The vast majority of what we consume is dependent on road haulage services, and the companies and drivers that operate them. According to the Road Haulage Association (RHA), in the UK 98% of all food and agricultural products and 89% of all freight is moved by road. There are nearly 60,000 road haulage firms and the industry contributes £13.5 billion to the UK economy each year, accounting for 5.6% of the UK’s GDP. The industry is essential to keeping supply chains moving and vital for maintaining our economy.
But it's also a highly competitive sector, characterised by low margins and operating under ever-tightening regulations. The current combination of challenges is putting many operators under pressure - in 2023, 494 haulage businesses entered insolvency, nearly double the number from 2021. In the first half of 2024, the figure stood at nearly 170. Without careful management, more operators may struggle to survive.
RHA's member survey on sector costs for 2024 shows that the cost, excluding fuel, of operating a 44-tonne articulated truck and trailer combination rose 9.2% between 1 October 2022 and 30 September 2023. At the same time, freight volumes are down 10 to 15%.
The high and volatile nature of fuel prices adds to the difficulties. Fuel constitutes around a third of overall expenses, with rising prices exerting significant pressure on already thin margins. The ramifications of a fluctuating fuel price affect more than just profitability. Unpredictable transportation costs make it difficult to manage cash flow, set budgets, plan logistics or make strategic decisions, all of which can lead to inefficiencies.
Hauliers must also contend with increases in the cost of purchasing vehicles. Purchase is still the most common method to acquire trucks with 84% of respondents to the RHA cost survey purchasing and 27% leasing (some fleets have a mix of purchased/leased). The last five years shows the pace of inflation: 2019 saw prices increase 2.75%, followed by 2.5% (2020), 8% (2021), 20% (2022) and 14.3% (2023).
Many firms are unable to pass on inflationary pressures to their customers. In such a crowded market hauliers have to offer the most competitive terms to win business. Combined with a higher cost of debt and reduced consumer demand affecting trading volumes and therefore revenues, many haulage companies now face financial stress.
A key concern for the industry is a shortage of HGV drivers, contributing to wage growth pressure. While the situation has improved since 2021 – when there was a shortage of 100,000 drivers – the RHA estimated there was still a 50,000 shortage of HGV drivers in 2023. Staffing and recruitment group, Manpower, also reported that 81% of UK hauliers struggle to secure the necessary qualified drivers, contributing to higher transportation costs for businesses.
The situation isn't expected to improve any time soon. With 55% of current HGV drivers aged 50 to 65, there's significant concern about the future supply of drivers unless action is taken. However, attracting new drivers is difficult with the industry having a negative reputation due to low pay, long hours and poor roadside facilities.
The poor condition of UK roads and an abundance of potholes, especially in rural areas, all contribute to greater wear and tear, and higher maintenance costs for operators. Road congestion contributes to greater fuel inefficiencies and longer, more costly journey times. A survey by independent watchdog Transport Focus shows significant dissatisfaction among hauliers about the state of England’s major roads, with only 49% of users satisfied with how motorways and A roads meet their business needs.
HGVs account for approximately six percent of the UK’s greenhouse gas emissions, according to the RHA, and the industry is under pressure to reduce its environmental impact. Stricter regulations as part of the UK’s ambition to reduce emissions by 2030 mean firms need to invest constantly in their fleet to avoid fines or penalties.
Investments can be substantial, potentially with limited short-term returns, but firms who don't make the required investment risk fines and reputational damage.
A 2024 report by trade body Logistics UK has found that domestic transport emissions fell by 1.4% in 2023, the first decrease since 2020. It added that the sector still faces substantial obstacles, including high costs for low carbon fuels, insufficient infrastructure for electrification and inconsistent regulations.
A focus on the environmental impact of a business is also necessary to maintain access to capital. Hauliers need to be mindful of the pressure on lenders to publish their transition to net zero plans and reduce the greenhouse gas emissions that they finance. Given that a high-emitting borrower directly impacts the emissions disclosure and transition plans of their lender, those hauliers who are unable to demonstrate a credible sustainability story may find their access to cost-efficient capital is impacted.
In order to stay relevant in a fiercely competitive market, hauliers need to continually invest in their digital and AI capabilities – or risk losing business. AI is at the forefront of supply chain innovation and is crucial to bring operational efficiency by optimising routes and logistics. This can require significant investment in adapting existing processes and training staff.
Companies with sufficient capital and technology will be able to provide a more competitive service. Smaller haulage firms with fewer resources may struggle to catch up due to insufficient investment capabilities.
Despite the challenges, research published by Logistics UK in June 2024 shows that 38% of respondents expect economic improvement for the rest of 2024. The sector has seen much consolidation and this is anticipated to continue. While some businesses may struggle to survive, others are preparing to take advantage of opportunities that arise.
A focus on both financial and operational resilience is essential for hauliers. Careful management and granular forecasting will allow management to understand where their pinch points lie.
Focus areas for management teams to consider:
We are experienced advisers in helping firms to manage these challenges and understand the options available.
For more insight and guidance, get in touch with Alistair Wardell.
