Survival for only the fittest

UK hauliers are battling for survival on several fronts, reports Isabel Lesto

Cash flow challenges, fuel duty rises and falling rates mean road operators are fighting concurrent battles to keep their heads above water. Smaller operators are also losing out on tenders as customers check financial credentials before even inviting companies to bid.

This is probably not surprising, considering voluntary liquidations in the UK almost doubled, from 78 to 134, in the land transport sector during the second half of last year, compared with the same period in 2007.

Ulrik Rasmussen, director of groupage activities for DSV Road in the UK, says: "In the past, tenders might include three local and three global companies, now they include three or four international companies.

"We clearly see customers more interested in knowing how well transport suppliers are doing."

Under such scrutiny it is easy to see how small and medium-sized operators feel squeezed from all sides.

Cash flow is becoming a major problem.

In a survey by the UK Road Haulage Association (RHA) in January, more than half of the 325 respondents said customers were taking significantly longer to pay, while at the same time fuel suppliers were cutting their payment terms.

"Fuel companies are demanding quicker payment. At the same time, there is pressure on rates - it’s not difficult to see that some capacity will be taken out of the market. This will happen more and more over the next three to six months, " says Rasmussen.

The industry is criticising the government for adding further hurdles of two fuel duty increases in the last five months.

"Because hauliers have to pay diesel duty up front, the government is worsening the impact of the credit crunch, " says Jack Semple, the RHA’s director of policy.

Kicked in the teeth Iain Mays, of transport operator Horley Services, based near Croydon, puts it more directly. "The government is kicking us in the teeth, and it’s not only with fuel duty.

Business rates are going up 5%, that’s equivalent to £5,000 a year."

A group of industry partners led by the FTA is running a campaign to urge the government to rethink its plans to increase both fuel duty and road transport-related fees. It calculates the increases are adding £1,500 to the annual running costs of each truck.

"Last year alone, the number of HGV drivers claiming Jobseekers’ Allowance went up by 236%, transport managers by 114% and van drivers by 60%, " says FTA chief executive Theo de Pencier. "If the government goes ahead with further increases, those numbers are going to rise further."

So far, the campaign has fallen on deaf ears; Vosa’s vehicle safety test fees rose 9% last month. However, overcapacity due to falling volumes is still cited as one of the main challenges in the marketplace.

UK hauliers are battling for survival on several fronts

More than ever before, road operators are monitoring volumes and varying fleet sizes on a daily and weekly basis to make sure vehicle assets match volumes.

"A lot of equipment came into the industry over the last 12 months and now there is a knock-on effect, " says Rasmussen.

In the UK, DSV uses a combination of its own trucks and trailers and sub-contractors.

For international movements, it sub-contracts, using just 15% of its own trailers.

"In the domestic distribution market, we are feeling more pressure because internationally we run an asset-light business model, so we are able to adjust quicker."

In January, DSV Road UK completed the acquisition of ABX, which Rasmussen believes has made the company stronger in international movements.

"ABX fitted well into DSV by being assetlight. In terms of warehousing, all ABX hubs were closed and their operations merged into DSV locations. That means we get additional volume into our hubs."

DSV in the UK has seen business decreases due to the economic climate, but he adds: "Frequent departures, better transit times and high volumes mean we can do better than smaller companies."

Customers are looking for savings on rate levels, but they are also looking at ways in which operators can save them money through different processes. With the trend in falling volumes, those that used to book full-loads are now booking part-loads and those previously booking part-loads are switching to groupage.

Hellmann’s director of European road freight in the UK, Matthew Marriott, says the shift downwards started in November, but has been even more apparent this year.

But the increase in groupage has meant Hellmann’s margins have actually increased, since the complexity of a European groupage network demands a higher margin than either part- or full-loads.

Additionally, a fall in the value of sterling, means the operator’s Lichfield hub has seen a 14% increase in exports to the continent.

The hub also secured a number of new contracts last autumn which have boosted overall (import and export) volumes by 14%.

Family-run haulier Horley is also doing well in exports to Europe. "We are getting more quotes than in previous years, " says Mays.