companies. This is becoming increasingly relevant right now. Because in times of crisis, not only do the collection periods often increase, but the risk of payment defaults also grows when customers encounter economic difficulties. However, if receivables are sold to a factoring partner, they bear the risk, and the logistics company receives the outstanding invoice amount in any case,” explains Ritter. If companies in the industry find their way back to calmer waters, they can also address urgent future questions such as their attractiveness to skilled workers and training and further education measures – here, revenue financing through factoring can also provide the necessary liquidity.

About the BFM

The Federal Association of Factoring for SMEs (BFM) is the central interest representation of medium-sized factoring companies in Germany. The association includes quality-oriented, often owner-managed companies that specialize in revenue financing for small and medium-sized enterprises.

Photo: © BFM