Road haulage is a key sector within the UK economy. Without it, the norms of modern life would disappear. 98% of all food and agricultural produce is moved by road. 98% of all consumer products and manufactured goods are moved by road.
Everything we eat, drink and wear depends on road haulage services. There would be no homes to live in or jobs to go to without trucks or the companies and drivers that operate them. Its output is estimated at £124bn per year, generated from total assets of £53bn. According to the Road Haulage Association, it employs 2.5m people, making it the fifth largest employer. There are some 600,000 goods vehicle driving licence holders and almost half a million commercial vehicles over 3.5 tonnes are registered in the UK.
Coronavirus and Brexit have hit the sector hard, severely disrupting distribution patterns in a number of key customer sectors, such as retail, hospitality and construction. It has created staffing challenges and added significant bio-security costs. 69% of all haulage businesses have furloughed workers. By the end of September 2020, output was still only at 83% of pre-pandemic levels based on figures from the Office of National Statistics. This is prior to the ending of the Brexit transition period.
Research by the financial health monitoring specialists, Company Watch has identified that the sector had weak financial characteristics even before the pandemic started. Out of almost 29,000 road haulage businesses registered at Companies House, almost 40% (11,331) are in the Company Watch warning area with a health rating (H-Score®) of 25 or less out of a maximum of a hundred, indicating a one in four risk of failing within three years.
The analysis also highlighted worrying levels of borrowings. Gearing is perhaps inevitable in an industry that is so fixed asset dependent, but total debt is £14bn against overall net worth of £14.3bn, so that average net gearing is 98%. This would cause serious financial stress even in good times, but with profitability under such pressure in the crisis, it effectively puts the destiny of many road haulage businesses in the hands of their lenders just when they are reducing their risk appetite ahead of the easing of government financial support measures.
This research is based on company accounts filed for periods that almost exclusively pre-date the pandemic. The availability of government-guaranteed loans since then (which have been taken up by around 36% of all UK businesses) will have made the gearing issue even more critical for road hauliers.
Business challenges faced by the Road Haulage sector
- Low profit margins.
- Repaying Coronavirus loans and deferred VAT and PAYE.
- Repairing balance sheets damaged by losses incurred during the pandemic.
- Labour shortages caused by the Brexit and Covid-driven exodus from the UK, the new points-based immigration system and the introduction of IR35 tax changes.
- The introduction of IR35 regulations, increasing administration and potentially raising agency rates for drivers by up to 20%.
- Border disruption currently being caused by the ending of the Brexit transition period.
- Poor workforce productivity, highlighted by endemic absenteeism. Transport workers averagely take more than three times as much sick leave (11.4 days per annum) as other UK sectors.
- Rapid technology advances:
- Customer demand for end-to-end product tracking
- Artificial intelligence driven use of sensors and customer behaviour tracking
- Time and attendance software applications to monitor staff punctuality and reliability
- Increasing use of biometric fingerprint and RIFD technology.
- Increasing emphasis on sustainability and the green agenda:
- Waste reduction
- Minimising fossil fuel usage
- Abatement technology to purify emissions.
- Increasing government regulation with the introduction of Low Emission Zones (LEZs), Clean Air Zones (CAZs) and stricter emission standards for vehicles.
- Greater transparency and co-operation requirements as anti-competition laws are eased to encourage process co-ordination and information sharing between logistics providers, following the success of delivery platform sharing between major supermarkets during Lockdown 1.
- Adapting to clients switching their supply chain policy from ‘Just in Time’ to Just in Case’ and holding larger inventories following the issues caused by Coronavirus and Brexit.
- Dealing with the accelerated shift in retail from physical shopping to online and from major retail parks and town centres to local independent stores.
- Planning for future supply chain disruption events, whether they are small scale and local, or large scale and global.
- Mitigating the risk of supply chain financial instability with a greater focus on credit management. It is not just hauliers at risk of failure, but also their customers and suppliers.
Helping businesses in the Road Haulage sector
Partners and staff across all the Opus service lines have extensive experience and knowledge of the road haulage sector.
Ways in which we support companies, business owners and their management:
- Carrying out comprehensive business reviews to assess and advise on a broad range of financial and commercial issues.
- Assisting with financial forecasting.
- Reviewing financial and operational systems.
- Advising and supporting in negotiations with key stakeholders, such as lenders, suppliers and credit insurers.
- Raising new funding, either as equity or borrowing facilities.
- Providing strategic advice on changes to the business model or on managing growth.
- Seeking out acquisition and merger opportunities.
- Advising on exit routes such as the sale of the all or part of the business.
- Undertaking forensic investigations where circumstances dictate.
- Planning and assisting with restructuring projects.
- Offering independent advice on solvency issues.
Market Sector Report
The UK Road Haulage Market – Caught up in the supply chain reset
The Pandemic and Brexit have caused challenges for the Road Haulage market. Narrow profit margins and heavy investment have grown debt levels. In this report, we look at the need for agility and financial stability.Read the Report
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