The road back from the 2008 recession has been a long and arduous one, sadly with casualties along the way. Recovery has also been drawn out – but less painful that the dark days before it – with the UK failing to hit predicted levels of growth in 2015, largely due to poor-performing construction and manufacturing sectors. GDP (gross domestic product) grew by 0.5% between July and September 2015, according to ONS (Office of National Statistics) figures in October – down from 0.7% in the second quarter, and lower than the 0.6% growth predicted by analysts for Q3.
Some of those same analysts were predicting a slower and bumpier ride in 2016, but the vast majority have dismissed fears of the UK lurching into another recession. Indeed, the November 2015 OECD (Organisation of Economic Co-operation and Development) report for the UK states that economic growth is “projected to continue at a robust pace over the coming two years, driven by domestic demand”.
Meanwhile, last July the IMF (International Monetary Fund) cut its forecast for UK growth from 2.7% to 2.4% for 2015. As we approach the end of the year (and at the time of going to press) that seems an accurate prediction. The IMF’s figure for 2016 has also been revised down slightly – from 2.3% to 2.2%.
The number of HGVs on UK roads increased in 2014—15 by 6,104 (to 343,674), but O licence numbers continued to dwindle, now standing at 75,595. Although this period’s decline of 2,137 was far smaller than losses seen in 2012—13 and 2013—14 (3,178 and 3,162 respectively), it continues a downward trend, which can be traced back to 2007—8, when there were close to 100,000 O licences (98,316).
According to the SMMT (Society of Motor Manufacturers and Traders), commercial vehicle registrations for November 2015 were up for LCVs and HGVs, compared with the same period in 2014 (by 15.7% and 22.3% respectively). The organisation believes that the numbers reflect returning consumer confidence led by steady growth across much of the transport market. Once again, vans led the way, with October 2015 recording a 6.2% month-on-month increase, as well as growth in nine out of the 10 months of the year. November’s 29,051 units contributed to a year-to-date figure of 341,420 and represented a 9.6% increase on November 2014.
In the truck sector (vehicles over 6 tonnes), November 2015 recorded a 55.8% jump in registrations (4,252), compared with the previous November. This was to be expected, however, given that the corresponding month in 2014 coincided with the lull after changes to Type Approval legislation for bodied vehicles throughout the range. The November 2015 year-to-date figure for heavy vehicles was 47,184 – suggesting that breaking through the 50,000 barrier for 2015 is a distinct possibility.
Meanwhile, the SMMT currently forecasts 385,000 new LCV registrations next year, up 2.7% on the 2015 forecast volume. While no firm predictions have yet been set for HGVs, educated guesses suggest that registrations will remain closely in line with the 2015 performance.
Turning to operator costs, the RHA’s annual survey of movements calculates a 1.82% average rise, excluding fuel. Once fuel (the price of which has fallen by more than 16%) is taken into account, this number drops back into negative growth territory compared to the beginning 2015 (-3.36%). As we look forward to the next 12 months, however, it is unlikely that fuel costs will remain so low, meaning a growing likelihood of a financial impact for operators potentially just around the corner.
Economic backdrop
In contrast to 2014’s small inflation increases, 2015 has seen the CPI (consumer prices index) in deflation mode, albeit by similar sized margins. Core CPI (excluding energy and food prices) remains slightly higher at around +1%.
The Bank of England, in its inflation report for November 2015, indicated that “domestic momentum remains resilient with firm consumer confidence... Income growth is expected to be at its strongest since the 2008 financial crisis”. It also warned that “wage growth will cause cost pressures, which may be volatile and is certainly being seen in the haulage sector”.
Elsewhere in the numbers, the UK’s unemployment rate fell to a seven-year low of 5.3% in the three months to September 2015 (1.75 million jobless people), while wage growth rose. “Projected increases in labour productivity should underpin real wage growth,” says the November OECD report. “The trade deficit remained contained, but weak global trade and past currency appreciation are holding back exports. Inflation is expected to increase towards the 2% inflation target as pressures on capacity emerge.”
Turning to interest rates, the UK has become accustomed to a base of 0.5% – the record low that in place since March 2009 – and there was no change in 2015. The Bank of England’s Monetary Policy Committee voted overwhelmingly (8—1) in December to maintain the constant. What happens next is up for debate, with some experts expecting a rate rise in spring 2016, while others believe the bank will wait until 2017.
Tyres
Operators won’t be surprised to hear that tyre prices effectively stood still during 2105, with RHA members confirming that picture. This stagnation is partly explained by lower oil prices, which impacted overall costs of tyre production.
Tyres remain a largely personal choice among operators – although many now prefer popular premium brands, rather than budget versions. Anecdotally, operators report that they typically use new premium tyres on steering axles then remould and swaps locations. A few vehemently reject remoulds. A growing number of operators throughout 2015 have also listed contract purchasing as their preferred tyres option, with most being on a ppk/ppm (pence per km/mile) basis.
Meanwhile, more than 80% RHA members say they operate tyre policies involving independent monthly checks on tyre condition, tread and swapping tyre pairs around. Most advise that this benefits them, with increased tyre life and reduced on-the-road problems the main benefits.
Fuel costs
The sudden drop in oil and fuel prices towards the end of 2014 continued into early 2015. Throughout the remainder of the year prices have remained low and, as we go to press, are falling further. Compared with 2014’s price drop of 6.5%, between September 2014 to October 2015 prices fell 16.35%.
The average bulk price paid by RHA members, as reported in that organisation’s weekly fuel survey since October, stands at 91.7ppl and a little more for card-related diesel, at 93.4ppl. That difference represents a potential cost of nearly 2% for hauliers failing to get bulk rates.
Using its closing point figure (from 25 September 2015) of 86.69ppl for bulk fuel, RHA estimates that an average 44-tonne 6x2 truck travelling 73,000 miles a year is paying £35,962 for diesel. This figure now equates to just under 27.5% of the vehicle’s total operating cost.
Analysts are predicting that, with China’s growth slowing and Iranian oil exports coming back on stream, oversupply will continue next year and prices will remain low. Nevertheless, operators are also warned to expect fuel duty increases from April 2016. While the Chancellor didn’t mention this in last year’s Autumn Statement, increases in fuel duty appear visible in the 2015 Spending Review and Autumn Statement document under the OBR (Office for Budget Responsibility) economic and fiscal outlook section.
Vehicle acquisition
RHA reports a slight increase in the cost of new vehicles, but also adds that 2015 saw large variations in these increases. Those depended not only on the manufacturer, but also the specification and model detail.
Despite scepticism about Euro 6 legislation in 2013 and 2014, increasing numbers of operators are citing enhanced performance and efficiency as reasons for swapping out older Euro 5 trucks. Many older vehicles are now being replaced earlier than originally planned.
In August 2015, the Chancellor announced that, from January 2016 the annual investment allowance – which allows businesses to deduct plant and machinery items from first year profits before tax – will be set at £200,000 for the rest of the current parliament. This is £300,000 less than the previous temporary limit.
Road tax
In the March 2015 Budget, it was announced that Vehicle Excise Duty and the Road User Levy were frozen for one year from 1 April 2015. The Chancellor revealed, in the Autumn Statement, a Road Investment Strategy which will have a road fund directly from VED payments to commence 2020-21.
The controversial Road User Levy – introduced in April 2014 – continued to divide opinion throughout the year. While government figures showed that the levy generated £44 million in its first year, it was also cited by the DVSA as the primary reason behind an increase in the number of non-UK registered vehicles being sanctioned for traffic offences (13.8% of the 2,682 checked in 2013/14, to 16.3% of the 2,574 checked in 2014/15).
Insurance
Nearly three quarters of RHA members surveyed advised that their insurance premiums has reduced, remained unchanged, or increased by up to 5% last year. That is more or less in line with the position seen in 2014, which followed premium increases in 2013.
That said, insurance policies since November 2015 have been subject to an increased rate of insurance premium tax, from 6% to 9.5% – a tax kike of 58%. “Members are not happy and we are not happy... On the 44-tonne insurance example [£3,760] this would work out at £124 extra on renewal,” states the RHA.
Elsewhere, the issue of false whiplash claims is now to be addressed by the government, according to its Autumn Statement. Such claims are estimated to cost the UK £2 billion a year, and a consultation is due for publication in the New Year. The stated aim is to reduce such claims by half, thus also paving the way for reduced prices.
Repair and maintenance
R&M saw costs increase 2% overall. RHA states that 62% of members do not use telematics to monitor this element of cost. Meanwhile, 60% say contracts are in place for R&M, with the rest paying on demand. Just under half advise that they still have their own workshops.
This may change. With HGVs’ ever-growing sophistication, operators are increasingly indicating a preference for fixed cost contracts, with work generally undertaken by truck manufacturers’ dealerships, using trained technicians.
Manufacturers offer a range of R&M packages, with varying levels of cover, from the basic driveline contract up to a fully comprehensive product that includes telematics-linked preventive maintenance, breakdown support, non-driveline repairs and compliance coverage.
Overhead costs
Additional costs for offices, back room staff, rates and goods in transit insurance added an average of 2.24% to overall operator costs. Following big jumps last year, particularly in terms of items such as business rates, water and electricity, last year’s increase was not as severe as many may have feared.
Notable items that had pushed up costs included computer packages for payroll, computer expenses, cleaning, telephone lines and water rates.
Driver employment
Costs for drivers are increasing, partly due to issues surrounding nationwide driver shortages. Hence, for the second year running there was an increase in costs associated. The RHA now warns that this trend is set to continue into the foreseeable future.
Figures from the ONS show that in the year to April 2015, wages in the UK rose by 1.8% to a median of £27,600. However, annual pay rises for HGV drivers were above the ‘all employment roles’ average at 3.2%. “The think tank Resolution Foundation advised that average pay had risen its fastest since 2007 at 2.5%, as reported by The Guardian, in June,” says the RHA.
Elsewhere, there are concerns in transport surrounding pensions costs. Under Automatic Enrolment, the majority of RHA members’ employees started to qualify earlier last year (in the ‘30—49 staff’ category). Others in the ‘under 30 staff’ category will become eligible early this year.
Driver CPC
With the first five-year period of DCPC ending in 2014, last year saw the number of uploaded hours drop by a huge 72%. In 2014, between April and October nearly seven million DCPC hours were uploaded. Over the same period in 2015 that figure reduced to less than two million.
Operators are advised to adopt a regime of a day-a-year for DCPC. However, because this does not yet reflect reality on the ground, RHA believes training “will not increase by any great margin until the latter part of 2016”. Driver training is expected to dominate closer towards the September 2019 deadline. “It is clear that some operators have yet to take on board that DCPC is a continuous cycle and that we have entered the next five year phase,” comments RHA.
In contrast, RHA Training has seen an increase in enquiries for driver trainer training from operators considering taking DCPC in house. This approach could be best, particularly if organisations design courses to match their business and operational requirements.
The future
Whatever the success of the UK economy and that of operators in 2016, the driver shortage is likely to remain a problem for the foreseeable future. “Estimated at 45,000, the driver deficit is expected to rise to 60,000 as 35,000 current drivers are due to retire over the next two years,” says RHA. And the organisation adds that the average driver age is 53.
For drivers that remain – as well as transport managers – refresher training is being encouraged. Courses enable skills levels to be maintained but also improve options for cost cutting elsewhere, as drivers are reminded of their duties not only to prevent accidents but also minimise mechanical damage to their vehicles.
As mentioned earlier, it is not known when the base rate will rise from 0.5%. When this does happen, however, many predict tougher times for operators as they look to battle the inevitable price increases of products and services. Fuel costs are also expected to rise longer term. A reduction of more than 16%, as recorded last year, is unusual. With political instability in Syria and uncertainties over other oil-producing countries reactions, this area of costs is one to watch.
Finally, in July 2016 a new SOLAS (Safety of Life at Sea) requirement for verified container weighing may add costs or delays to hauliers at UK ports. Arriving at port without the required weighbill is likely to incur a penalty charge so operators should raise issues with customer prior to collecting containers. Ro-Ro work is not affected by this requirement.