The current economic situation in the coal mining areas of Australia just seems to go from bad to worse.
Over the past month we have seen:
• Bandanna Energy go into voluntary administration
• BMA announce 700 more job cuts in the Bowen Basin
• The announcement of the closure of the Isaac Plains coal mine and the Burton coal mine
• Further job cuts at Rio Tinto and other mine sites across the basin.
To add to this list, the Chinese Government has decided to impose tariffs on coal imported from Australia. The tariff (effectively an import tax) will increase the price of coal in China by 3% for coking coal, and 6% for thermal coal.
Small business owners could be excused for feeling that they would like to run away and hide until the bad news ceases.
But we can’t do that.
It is a fact that the mining industry has fallen in a heap as far as suppliers and employees are concerned. It is also a fact that Queensland miners are actually producing record volumes of coal – ensuring that prices remain low (see the graph in this post). Continuing low prices, in turn, mean that the cost-cutting just keeps on coming. The Australian Bureau of Resources and Energy Economics don’t paint a rosy picture in their latest Quarterly Report.
Like it or not, we’re in a cost-cutting environment. Contracts are being won and lost on price alone. In these conditions, it is imperative that small businesses know their own costs – intimately – and then work to bring them down.
Winning work in a cost-driven environment is hard – no question. But worse is to win work at any cost, and we are seeing this happen at the moment. Unless you have a compelling reason to take on a project that is not going to make money, it is best to walk away. Knowing exactly what your costs are, and how they are behaving in the current market is the only way for you to know what the job or project will mean to your company.
Do you know your costs/hour, cost/square metre, or whatever your service or product is measured in? If not, do some homework with your accountant until you do. You may have to set up some financial measures with outside help, and then monitor them on at least a monthly basis.
By knowing exactly what your cost of doing business is, you can subject every opportunity to a well-considered GO/NO GO decision.
Eventually, our clients will move back to seeking value, not just the cheapest price. But in the meantime, we have to just deal with the way things are.
Ensuring that the work we are doing is not losing us money is the first step.
15 October 2014