Smaller volumes and higher costs: 2011 was a pretty gloomy year by anyone’s standards. The outlook for the rest of 2012 is not much better but operators are greener and more efficient , according to a joint report by the FTA and PricewaterhouseCoopers (PwC) UK.
"In the past recovering from a downturn was a more predictable business," says Coolin Desai, logistics industry leader at PwC UK. "Three years into the financial crisis, uncertainty and volatility have become the baseline expectation."
If anything conditions have worsened since the FTA/ PwC UK Logistics Report 2012 was compiled. Last month the ONS revealed what many had long suspected – that the UK had gone back into recession (two quarters of negative growth in Q4 2011 and Q1 2012). The economy might have grown by 0.7% in 2011, but most of that growth came in the first half of the year. The Christmas peak was weak, or non-existent for some, with consumer spending down year-on-year. At best the report predicts flat growth – and since the figures were announced PwC says that indicators from employment rates to retail sales suggest this could now be a best case senario.
Optimism among operators, while not exactly rock-bottom, is hardly rising. Respondents to the survey show that road hauliers expect no improvement in 2012. But it is not the same across the board: FTA members involved in international freight movements had high expectations that volumes would rise, while retail and manufacturing hauliers were flat and construction hauliers anticipating lower volumes.
The key concern remains the above-inflation rises in the price of bulk diesel. Year-on-year bulk diesel rose 8.5% from 103.3ppl to 112ppl. Fuel is now responsible for an average 40% of an LGV’s operating costs, up from 33% two years ago. The increases in the price of fuel in 2011 alone added £31,580 to the cost of operating a fleet of 10, 44-tonne artics.
Despite campaining, a 3ppl rise in duty is still pencilled in for 1 August. The FTA says it remains committed to the FairFuelUK campaign to abolish this potentially crippling rise.
FTA chief executive Theo de Pencier says: "The Chancellor failed to grasp the benefits that a fuel duty cut could have delivered. Talking about growth is not enough - lowering fuel duty would boost the economy and generate jobs.
"The truth is that during the worst economic conditions for generations, at a time of minimal growth and ever increasing and understandable customer pressure, our industry has risen to the challenge and is succeeding in delivering the goods with increased efficiency and at lower costs."
With the price of fuel outside the control of operators cutting labour costs has been critical. The survey found that wages in the road transport industry rose by 2.8% in 2011, compared to inflation, which stood at 4.8%. It also found that there had been reductions in overtime and a trend for using temporary staff to cover peak periods, rather than using agency drivers.
Furthermore one in three operators surveyed were still considering reducing their driver workforce to reflect lower business volumes.
The combination of weak volumes and higher costs continues to squeeze. While overall operating costs rose by 7% in 2011, typical haulage rates rose by 4.6%. This means less capital investment, explaining why new LGV registrations stood at 42,944 in 2011. The survey also found that only 24% of operators expanded their fleets in 2011(23% for van operators).
Just 29% of operators say they will expand their fleets in 2012 and this figures moves down to 22% for van refreshes and 20% for new trailers. A staggering 86% of respondents said that reduced volumes was responsible for the lack of capital investment.
Desai says: "Rising fuel costs coupled with tepid growth has put pressure on margins, despite which logistics firms continue to innovate.
"Looking ahead, the challenge will be for government and industry to work together to ensure the UK is a leading place to develop successful logistics businesses. Investments in critical transport infrastructure and in developing a skilled workforce are imperative for international competitiveness and facilitating economic growth."
While the need to manage motorways and strategic roads better is well documented, the lack of a skilled workforce in the pipeline is often glossed over. However the report found that 21% of operators believed their company was not able to achieve its growth forecasts because of a lack of skilled people. In addition 40% believe it is harder to hire qualified workers in the industry.
The FTA wants to see logistic companies liaise with schools and educators better to drive awareness of the industry, and use schemes such as its ‘Love Logistics’ to encourage young people to think about their future.
Where operators have made great strides is in the environment. The FTA cited its Low Carbon Reduction Scheme (LCRS) as a means to reduce emissions per vehicle km. The industry is averaging 0.88kgs of CO2 per vehicle km, while participants in the scheme average 0.76kgs. The DfT’s freight industry review will scrutinise the measures taken so far by the logistics sector in achieving carbon reduction and identifying the mandatory steps it wants the industry to take. The LCRS is expected to be raised as part of the review.
De Pencier says the industry is "contributing significantly" towards the government’s targets despite customer demands for "even higher service levels at ever lower costs".
"We are responsive to changing customer demands," he says, "innovative when opportunties arise and accurate when the task is complete, Logistics is a fundamental conduit for further growth. Without world class logistics the UK would stand still."
