It is no secret the haulage sector is facing an uphill battle; recent Office for National Statistics estimates show that one in five transport businesses have run out of cash amid the current economic climate. So how can businesses ensure continuity?
There is no doubt that the UK economy is facing significant headwinds at present. The increased demand for goods and services post Covid coupled with supply side constraints, including the ongoing war in Ukraine, has contributed to double digit inflation in the UK, the highest level since 1982.
The result is a reduction in purchasing power and cost-of-living crisis for many consumers. For businesses it translates to higher purchasing costs, increased overheads and squeezed margins if prices can’t be passed on to customers in equal measure.
The response from the Bank of England has been to increase interest rates to 3%, with an expectation the rate could climb to over 4% in 2023. The Government has provided no firm commitment to business for relief on energy bills beyond April 2023, with energy prices a significant contributor to rising inflation.
What does this mean for the road haulage sector? Many in the sector were winners during the transition from the Covid pandemic as volumes surged. Hauliers that did not make money in 2021 and 2022 will almost certainly be struggling now. A tightening in global supply means that fuel costs will remain high, with no indication from the government that the previous 5ppl reduction in the fuel duty rate will be maintained or even cut from March 2023. The legacy labour shortage and cost of living crisis will not ease the clamour for higher wages.
Hauliers that cannot retain staff will be faced with higher replacement costs, while a reduction in discretionary consumer spending this Christmas will impact manufacturers and retailers and their haulage operators, with volumes expected to slump. The increase in interest rates means the cost of financing replacement vehicles has become more expensive, while continuing to operate older fleets will increase fleet service and maintenance costs.
What should hauliers do when volumes slump and increased costs cannot be passed to customers? Alvarez & Marsal is a leading provider of restructuring and turnaround services to companies across Europe.
Below we outline our top 10 tips to hauliers who face a period of stress and uncertainty:
1) Early engagement with restructuring advisors is critical to maximising the optimum outcome and preserving value. Leaving this too late limits the viability of the restructuring options available.
2) Focus on cash preservation and collection. Produce a short-term cash flow to understand any forecast liquidity requirements.
3) Review actual financial performance to forecast and understand what is driving the variances. Stress test your business forecasts to understand your exposure to key events such as a reduction in credit terms with suppliers, loss of key customers, increase in costs.
4) Operate tight cost control, question if every payment is business critical and will increase margin.
5) Engage with your customers and negotiate cost increases into your haulage rates as early as possible. Diversify your customer base to reduce exposure to one sector or customer.
6) Review your overheads. Renegotiate with landlords and find efficiency in a workforce restructuring.
7) Reduce capital expenditure to essential items and ensure you have an optimum fleet size with a focus on route efficiency and utilisation.
8) Review your capital structure. Can you leverage your asset base to access additional working capital funding or are you over-leveraged and struggling to service debt? Seek advice in raising alternative finance, accessing new debt or equity partners. Refinance or renegotiate your existing facilities, including amendments and extensions.
9) Review your asset base. Dispose of non-core assets to raise cash.
10) Engage with stakeholders, the majority of creditors will be better off if you stay trading than go out of business.
Our UK regional restructuring team are experts in stabilising businesses, improving stakeholder communication, generating additional cash headroom, implementing accelerated sales and developing contingency plans.
John Noon, senior director, Alvarez & Marsal
