Road freight sector sees the light at the end of the tunnel

One word sums up the European road freight sector over the past 12 months: recession. But operators are now reporting a light at the end of the tunnel, reports Marcia MacLeod

Operators report declines in volume of 20-30%, while the International Road Union (IRU) claims there was an average 30% drop in activity - contracts and volumes - in just the first half of 2009, leading to a 230% increase in bankruptcies and a 10-20% fall in rates.

Some countries, and industries, have fared worse than others.

"The impact of the crisis has varied from country to country," says Marc Billiet, head of EU goods transport and environmental affairs for the IRU.

"Newer member states have generally been hit worse than established ones because their economies are generally not as strong.

"But France has also been badly hit, because the government is trying to introduce environment-related taxes. We are surprised the government is increasing costs in such an economic situation."

Ireland and Spain are also said to be suffering more than most, with the UK not far behind. This could be because of a drastic downturn in the construction and automotive industries. And even the relatively stable pharmaceutical sector hasn’t saved Ireland, which is experiencing increased taxes while unemployment is predicted to reach 17% this year.

The only way is up

"But, " says Mark Meier, director for road logistics north-west Europe at Kuehne + Nagel (KN), "I think the Irish economy has reached bottom and there is nowhere it can go except up."

The effects of recession have been many and varied, none very pleasant. Companies have reduced fleets and laid-off drivers, although the first to suffer are usually the sub-contractors.

"We have reduced the number of our suppliers, " admits John Fowler, the UK’s European road freight manager for SDV Bernard.

DSV also admits to reducing drivers, although some of them were part of its own workforce. "We let a lot of people go, " says Rene Falch Olesen, MD of DSV Road."

Chambers and Cook Freight have also got rid of a lot of regular sub-contractors, and reduced its own fleet by three.

"We usually replace 20% of our fleet every year, " explains operations director Chris Blackburn, "but last year, we only replaced 15%."

RH Freight has also cut its fleet size through reducing the number of sub-contractors it uses and getting rid of some of its own vehicles.

"We have dropped at least 100 trucks, " admits MD Ian Baxter.

"We now have 65 of our own and 130 sub-contracted vehicles, compared with 120 and 180 before."

But a number of companies, especially smaller ones, have gone bust. Combined with consolidation in the industry - the buying power of companies like DSV, Dachser and KN swallowing smaller competitors - there is now less choice for shippers.

There are, however, a couple of silver linings to this cloud: the recession has driven out bad hauliers and ended the driver shortage that was causing havoc in the industry 18-24 months ago.

But laying-off drivers and cutting fleet strength could have severe repercussions for the industry in future. When the economy does pick up, there may not be the capacity - or people to drive the trucks - available to meet demand.

"We are already seeing some lack of availability, " says Tinjen Muijs, MD of TDG Netherlands. "We will go back to the situation of 2007, when the lack of space caused rates to go through the roof. And I think this could happen within the next 12 months."

Others agree. The IRU has urged companies and countries to introduce "temporary unemployment", already widely practised in Germany and Belgium, where hauliers lay-off drivers for a short period - perhaps eight weeks - at a reduced salary, with the government funding the difference between reduced and full wage packets.

Meanwhile, smaller fleets have not compensated for the severe pressure on rates.

"Rates have come down considerably, " says Jorgen Munch, head of European development for Davies Turner. "But at least the rate has stabilised. You never knew what you would have to pay from month to month and now you can plan, even if the rate is lower than we would like."

Jamie Cuthbert, MD of Geodis Calberson, adds: "I think the situation over the next few months will be interesting. We’re in the middle of annual price reviews now, and I think there will be some changes."

If the trend has been to lower rates, though, demand for good service has not fallen.

"Shippers still want service, " insists Muijs. "We need to fight the pressure on rates and, at the same time, increase the number of smaller customers to maintain revenue."

Cuthbert adds: "Service levels in general have improved and 96-97% of delivery promises are now being met. Hauliers have had to improve to keep their business."

Some companies are starting to see an upturn in business, too. KN increased its market share by increasing its sales team, although Meier thinks volumes will stabilise, rather than increase.

Geodis Calberson’s exports have gone up 5-6%, with the number of consignments increasing by 15%, although imports remain depressed.

Chambers and Cook Freight has seen business pick up since September, while Allport says its upturn began in May.