Like so many other sectors, road haulage was battered by the pandemic and then disrupted all over again by the knock-on effects of Russia’s invasion of Ukraine and by the inflationary surge in input costs, whilst all along having to deal with the impact of Brexit. Despite this, its finances have remained remarkably constant, although at a sub-optimal level.
We have reported previously on the sector in November 2023 and March 2021.
Executive summary of finances:
- The average financial health rating for the road haulage industry is only 41 out of 100, compared to the whole economy closer to 50.
- Well over a third (38%) of hauliers are at serious risk of insolvency or a major financial restructuring over the next three years.
- 7% are ‘zombie’ companies with negative balance sheets. Their combined deficits total £171m.
- 13% have negative working capital. Their combined shortfall is £834m.
- Overall, industry borrowings are on a downward debt reduction trend.
- Haulage business failures are not a major factor, accounting for only 3% of all UK corporate insolvencies.
The scale and scope of the sector
89% of goods are moved by lorry, including 98% of food, agricultural and consumer products. Of the remainder, almost all involve at least some element of motor transport to reach their ultimate destination. Industry statistics for the UK vary between different sources, but include:
- Road haulage is worth £33.5bn in revenue terms, according to House Grail figures,
- It contributed £13.6bn or 2% of UK GDP in 2019.
- It is the UK’s fifth-largest industry.
- It is made up of over 60,000 haulage businesses, according to the Road Haulage Association figures.
- It employs 1.57m people.
- There were 303,885 licensed HGV drivers in Q1 2023.
- There are 406,000 registered HGV vehicles.
Financial characteristics
There are currently 30,777 UK-registered companies, which state that they operate as road hauliers according to Companies House records. This is an increase of 7% since March 2021, but a drop of 2% since November 2023 when we last reported on the sector. Between them, they have:
- Total assets of £15bn (compared to £15.4bn in November 2023)
- Total borrowings of £2.45bn (£2.65bn in November 2023)
- Total net worth of £6.8bn (same as in November 2023)
Financial risk profile
We have used the database maintained by the financial health monitoring specialists Company Watch to analyse the latest financial statements filed at Companies House by every company registered in the UK operating in the road haulage sector. Our research covered 30,777 companies. A summary of our findings can be found here.
Overall financial health
Overall, our road haulage companies have an average financial health rating of 41 out of 100, which is well below the economy as a whole where this rating is close to 50. This average rating now is the same as it was in March 2021 and November 2023.
Failure risk
Our research highlighted another worrying statistic. Company Watch uses complex analytics to generate a financial health score (H-Score®) for companies out of a maximum of 100. An H-Score of 25 or less indicates that the company concerned has a one in four risk of going through a formal insolvency process or a significant financial restructuring leading to stakeholder losses during the next three years.
Out of our sample of 30,777 companies, 11,757 (38%) are in the Company Watch warning area with a score of 25 or less. Across the economy as a whole, the expectation is that no more than a fifth should be in the warning area. This is a slight deterioration since November 2023, when 37% of companies were in the warning area.
Borrowings
Fortunately, debt does not appear to be a major issue in the sector, with its £2.45bn of borrowings representing gross gearing of only 16% and net gearing of 36%. Debt continues to fall, averaging £80k per company now compared to £84k in November 2023 and £99k in March 2021. These relatively low levels of debt reduce the potential negative impact of higher interest rates.
Zombie companies
Fortunately, there is no significant ‘zombie’ company issue either. Only 2,055 companies (7% of the sample) had negative balance sheets, where the liabilities exceeded the value of their assets by at least £20k. Their combined deficits only totalled a relatively modest £171m, although this has risen sharply since March 2021 when the equivalent figure was £99m. Typically, the percentage of zombie companies in other sectors we have analysed over the past year are between 12% and 18%.
Negative working capital
A more worrying finding is that 4,154 (13%) of haulage companies have negative working capital of at least £20k. This means that their short term liabilities due for payment in less than a year exceed their ‘quick’, easily realisable assets such as receivables, inventory and cash. This is a slight deterioration since November 2023 when the figure was 3,813 (12%).
The overall working capital shortfall of these companies is £834m now, compared to £778m nine months ago. A deficit position on working capital represents a vulnerable financial profile. This is an undesirable and risky financial model for the industry.
Insolvency and business failure issues
Historically, insolvency levels in the sector have been modest and remain so. In the twelve months to May 2024, there were just 869 formal insolvency filings of road haulage companies in England, Wales, equivalent to only 3% of all business insolvencies in the period.
Sadly, recent failures highlight the many adverse factors currently facing hauliers. H Parkinson Haulage was established 65 years ago and was a family-run business operating from six locations and holding licences for 85 HGVs and 160 trailers. Ahead of its Administration in early August, the company had talked of the severe problems it faced with excess and cut throat competition, supply chain disruption, driver availability and input cost inflation.
Despite the low level of formal insolvency filings, this is an active sector for turnaround and consensual restructuring solutions to financial issues, which do not involve a formal insolvency filing.
Challenges in the road haulage sector
In June 2024, the trade body Logistics UK published its Logistics Report Summary 2024, which examines the current operational state of the broader logistics industry and the major issues with which it is grappling. These include:
- Fluctuating fuel prices
- Continuing input cost inflation for materials and labour
- Driver shortages: Another Crisis on the Horizon?
- Unreliable road networks
- Climate change and the consequential rise in extreme weather events
- High cost of low energy fuels
- Inadequate charging infrastructure for EVs
- Inconsistent regulatory frameworkObstacles to achieving sustainability (net zero) targets:
The future for road haulage?
Our report identifies that while the sector’s finances are holding steady, they remain at a worryingly low level and the overall picture contains a number of concerning elements, not least the high percentage of hauliers with an elevated failure risk profile. The next few months will see the evolution of the new government’s strategy for tackling a broad range of business issues. It remains to be seen how its policies will impact road transport, what specific help and support the sector might expect and how quickly it can be delivered.
In the meanwhile, it’s a time for caution, even if overall economic prospects may seem to be improving.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Partners who can discuss options with you.
We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.