Fortec value not volume strategy pays off

Since July last year, the UK pallet networks have been facing the prospect of a new network entering the market. Principle Pallets is the brainchild of former Fortec directors Neil Hodgson and Marcus Fischer but Fortec network director Dave Spong and general manager operations Chris Dennigan (pictured above) tell MT that they haven’t heard much about the new venture.

“Our members are telling us they have heard absolutely nothing from Principle,” says Dennigan. “They are on at least six months notice but there’s been nothing.”

Fortec’s focus on raising service standards and reducing its volumes of certain profile lines agreed with members late in 2015 and implemented in 2016, has paid dividends, according to Spong (pictured below).

“We made all those changes and we lost about 4% of our volume a night to start with,” he says. “We knew that was going to be the case but by October 2016, when we could make a true comparison, the growth was about 7%. So we are still growing at an unbelievable rate, back to 7% to 10%, and we are pretty comfortable in terms of the growth.

“We absolutely believe that was the right thing to do and our member retention has proved it was the right thing.”

Membership growth

Fortec grew its membership from 74 to 80 in 2016 as part of its strategy to raise service levels across the network.

“We didn't have the pressure on the network in terms of volume so there were no pressure points,” says Spong. “It enabled us to make the changes - we were setting ourselves apart and creating a niche within the marketplace.”

Despite the challenges of finding quality hauliers to join pallet networks, Spong insists that there are still good companies with no experience of networks out there. The South East of England is always a problem area for pallet networks, with an imbalance of freight flows, congested roads and high land values, but Fortec has increased its membership in Kent to five in the past three years.

“Of the last 15 members that we've recruited probably 11 or 12 who are new [to pallet networks],” he says. “You've got to be prepared to get new members on board through a longer negotiation period. There has to be a level of understanding as to what a network is about; you have to be realistic about what it can do for members and gradually support new members into the network.”

This has been achieved partly by more open dialogue with Fortec’s members to ensure the network is delivering what they need.

“We like to think what we do and our relationship with the members is different from the other networks. We have regular discussion groups with 11 or 12 members where we seek their opinions,” says Spong. “There's this cycle of change, and we are engaging with the members on a real business level and listening to their opinions. We have surveyed the members asking what they think of the management, operations and customer services, and what they think of each other.”

Customer focus

That is not to say Fortec has become introspective, focused on its members rather than on customers. The issue of who deals with customer queries, a central call centre or the local member, for example, is a perennial issue for pallet networks.

“If we’ve got a major key customer and they want customer service support then they can come into the centre,” says Spong. “But generally speaking it works on member to member, and if they can't resolve it then it goes principal to principal. Only if the principals can't resolve it does [a customer issue] come into the centre.”

A haulier that recently switched from Fortec to another network cited “better customer focus” as one reason for leaving. Spong says that simply meant the other network has a comment box for members on its website and this would be added to Fortec’s site later this year.

“This was discussed at one of our member meetings and we ended up coming up with a communication box that will appear on the booking,” he says. “Let's say we have a timed delivery; if somebody can't deliver they have to populate that box with an explanation. If the sending depot accepts the explanation that's fine, if not it comes to the centre.”

High expectations

Dennigan is frank in admitting that there will always be occasions when a customer’s expectation exceeds the service a pallet network is able to deliver.

“We are trying to bring the strongest commercial people together and use them as a vehicle to develop the network,” he says. “We know that there are some members who are fantastic commercially or operationally and it’s good to share that best practice amongst the members.

“The way we can develop this business is to bring those who are not quite up to speed forward half a yard; we will win business on the back of that. We focus on how the members present themselves and we introduced something called ‘Looking through the eyes of the customer’. We had posters done and it goes to the customers to emphasise we've got great customer services.”

Improving customer service can sometimes involve making minor but significant changes to IT systems, says Spong.

“Some of our members don't always tell the commercial team when they haven't picked up from a particular customer,” he says. “So we had conversations about why they aren’t monitoring the daily collected consignments when they have that facility on ForTrack [Fortec’s internet-based IT system].

“So we gave the network something simpler to help monitor their customers’ trading the previous night. This idea came out of the discussion groups we’ve help and it makes a big difference. By sharing best practice we are identifying the little things that might stop members losing a customer.”

Premium service

Another change Fortec introduced in 2015 was to widen the differential in price between its premium services such as timed delivery and its standard next-day service.

“Once we created that price differential people started using the premium service for what it was,” says Spong. “Customers got a better service, but the members still got the same revenues and we found their productivity improved.”

Dennigan adds: “I think that to some degree the use of premium services was effectively in the ‘old world’ to guarantee a next-day delivery. Now we’ve stabilised the service over a consistent period of time the requirement to pay the premium is lessened.”

Around 18% of Fortec’s volumes are now on a premium service and the hub in Watford Gap works hard to make sure all depots are able to hit their timed deliveries.

“The aim is always to get the trucks back into the members by 6.30am,” says Spong. “All the IT developments we're doing in the background are to minimise the amount of work involved between trunk arrival and dispatch.”

Fortec also operates a northern hub in Warrington.

“It was created for the benefit of 10 northern members who are inputting their volume and we can offer a slightly lower hub rate,” says Spong. “That encourages volumes to go into there.”

Dual networking

On the thorny subject of dual networking - operating with hauliers who are members of another network - Spong says Fortec is more relaxed than some rivals whose policy is to accept it only when there is no alternative.

“We've got a different marketplace and it can be dual networking if we want,” he says. “The bigger networks don't seem to want to go down that road because of their size and hunger for volume. We can bring in new members and they can send one trunk a night. We will then develop them whereas the bigger networks are looking for 100 or 150 pallets a night.”

On the equally thorny subject of B2C freight, Spong denies Fortec is turning away home deliveries.

“We never said we stopped doing B2C,” he insists. “What we've always said is ‘if we don't sell to corporate customers, then it's unlikely that our members will go out and win high volume home delivery business’. If they do win one then fine, we have to manage that situation. But we don't want to be a slave to the corporate customer who dictates to us what the service is going to be. What we have to do is continue to build a service that works.

“The danger is, if you go down the B2C route, you're then in a race with everyone else and that is detrimental to the B2B service. So if we sit where we are, there's every chance of us winning more of the B2B business that everybody thinks is shrinking. It'll actually grow as a result of everyone going out to B2C market; we're not a massive network so we don't need thousands of pallets every night to grow.”

Weight limits

Fortec was one of the early adopters of a 750kg limit on tail-lift deliveries, which it introduced at the same time as ending its policy of giving discounts on multi-pallet deliveries.

“At the time, we lost 4% of our volume a night through changing our freight profile - the 750kg limit, stopping over 3m-high consignments and taking away the multi-pallet discount,” says Spong. “It was a gamble, of course it was, but ultimately the members will be more productive, it's safer and there is less damage. We’re now back up and beyond previous volumes and still growing.”

The UK’s pallet networks have seen phenomenal volume growth in the past decade but Spong admits that they have their strengths and weaknesses.

“Some people think the networks are the answer to everything, and we’re not,” he says. “It's a great means of moving palletised freight from A to B. And we've made it better because we haven't got as many multiple-pallet consignments or timed deliveries going through the network so it's a simpler service and the congestion stops.

“We have a reputation now for coming through for customers. In the past they've been let down by pallet networks because everybody has gone down this high volume, ‘we will do anything’ route.”

Pallet tracking

Fortec’s IT investment also now enables the inputting member to track consignments through the network, with immediate alerts if there is a problem.“Red warning triangles appear above a consignment if there is a delay,” says Dennigan. “That's the best prompt you're going to have and the trick is talking to the customer first to take away the surprise element.”

Fortec is currently running at between 95% and 97% on-time delivery – and those are true all-reasons stats that include failures beyond the network’s control.

“Our numbers are simple - is the POD [proof of delivery] there and on time or not? It's black and white and we don't manipulate that,” says Dennigan. “In years gone by the business has stood in front of members and said ‘brilliant, service levels are 99.5% again’. Truth of the matter was, it wasn't 99.5% and the customers knew it.”

Consolidation or expansion?

There are currently two conflicting views of the pallet network market – one, that it is ripe for consolidation, while the other is that there is room for another network to join the fray. Which view does Spong subscribe to?

“That's a difficult one,” he says. “For us, we have to retain our members. We have some large members and they might come under pressure to switch to other networks.

“That's not to say we can't sustain the network, because we can reshape our business and we are successful in recruiting new entrants. We can do that, but we're not going to replace like for like. There's going to be a change in the operating model just as there will be in the customer base.

“The larger networks have to have somebody able to deliver 100 or 150 pallets and that could be where consolidation takes place in the next couple of years.”