For many, 2016 will live long in the memory, but maybe not for the right reasons. Arguably, the biggest event of the year was June’s EU referendum, which saw the UK finally decide to cut its long-held ties with mainland Europe. The result sent shockwaves through social, economic and political spheres. Five months later, at time of going to press, arguments over when to trigger Article 50 and whether a soft or hard Brexit is the forward continue. The transport industry, meanwhile, carries on.
Going into 2016, the UK was experiencing a GDP annual growth rate of 1.7%, but the International Monetary Fund (IMF) had already revised growth predictions for the year downwards from 2.3% to 2.2%. In fact, GDP expanded 2.3% year-on-year in the third quarter (Q3), increasing from 2.1% in the previous period. As the RHA’s Haulage Cost Movement 2016 report states: “Despite widely predicted doom and gloom, it would appear that in broad terms the UK hasn’t been doing too badly in the months following the vote.” In fact, by November last year, GDP had increased every quarter since Q1 2013.
In the transport sector, five consecutive quarters of growth in truck registrations above 6 tonnes came to an end in Q3 2016. The SMMT (Society of Motor Manufacturers and Traders) recorded a decline of 3.6%, compared with the corresponding quarter in 2015 (11,242 vs 11,660 vehicles registered). The year-to-date figure, however, was more encouraging, with a 6.6% improvement on 2015, taking it to 32,676 registrations. Demand for rigid vehicles increased in Q3 but, continuing a trend set earlier in the year, registrations of three-axle tractor units fell by 17.3% following growth of 38.6% in the segment during 2015.
In 2015—16, the number of HGVs on the road grew by 34,074, bringing the total to 377,748 vehicles. But, while the figure for O licences increased again after a decline in 2014-2015, at 77,002 it still lags considerably behind 2013-2014 (recorded as 77,732).
At the other end of the market, light commercial vehicle registrations rose by 2.5% in November 2016 (vs November 2015) to 29,784 units – the highest for 20 years. The big increases were in lighter vans (2-2.5-tonnes) and pickups. But despite a slight dip in the 2.5—3.0-tonne van sector, overall year-to-date figures for 2016 were up 2.1% at 348,448 units. Pundits believe the introduction of Euro 6 vans helped growth, but with all manufacturers now having completed range revisions, registrations are expected to drop off a little throughout 2017.
Looking specifically at operator costs, the RHA’s (Road Haulage Association) annual survey of movements calculates an increase of 2.79% in the year to 30 September 2016, excluding fuel. When fuel is added into the equation, that forecast increase reduces, but only marginally – to 2.73%.
Much like the rest of British industry in the wake of the EU referendum, uncertainty remains likely for the coming months. Hence, industry commentators, economists and political figures are finding it hard to predict the next 12 months. As the SMMT says, for success in vehicle registrations to continue, a stable economy is essential. Analysts are not confident: they predict that 2017 will be challenging, with the IMF (International Monetary Fund) forecasting growth slowing to 1.1% next year. The key reason: economists expect the finances of both consumers and businesses to come under increased strain in the coming months.
Economic backdrop
In contrast to 2015, when the country experienced long periods of deflation, 2016 saw a moderately rising CPI (consumer price index) from 0.3% to 1% by September 2016. October saw a surprise fall back to 0.9% – just when economists were predicting 1.1% due to the collapse in value of Sterling post-Brexit.
“After initially pushing up prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories,” says the ONS (Office of National Statistics). “However, aside from fuel, there is no clear evidence that [currency] pressures have so far fed through to prices in shops.”
Meanwhile, following a seven-year low of 5.3% in the three months to September 2015, unemployment continued to fall throughout 2016, reaching 4.8% in the three months to September 2016 (1.6 million jobless). However, although the number of people in work reached a record high (31.8 million), the Bank of England warned that uncertainty over Brexit would likely lead to increasing unemployment in 2017.
That said, average earnings grew by 2.3% in the year to October 2016 (2.4% including bonuses) and this is likely to continue, thanks to increases in the minimum wage, which took effect on 1 October 2016.
Finally, after eight years languishing at 0.5%, there was movement in the UK’s base rates. However, while Transport Engineer reported last January experts expecting an interest rate rise last spring, in fact the Bank of England moved to a new low. On 4 August 2016, the base rate was cut to 0.25% as part of a package of measures “designed to provide additional monetary stimulus”.
Tyres
Last year we reported 2015’s tyre prices largely unchanged, partly due to lower oil prices modifying production costs. 2016 saw a slight increase at 1%. Interestingly, 87% of RHA members are now monitoring tyre wear. As a result, they report increased mileage, lower fuel consumption and reduced risk of blowouts, leading to less downtime.
Contract PPK (price per km) plans were mentioned by 20% of respondents to RHA’s survey, with most operators still choosing only to buy tyres when required. New tyres on tractor and remoulds on trailers is the most common approach.
Fuel costs
In recent years, oil and fuel prices have fallen away, but last year saw a change in fortunes. The 16.35% reduction seen between September 2014 and October 2015 has been replaced by an increase of 2.55% for the period to September 2016 (86.69ppl vs 88.9ppl for bulk fuel).
Using that closing number, RHA estimates an average 44-tonne 6x2 truck travelling 73,000 miles a year and returning 8mpg would cost £36,878 (ex VAT) in diesel. As last year, this figure equates to just under 27.5% (27.41%) of the vehicle’s total operating cost.
While fuel pricing started the year low, 2016 saw a gradual and steady increase, peaking in October when OPEC (Organisation of Oil Producing Countries) agreed to in-principle production cuts. However, after three weeks, price increase tailed off until OPEC’s November meeting saw production cuts firmed up and a new fuel spike, with 1.5ppl added to diesel.
Nearly 66% of RHA members are now using fuel mechanisms to hedge costs – almost identical to 2015’s 67%.
Vehicle acquisition
According to the RHA, outright purchase remains the most popular means of securing vehicles. Borrowing remains a low cost option, so more than half of all vehicles are bought. Short-term rentals accounted for 20%, followed by leasing (18%) and contract hire (10%). That said, there is a gradual trend in favour of trialling lease and other finance options.
As for absolute numbers, RHA calculates an average 44-tonne tractor unit price increase of £2,072 to just under £85,000.
Road Tax
Once again, there was no change in VED (vehicle excise duty) or the Road User Levy last year. Former chancellor George Osbourne confirmed the freeze in his March 2016 budget. After the referendum, doubt was cast over the Road User Levy when the RHA suggested there was to be a review.
However, the DfT (Department for Transport) later confirmed that there were no plans to alter the current HGV road charging levy, which remains subject to legal proceedings from the EC.
Insurance
RHA’s member survey suggests an increase of 2.5% in insurance premiums over the year, bringing the average for a 44-tonner up from £3,760 in 2015 to £3,855 in 2016.
Following November 2015’s hike in IPT (insurance premium tax) from 6.0 to 9.5%, further bad news came with last year’s Budget when this figure was again inflated (to 10%). In his Autumn Statement, mew Chancellor Philip Hammond confirmed that, from June 2017, IPT will rise again, to 12%, adding an average £31 to premiums.
Nearly 64% of RHA members report that they have now fitted vehicles with forward-facing cameras, and 33% have increased video coverage further to at least front and rear.
On a point of regulation, the Insurance Act 2015 came into force on 12 August 2016, placing further responsibility on the insured to divulge all potential influences.
Repair and maintenance
Like 2015, the RHA’s reports a 2% increase in R&M costs last year. Most members cite Euro 6, with the additional technology requiring attention by main dealers, as opposed to in in-house workshops.
Specific issues include more sophisticated diagnostics, exhaust after-treatment equipment and high injection pressures. One-third of members advised they use contracted R&M, with another 22.2% running with a mix of contract and own maintenance. A further 25% use outside sources on a pay-as-you-go basis, while the remaining 19.5% take care of maintenance themselves.
Most (52.7%) still do not use telematics but 33.3% report that they do monitor R&M electronically. A few are looking into or developing telematics to monitor vehicle performance and maintenance requirements.
Overhead costs
Goods in transit insurance increased due to IPT increases, water rate rises, and hikes in phone line rental and office support, such as IT and cleaning. Electricity bills, unless on long-term deals, also increased, along with mobile phone contract costs.
Driver employment
The national driver shortage is now estimated at close to 45,000, making recruitment challenging. The only positive: that figure has remained static since 2015, making predictions of 60,000 by 2017 look unlikely.
As for the increase in driver costs, that averages at 3.5% against 2015, with agency drivers seeing a 5% rise. While remaining essential in the mix, the latter present a dual cost hike – being not only more expensive but also unfamiliar with the specific roles.
Meanwhile, ‘Polback’ is the term coined to describe foreign drivers currently working in the UK but now likely to return home as Sterling’s woes make wage differentials less attractive.
Driver CPC
While the industry remains spilt over DCPC, some believe much now depends on Brexit. In fact, DCPC is likely to remain a legal requirement for many years to come. Additionally, organisations such as RHA, which support CPD (continuing professional development) continue to urge members to consider DCPC training as evidence of good operator compliance.
Meanwhile, most operators spend less than 1% of revenue on DCPC training aspect. Some believe it is a valuable tool that helps business; others consider it a box-ticking exercise.
The future
For 2017, the industry faces a triple whammy of fuel, truck and wage inflation. Fuel is expected to increase due to OPEC production cuts, which saw price rises for oil and petroleum fuels. Truck prices are expected to increase due to Sterling weakness resulting from Brexit.
Further cost increases seem unavoidable. In less than two years, IPT will have doubled from 2015 levels. And last October’s news of changes to business rate evaluations threaten a geographical lottery from 1 April 2017, according to RHA. “It would appear that midlands and northern commercial properties would come out of the re-evaluation, [leading to] lower bills, while expensive areas especially London would be proportionately worse off.”
April 2017 also sees the introduction of the apprenticeship levy. All firms with a gross payroll exceeding £3 million at group level will pay what amounts to a new 0.5% tax. This will hit haulage firms with around 80 trucks or more, or those with smaller fleets but additional activities, such as van operations, warehousing and workshops.
The National Living Wage increases by 4.2% also in April 2017 (from £7.20 to £7.50) – affecting mainly low skilled labour.
But the transport sector is resilient, s evidenced by the fact that, despite tough times and consolidation, vehicle and operator numbers have increased. And, as ever, there are deliveries to be made.