Over the last year or so, the UK transport industry and others have supported Ukraine by generously donating vehicles and consignments of supplies. With the conflict still ongoing, what the world very much did not need going into 2024 was an outbreak of fighting in the Middle East. However, in October of last year, that’s exactly what happened, adding to what had already been another turbulent year that had seen industrial action among rail workers and NHS staff, widespread storms and flooding and the ongoing threat of Covid hanging over the country. Twelve months ago, Rishi Sunak was newly installed as prime minister; his tenure has seen multiple crises and scandals.
One area of the economy that stayed relatively stable was GDP, having ended 2023 at 0.1%, recovering from a negative figure the quarter before. In Q1 2023, GDP had risen slightly to 0.3%, its highest rate since Q1 2022, before dropping down to 0.2% in Q2. There was a further fall to 0.0% in Q3, meaning that the performance over the year was lower than expected, but not by much; KPMG, for example, predicted GDP growth of 0.3% in 2023 and 0.4% in 2024.
There was better news in the truck world where, in Q1 2023, HGVs enjoyed their best first quarter since pre-pandemic, with registrations of 11,517, up 17.1% year on year. This performance included double-digit growth for both rigids and artics, with volumes of 17.3% and 16.8% respectively. Moving on, in Q2, the year-on-year growth was 17.2%, representing 11,174 registrations for the three months. More good news followed in Q3, when the HGV market grew for the sixth successive quarter. The registration numbers (totalling 11,531 – a 14.9% increase year on year) included record figures for zero-emission trucks, with 0.8% of the market accounted for by electric and hydrogen vehicles. The year-to-date figures at the end of Q3 showed a 16.4% increase on 2022 (34,222 v 29,404) and there is an element of hope and expectation for the good times to continue into the new year.
Overall, the number of trucks in the UK’s vehicle parc increased marginally in the 2022-23 period from the 2021-22 timeframe (up 179 to 379,081). However, over the same period, there was a drop in O licences of 1,297, from 70,319 to 69,022.
The RHA’s annual survey of cost movements (‘Haulage Cost Movement 2023’), which informs this text, calculates the overall percentage increase for 2023 was 9.21% (1.38% including fuel). Tables in this article have been supplied by Logistics UK; for its commentary, see p16.
ECONOMIC BACKDROP
UK inflation peaked at 11.1% in October 2022, having risen steadily through the year. By January 2023, the figure was down to 10.1% and, despite rising slightly in February (10.4%), there was a stepped decline over the spring and summer, reaching 6.7% in August. By October, the figure was 4.6%, the lowest it had been since October 2021.
Unemployment had been relatively steady in 2022 and January’s figure of 3.7% gave hope that stability would prevail. However, there was a steady rise over the first few months of 2023, reaching 4.2% in June, which is where it stayed through to September.
There was no respite when it came to interest rates, however. Last year’s prediction here was that there would be an increase in December and further rises throughout 2023, and that proved to be the case. January’s 3.5% was up to 4% by May and then, by August, interest rates stood at 5.25%. Some experts are predicting 5.25% will remain in place until mid-2024, before dropping to 4.75% by the end of the year.
TYRES
Continuing the theme from 2022, the RHA’s Haulage Cost Movement 2023 report states that there were ‘many cases of multiple increases through the year’ when it came to tyres. Another contributing factor to the rising costs associated with tyres is an increasing average time that drivers were having to wait for roadside assistance to come to their rescue when replacement rubber was needed.
FUEL
It was quite an up-and-down year for fuel costs for transport operators. Thankfully, there was better news than in 2022, when RHA calculated the cost of diesel for its model 44-tonne articulated truck and trailer (assuming an average of 8.3mpg over 75,000 miles) increased by more than £16,000. By the end of September 2022, the average price was at 139.95ppl ex VAT, but had fallen by May 2023 to 105ppl. There then followed further rises, with the average price used for 2023 being 117.67ppl up until the end of September.
In 2022, prices were pushed up because of the Russian invasion of Ukraine and in late 2023 it was the Gaza/Israel conflict putting pressure on oil production. Regarding forecourt pricing, a year ago, the Competition Market Authority (CMA) updated its view that, in 2022, there was evidence of ‘rocket and feather’ pricing (up quickly, down slowly) at the forecourt with margins on both unleaded and diesel increasing. CMA published its final report on the forecourt sector on 3 July advising that it had found evidence of increased margins, and that it would launch a fuel finder service for customers.
DIESEL EXHAUST FLUID (DEF)
AdBlue pricing eased during 2023 as the cost of gas reduced and sourcing became less of an issue. While 2023 saw prices of 92ppl (for a 1,000-litre intermediate bulk container (IBC)) from RHA – resulting in a £2,295 annual spend at 6% of fuel usage – by halfway through 2023, they had dropped and stabilised. The RHA reports an average price of 56.5ppl using the IBC price.
VEHICLE AND DEPRECIATION
Once again, 2023 saw a lot of talk about net zero and early electric vehicle adopters are paying the price – literally – for alternative powertrains. RHA members reported a 150% price hike for 18-tonne e-HGVs versus a comparable diesel. But these vehicles are, in most cases, a trial with operators who have dozens of diesel variants.
Inflation of truck prices, which rose gradually between 2019 and 2021 (2.75% to 8%), saw a big spike in 2022 of 20% and that was followed up last year with a figure of 14.3%. The causes? A mixture of Brexit, the pandemic and the costs of the Russia/Ukraine war – and it has been especially felt when trucks from a manufacturer end up being delivered to UK and then immediately despatched to an EU bodybuilder to facilitate VAT and customs rules.
INSURANCE
The 5% increase in insurance costs in 2022 was ‘bettered’ in 2023, with RHA recording a 7% hike. The agency’s model indicates there was an increase from £5,015 up to £5,366 for general haulage, rather than any specific sector. There were very few reports of decreases in insurance costs, with those who did stating specific reasons such as splitting their fleets into differing sectors, resulting in alternate risk scenarios.
REPAIRS AND MAINTENANCE
Technician scarcity caused concern for operators and was also recognised by traffic commissioners in 2023.
Essentially, getting good – and on time – service is increasingly difficult and associated costs are spiralling. The issue made the national news in the summer, when The Times reported that the role of technician was one with the highest gains at nearly 20%.
Added costs also came as a knock-on effect of safety developments such as larger windscreens for Direct Vision – and more frequent downtime due to damage from stone chips.
VED AND LEVY
Following its suspension to 31 July 2023, the HGV levy finally arrived in August, affecting HGVs over 12,000kg operating on a motorway or A-road. The levy, in its newest form, differs from how it operated previously, as most are cost-neutral – although there were large percentage gains for certain combinations. The new levy charges vehicles based on emissions, weight and time spent in the UK. Previously, the amount of levy paid varied according to weight, number of axles and Euro standard.
OVERHEAD COSTS
In his March budget, chancellor Jeremy Hunt killed off the Energy Bill Relief Scheme, an action that added to overhead energy costs for transport operators. Elsewhere, general overheads are a concern, causing the ‘everything is going up’ scenario to ring true. Specific areas of increased costs from RHA operators included electricity, IT support staff salaries and site rents.
DRIVER EMPLOYMENT COSTS
A reduction of work within some sectors has meant that staffing levels are more manageable and there is less pressure on driver pay. However, the knock-on effect of this has been less productive drivers who are also often less fuel-efficient behind the wheel. The national living wage for 2024 was announced by the chancellor on 21 November and will increase more than expected to £11.44/hr. Once again, this places pressure on the lower end of the haulage and van sector, as well as warehousing.
THE FUTURE
It is always difficult to predict what the future might hold. The economy remains challenging, not least because of interest rates hampering investment and expansion of fleets and businesses.
On a macroeconomic level, in the autumn statement the chancellor announced that planning and infrastructure is suffering from delays. He said he intended to deal with removing barriers to investment and supporting infrastructure.
Jeremy Hunt added that another government intention was to overhaul the UK’s outdated planning system and address lengthy delays to connect to the electricity grid.
Looking at vehicles, the HGV levy and VED will both remain at 2023-24 rates for 2024-25. The EU’s updated General Safety Regulation comes into force in July 2024 and will improve safety of modern vehicles. However, the additional cost imposed has been estimated at around £3,500 for a typical single HGV.
Fuel duty once again is under threat of going back to 57.95ppl in March 2024 after it had been reduced by 5ppl as a measure to help during the recent energy crisis. Also, in November it was announced that the Grangemouth refinery operated by Ineos/PetroChina will be converted into an oil import terminal. Whether it can compete with ‘gigarefineries’ in the Middle East and Asia remains to be seen.
BOX: THE VIEW FROM LOGISTICS UK
Despite easing staff shortages and a fall in fuel prices in the year to October 2023, rising operator costs signal industry challenges. Brent crude fell by 9.1% in Q3 2023 to $86 per barrel (bbl) compared with the same period in 2022. Downward pressure was sustained into Q4 attributed to uncertainties surrounding OPEC and allies’ voluntary production cuts of 2.2 million per day (bpd) and a pessimistic global demand outlook.
Average UK weekly earnings, excluding bonuses, grew by 7.7% in the third quarter of 2023 and inflation as measured by the Consumer Prices Index including owner/occupiers’ housing costs (CPIH) rose by 4.7% in the 12 months to October 2023, down from 6.3% in September. This slowdown in the inflation rate indicates that prices are rising at a slower pace than in the past, but it does not imply that overall price levels are decreasing.
According to Logistics UK’s Manager’s Guide to Distribution Costs, in the year to 1 October 2023, operators’ diesel costs (a combination of mainly bulk and fuel card purchases) fell by 7.1%. Fuel accounts for around 30% of the cost of operating an HGV and any downward fluctuation impacts operating costs and attenuates rises in all other vehicle operating costs. The average increase in costs of vehicle operation was 1.7% over the same period; excluding fuel, it rose to 5.3%.
Staff shortages are easing, and 73.7% of respondents to Logistics UK’s quarterly logistics performance tracker (LPT) survey report having sufficient HGV driving staff in employment. Furthermore, based on data from the job advertising website Adzuna, Q3 2023 witnessed a 45% decline in HGV driver vacancies compared to Q3 2022. The average employment cost of a driver increased at a rate slightly below average weekly earnings.
As reported in MGDC, in the nine months to 1 October 2023, the average basic pay award (excluding those who did not increase pay) was 6.0% and the average increase in basic pay for HGV drivers was 2.3% (including those who didn’t raise pay).
The heavy goods vehicle (HGV) road user levy has led to an overall 68.7% increase in VED and RUL payments for Euro VI vehicles. In addition to this, annual cost movements to 1 October 2023 showed that tyre costs increased by 5.9%, insurance by 6.0%, repair and maintenance by 2.8% and overheads by 4.8%.
These rising operator costs are concerning, and there is evidence from the government’s Insolvency Service that the business climate is worsening. In the 12 months to 1 October 2023, 470 haulage companies collapsed, which is 26% higher than the previous 12 months.
-Sarah Watkins, deputy director of policy information