The waiting game 07 January 2013

Few would disagree that the past 12 months have provided another challenging year for transport operators. However, many suggest more tough times lie ahead. John Challen brings you TE's must-read guide to 2012's operating costs, and offers an insight into what to expect in 2013

With Euro 6 legislation fast approaching, and the pressure still on to increase operational efficiency, many operators must be wondering when, or even if, the good times in the transport industry will come back. Five years after the country officially went into recession, numbers of 'O' license holders and trucks in operation continue to fall – as does the overall number of companies involved in the business of goods transportation.

Following the drop in the total number of O-licenses in 2010—11 to 87,747, that trend has continued over the last 12 months, with the figure falling further to 84,072 licenses. Meanwhile, the total number of vehicles over 3.5 tonnes in operation also contracted, from 365,524 in 2010—2011, to 342,473 in 2011—2012, according to the RHA (Road Haulage Association). For five-year reductions, the numbers are 14,244 for 'O' licenses and 38,636 for trucks.

That said, after 2011's hike in operator costs of 7.8% (3.2% excluding fuel), there was much more encouraging news in 2012, as the total increase in costs, year-on-year, was calculated as 2.9% (2.5% excluding fuel). Still an increase, then, but maybe not as bad as some operators might have predicted.

Nevertheless – and without wishing to sound like a broken record – higher efficiency continues to be the number one requirement, and indeed one of the few tools operators have at their disposal to bear down on inevitably increasing outgoings. But what price do transport professionals have to pay for improving efficiency? How many can find the investment needed to take advantage of, for example, telematics, more economical vehicles and multi-skilled labour?

Whatever the costs involved, many operators have found it more difficult in 2012 to fund such initiatives. "Haulage firms are either short of cash, or they have some cash and are reluctant to invest in what is an uncertain economy, without the right relationships with good customers," states the RHA in its 'Annual Cost of Movement' report. There are several reasons, but the RHA cites one in particular: "The reduction in first-year investment allowances in April 2012 hit firms hard. The reduction in the annual investment allowances from £100,000 to just £25,000 will have hit small hauliers especially hard."

And many RHA members looking to the financial sector for support have reported increasing dissatisfaction with banks and a growing consequent reluctance to rely on them. Part of the frustration has been borne out of a sharp increase in lending costs, as banks seek to re-capitalise. "The banking sector has confirmed a trend away from offering overdraft facilities, and is replacing those with invoice financing arrangements that are generally more expensive," reports the RHA.

Much of which is reflected in the November year-to-date figure for new truck and van registrations, which was down 5% compared with the same period in 2011, at 265,959 units (42,123 commercial vehicles above 3.5 tonnes and 223,836 vans). Nevertheless, those same figures reveal that truck registrations were actually up 9.9% year-on-year – although the last available month's figures (November 2012) show a total of 3,885 trucks registered, indicating a drop of 13.7% against November 2011.

"November saw van and truck volumes fall, compounding the 5% drop in the market for the year-to-date," explained outgoing SMMT (Society of Motor Manufacturers and Traders) chief executive Paul Everitt. "This year has seen the van market re-adjust after bouncing back from recession, while truck volumes have been steady," he continued. "We look forward to next year where greater stability should see the van market return to slow, but steady growth."

Economic backdrop
During the course of 2012, the number of people in the UK in employment has been more or less steadily increasing and, by October, unemployment had dropped to 7.8%, remaining at this level in November 2012. Indeed, aside from a slight increase in August, unemployment rates have been falling since the turn of the year, when the figure was 8.4%. By October, the number of people without a job was 2.51 million, down 82,000 on the previous quarter, and 128,000 on the same period in 2011.

Meanwhile, the Bank of England base rate remained unchanged throughout 2012 at 0.5%, the same level as it has been at since ay back in February 2009. On the face of it, that stability works well for the transport industry. However, the wise might advise looking to the future with some trepidation.

Why? Several contributors, but inflation – as measured by the CPI (consumer price index) – rose from 2.2% to 2.7% between September and October 2012. It was influenced by a wide range of factors, including increased tuition fees and food prices. However, that increase has reversed an otherwise downward trend that had seen inflation fall from 3.6% in January 2012 down to the September low point. Watch this space.

Tyres
The past two years have shown increases in tyre prices, so few were surprised by the hikes through 2012. Quite a few pundits have been advising operators to end multi-year deals, which have pushed costs up overall, in the hope that the trend might be reversed. However, according to the RHA, fewer members have advised that their tyre costs are increasing (81% versus 91% in the previous year).

Best advice remains, however, that for 2013 and beyond, rubber prices are set to continue rising. Some operators have been countering that by moving away from premium brands. However, evidence continues to show that buying cheaply may be better in the short term, but is likely to impact on whole life costs, certainly in terms of reduced mileage with so-called inferior brands.

Another concern, initially highlighted in 2011, was an increase in trucks shod with premium tyres from new, but being renewed with cheaper brands. Fine for truck owners taking the gamble, maybe, but leasers shouldn't be surprised to see a bill at handover time for replacement rubber back to the previous specification.

Fuel costs
Hauliers were prepared for the worst at the beginning of 2012, having endured price increases of a couple of pence per litre (ppl) in the lead-up to Christmas 2011. Sure enough, fuel costs continued to head north until the end of March last year, when the price reached 117.66ppl.

There then followed a three-month decline, and a low of 106.52ppl, with Brent crude going as low as $88 a barrel at the end of June 2012. This price decrease was spurred on by the weak European economies and others, reducing demand. Of course, the inevitable did happen and increases soon started, not helped by further tensions around the world, notably involving Iran and the USA.

However, towards the end of the year, the revelation in the government's Autumn Statement that the previously proposed fuel duty increase of 3ppl had not just been postponed again, but this time cancelled, was greeted with rapture and relief from all quarters of the transport industry. Using a standard truck scenario (8mpg and 71,000 miles a year), the news translated to £1,218 per truck that does not have to be added to the cost line – and won't be for the foreseeable future.

Vehicles and depreciation
RHA figures suggest that the cost of running commercial vehicles, taking into account depreciation, increased by 5.93% year-on-year – down from the 7.2% hike of 12 months previously.

That might be explained by reduced availability, as operators sweat their assets for longer in tougher economic times. However, in general terms, the market for new trucks may have dipped slightly in October but over the rolling year it was up 16.3%, according to figures from the SMMT. The society also reported lower growth for smaller commercial vehicles, which had dropped 6.5% in the previous year.

As for methods of vehicle acquisition, RHA numbers suggest that most members still own, rather than lease, their vehicles. In fact, 79% use purchase as an option, with 44% saying it is their only method of obtaining trucks.

Indeed, arguably, owning their trucks has helped RHA members and others pull through the recession, as vehicles could be worked harder for longer, without penalties – other than increased maintenance costs.

Road tax
There may have been no change in road tax, but operators can expect to benefit from lower charges overall in 2013, with the introduction of the road user levy. This is designed to reclaim some revenue from foreign registered trucks – although it might not be instigated until 2014. The levy would cover up to £1,000 for HGVs starting at 12 tonnes and over – the cost depending on weight and axles.

Insurance
According to figures from the RHA, more than half of its members saw insurance costs rise during 2012. However, with 14% indicating that they had actually seen a cut in their premiums, the onus appears to be on individuals putting in some effort and using some ingenuity to get deals that may not be easy to come by, but are available.

RHA's year-end survey provides examples of hauliers focusing on safety, for example, to achieve savings. Some, with a shrewd eye for a deal, managed to get reductions of up to 25%. Others, however, have settled for a 45% increase, and 2013 looks no easier.

Repair and maintenance
During these challenging economic times, as vehicles are worked comparatively harder and longer, keeping vehicles in good order is even more of a priority – for both operators and drivers alike. It also remains essential when considering the effects of failures on the 'good repute' of transport managers (under EU 1071/2009) and the increased impact on operators' OCRS (operator compliance risk score), particularly in view of the recent changes by VOSA.

Proper procedures start with the drivers' daily walk around checks, and fleet managers are being advised to ensure that these are completed, recorded and followed up robustly and correctly. The emphasis has to be on reducing incidences of culpable roadworthiness and compliance issues. And the same applies to managing driving/working time. Advice for 2013 is the same as that in 2012: ensure that proper systems are in place, that they are being followed -- and fully investigate issues such as drivers 'beating the clock' with their daily workload.

In testing terms, VOSA reported in November 2012 that overall first-time pass rates for trucks had reached 79.9%, an increase of a few percent on already improved figures from earlier in the year. However, there is no room for complacency.

Overheads
RHA data suggests that 72% of hauliers reported have seen their overheads rise during 2012. The most widely reported increases were in business rates, and water and power bills.

In response, many operators have been trying to tie these down through longer-term contracts and/or switching supplier to find better deals. Price inflation has also been reported on some items, such as goods in transit insurance.

Driver employment
For 2012, Income Data Services' annual report on pay illustrates an average increase of 1.46%, which is in line with RHA's own figure for drivers. That said, driver pay settlements in the transport sector show a concentration of deals at both zero and 2%.

The RHA also reports that associated costs, such as paying attendants for wide load movements, might be affected by minimum wage increase requirements. The association also adds, however, that mostly these are not relevant HGV drivers.

Driver CPC
The September 2014 starting date for Driver CPC is approaching fast, and RHA figures show that in 2012 more operators have been reacting. Whereas, in 2011, 24% of responding members advised that they had increased their training expenditure to deal with DCPC, in 2012 that figure had increased to 30%.

Tolls
Vehicle fleets affected by road charging faced more financial strains last year, most notably as the M6 and Dartford toll roads increased their fees. There was slightly better news, however, further north, as a campaign got underway to reduce the crossing fees for the Humber Bridge.

Outlook for 2013
Uncertainty and concern seem to be the joint themes for the coming months. While the UK is officially out of recession, this situation may have been artificially manufactured by spending and growth associated with the London Olympics.

'Triple-dip recession' became a buzz-phase early last December. As 2012 drew to a conclusion, chief secretary to the treasury Danny Alexander stated that, despite there being a risk of such a scenario, steady growth throughout 2013 would steer the country clear of the rocks. However, he also warned that the recovery would be even longer and harder than first thought.

The UK automotive market – the only one of its kind within the EU to expand in 2012 – offers some hope. However, fuel prices, as well as the increasing cost of vehicles, could count against many transport operators.

Part of the anticipated price hike in 2013 is for technology that will ensure vehicle fleets are cleaner and greener than ever – as per the forthcoming Euro 6 emissions regulations. With trucks meeting the new standards recording comparable – or in some cases, even improved – fuel economy figures, some operators may be tempted. However, others will baulk at the step change in price tags. Euro 6 vehicles are expected to cost many thousands of pounds more than their Euro 5 spec counterparts, so there is little incentive for operators to invest before they are legally required to do so.

Cost-saving benefits may be found in longer semi-trailer, which have now been running for more than a year under the Department for Transport's 10-year trial. The scheme, however, only favours operators running payloads well below the existing legal limit, who can increase volumes and so reduce vehicle movements.

Author
John Challen

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