Andy-Downton

Christmas deliveries set to grind to a halt; agency rates going through the roof; 150,000 new drivers needed by 2020 – the capacity headlines continue to run and run, and concern across the industry is palpable.

An outside observer would be forgiven for thinking this problem is a new one, the emergence of which has caught the industry unawares. Nothing could be further from the truth. The faster-than-expected rise in freight volumes in 2014 has simply reawakened an issue that has been lying dormant since before the recession.

What we are seeing now is a ‘perfect storm’ for logistics sector capacity, with five or six different issues coming to a head at the same time. If we’re going to tackle this challenge, there will be no quick fix; it’s going to take time, investment and commitment from all across the industry if we’re going to put things right.

A problem ten years in the making

The truth is the capacity problem has been building for a decade or more.

In the years of growth leading up to 2007/08 crash, the industry was beginning to realise that we weren’t attracting enough drivers to meet rising demands and replace an ageing workforce. It was an area of major concern and the driver shortage stories then, as now, were beginning to dominate the headlines.

Then the recession hit. Demand fell through the floor. A lot of the smaller operators left the market during the slowdown, while mid-tier operators reduced their fleet and workforce; battening down the hatches to ride out the storm.

There are benefits to what happened. We now operate a far more efficient and streamlined business than we did before the crash. However it also meant a significant drop in capacity across the industry. According to RHA figures, the number of HGVs on the road fell from 380,000 in 2007 to 330,000 in 2012, with the number of drivers also falling.

Clients also took advantage and drove rates down to the minimum as everyone chased diminishing opportunities amidst falling freight volumes. Now, hauliers have been reluctant to re-equip and invest without the margins to justify the investment.

The perfect storm

The quicker than expected recovery this year has been the catalyst for the capacity shortage; further exacerbated by the perennial pressure of Christmas. However there is an array of other factors, all of which have combined to squeeze capacity like never before.

We have an ageing workforce in logistics, with drivers reaching retiring age without enough young blood coming in to replace them. This has been further compounded by the requirement for Driver CPC training; which, while important to the industry in the long-term, has acted as a disincentive for older drivers to continue working.

Changing customer demands have also played their part. The ongoing trend from the major multiples towards day one for day two ordering has meant less vehicles running full, which again impacts on capacity. The increased spike at every month end, with clients striving to meet sales targets, also puts increased pressure on the whole supply chain.

During the recession, ‘smart’ clients also locked their hauliers into CPI-linked rate increases. Two years ago, hauliers would have bitten their hand off for this deal; now, they find themselves locked into barely increasing rates at a time when labour costs are spiralling out of control.

The biggest irony of it all is that fuel prices are at the lowest we’ve seen in years. But it’s almost academic because most haulage contracts have the fuel elements removed.

Where do we go from here?

There is no quick fix solution to the capacity challenge we face – this is a problem many years in the making, and solving it is going to require a similarly long-term approach.

In terms of the driver shortage, we need to double our efforts to bring new talent into the industry. Firstly, we need to create better opportunities for those looking for a career in this sector. Last month we launched a nationwide apprenticeship scheme; taking on four new apprentices, with another three joining in January. It’s not going to be a silver bullet for the skills challenge, but it’s a good start.

Secondly, we need more support from government to help us train new HGV drivers. The Road Haulage Association must be commended for the submission made to the Treasury last month calling for grant schemes for HGV training. Hopefully we will see the fruits of their labours in the Chancellor’s Autumn Statement on 3 December.

Finally – and perhaps more importantly – we need to do everything we can to make the logistics industry as a whole more attractive to prospective candidates. There’s no point in setting up apprenticeship schemes and securing grants for training if people simply aren’t interested in a career in this sector.

In the short term, it’s vital that we have an honest and adult conversation with buyers about haulage rates, which simply cannot continue at rock bottom. This is a discussion that the industry has been trying to have with clients throughout the past 30 years. Now, with labour costs up by as much as 10 per cent, we are at a point where this conversation needs to get serious. Sensible buyers of transport need to really understand the word partnership and move away from treating haulage as a commodity – otherwise these capacity problems could continue for many years to come.

Andy Downton, MD, CM Downton