Clugston back on growth path with new revenue streams

Although Clugston can trace its roots back almost 120 years to 1895, when the grandfather of current chairman John Clugston set up a builders merchants in Scunthorpe, it celebrated its official 75th anniversary since incorporation last year.

Like many long-established firms with roots in construction and transport, Clugston - still based in Scunthorpe in Lincolnshire - has suffered since the recession. Its results for the year to 31 January 2012 showed that the logistics division made an operating loss of £454,000 on turnover of £9.8m, though a turnaround in construction’s fortunes saw that division make a £4.2m profit on turnover of £73.8m. Overall, the group made a pre-tax profit of £2m on turnover of £83.8m in 2012, compared with a pre-tax loss of £4.4m on turnover of £65m in 2011.

In recent years, Clugston Distribution Services under head of logistics David Heath (pictured) has begun diversifying in search of more profitable revenue streams. Alongside its traditional industrial powders, bulk foods, building products and steel vehicles it now operates curtainsiders, intermodal trailers and fuel tankers.

And the expansion has continued in 2013, with a further £1.5m being invested in the fleet. This will see the arrival of 15 new Renault Premiums, including five specified for fuel operation and eight kitted out for bulk powder operation. These will take the Clugston fleet to 88 vehicles; while all new vehicles are Renault there are still a few older Dafs in the fleet.

Renault is about to replace its entire Euro-5 line up with its new Euro-6 range and while many Clugston vehicles are 08 or 58 plate it has a batch of 54 and 56 plate trucks that will need replacing in 2014. “We were considering getting in a late order for Euro-5 for delivery in 2014 but have now elected to wait and replace with Euro-6,” says Heath. “I don’t like the fact that Euro-6 is expected to cost more – though we will now wait and see how it goes on fuel economy and purchase cost.”

New arrivals

Other new arrivals include four intermodal 30ft tipping trailers, four 49 cu m powder tankers, a new fuel tanker and a Lawrence David aero curtain-sided trailer that has been liveried using designs by two school children from a local primary school. They won a competition to come up with images reflecting the trailer’s environmental credentials, which include a projected 5.9% fuel saving over conventional trailers. The design (pictured) was shortlisted for the 2013 Motor Transport Livery of the Year Award, but the curtains aren’t just good to look at – the trailer has been built to EN12642 to safely carry steel rod and coil as well as general freight.

Heath says the strategy is to cover five key “channels”, each of which are busy at different times of the year to maximise utilisation of the fleet. “Cement picks up in spring, while flour builds up ahead of Easter and fuel is busy during cold weather,” he says. “They are rarely all busy at the same time.”

Clugston moved into fuel tankers in April 2012 and now has revenue streams worth £1.7m a year. “We have nine fuel tankers with five more on order,” says Heath. “We have a good client base – we have always offered a gold-plated service without the gold-plated price.”

While some of Clugston’s fuel contracts are for retail deliveries most are with fuel distributors to deliver heating oil to homes and small businesses. It is expanding the fuel operation from Immingham to a second base in Teeside in June 2013 to continue its growth plans.

“There are not as many fuel distribution contractors on the Humber and Tees as in the North West,” Heath says. “We have ended up working for a range of customers which we didn’t initially expect when we started the fuel logistics operation a year ago.”

Boost

Clugston’s steel work – now mainly for the nearby Tata steelworks through Norbert Dentressangle’s Key-PL logistics management contract – has had unexpected boost with the recent temporary closure of the railway line linking Doncaster with Grimsby and Scunthorpe in February due to a landslip at Hatfield.

“A lot of steel shifted to road in the short term as a result,” says Heath. “One train is equivalent to 30 trucks.”

While Clugston is still a major contractor in the steel supply chain, it has worked hard to reduce its exposure to this sector to below 25% of its logistics revenue. “We do not want to be over-exposed to any one market,” says Heath.

Business and account development manager David Clugston says the same goes for bulk cement products, which were a mainstay for the firm before the recession knocked the bottom out of the construction market. “We were too reliant on cement and it dropped savagely,” he recalls. “The group took a double hit in construction and logistics. So we have moved strategically into fuels and intermodal transport – they are less reliant on construction and give us a smoother volume profile. ”

Heath adds: “We branch into markets that are related to our existing areas, so you won’t see us leap into car transporters or refrigerated trailers. You can end being a jack of too many trades.”

The investment in growing the logistics business paid off in the year to January 2013, with an increase in turnover to £11m.

“We were in a lucky position last year, as construction had one of its best years ever,” says Clugston. “But the market is still very difficult.”

Low margin

Heath adds: “We are also moving out of low margin business and have pulled out of markets where we were losing money. We will waive bids for work where we know the rates will be suicidal and are moving towards more contracted work.”

Clugston has for example signed a five year contract with intermodal bulk transport giant InterBulk, which will be marked by painting four of its new bulk powder tractor units in InterBulk livery.

Heath is optimistic that rates will pick up quickly when the economy eventually starts to grow, arguing that there are lot of operators out there with ten-year-old trucks that badly need replacing. “It varies by sector but there are a lot of older vehicles in construction,” he points out.

Since his arrival in 2011 Heath has introduced a more rigorous costing model so unprofitable work can be turned away. “In the past, if we had capacity, we would take on the work,” he says. “We tested the market for curtainsiders and found it really hard, so we ended up only keeping two key clients.”

But Heath also knows the company has to grow its turnover to help spread its high fixed overheads.

“We need to get back to £14m or £15m a year, where we were five years ago,” he says. “We have a lot of tenders out and it only takes one to land to get us to our target.”

Telematics boosts efficiency as well as safety

With fuel now representing 37% of Clugston’s running costs – up from 33% as a result of the recent price hikes – the company has worked closely with telematics provider CMS Supatrak to encourage safe and fuel efficient driving (Safed) across its fleet.

The operator is installing CMS Supatrak Ecotrak in all its trucks to monitor key driver performance indicators such as speed, rpm, idle time and time on cruise control. As well as allowing managers to view this data, Ecotrak includes an in-cab display to give drivers instant feedback.

“We have nearly 20 vehicles carrying steel,” says Heath. “With CMS we are saving £50 a week per vehicle on our benchmark fuel bill. We knew we could make some phenomenal savings – other than reducing headcount it is the only way to make six-figure savings.”

Over a three month period, Clugston saw a 10% saving in fuel consumption using CMS Supatrak. “We monitor driving style not fuel consumption,” says Heath. “We reward the best drivers with £25 shopping vouchers.”

Heath says the drivers are happy to adopt a more fuel efficient style.

“We cut our speed from 55 to 53mph and that makes for a more relaxed drive,” says Heath. “All our drivers are paid by the hour so there is no incentive related pay.”

The CMS system automatically generates reports on driving style which are used in monthly review meetings.

While telematics has helped improve fuel efficiency, business and account development manager David Clugston says the key driver was to reassure customers of the safety of its fleet and specifically fuel tankers.

“Fuel customers are very demanding,” says Clugston. “Fuel economy came out of the back of a safe driving style. We found there were repeated examples of harsh braking on the same road so we were able to feed this back to the drivers.”

Clugston is part of Jaupt-approved consortium WTTL and is putting its drivers through its own inhouse Driver CPC training – it employs a full-time safety manager and two drivers are also acting as trainers.

“We use telematics to target the training where it is needed,” says Clugston. “Every driver in the fuel fleet will have done Safed training by the end of the year and we are 60% of the way through our Driver CPC training.”

As well as reducing fuel usage, Clugston uses its contacts in the fuel industry to buy at the best price.

“We pick up our own fuel and buy from traders which in turn has allowed us to understand better where the market is going,” says Heath. “We saved 1.3ppl one week – that is more money than two trucks make in a week.”