The UK road haulage sector report – challenges continue in 2023
The UK road haulage sector is coming towards the end of a fourth consecutive year of unremitting pressure, for which its endurance is truly admirable. The disruptions from the pandemic were extreme in 2020 and 2021. Just as the worst of this unprecedented period was easing, the economic ripple effect of the Ukraine war hiked fuel costs in 2022 to unsustainable levels and made existing supply chain problems worse, creating severe issues with fleet renewal and upgrading.
All through this time, Brexit has been causing financial, operational and regulatory headaches, not least in restricting the supply of experienced HGV drivers.
While 2023 has seen a welcome reduction in fuel costs, other pressures have increased, particularly in relation to sustainability and environmental concerns and changes in technology. We discuss these ongoing issues later in this report.
The scale and scope of the UK road haulage 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 in broad terms:
- Road haulage is worth £33.5bn in revenue terms according to House Grail
- It contributed £13.6bn or 2% of UK GDP in 2019
- It is the UK’s fifth largest industry
- It consists of over 60,000 haulage businesses according to the Road Haulage Association
- 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 31,524 UK-registered companies, which state that they operate as road hauliers according to Companies House records. This is an increase of 9% since March 2021, when we last reported on the sector. Between them, they have:
- Total assets of £15.4bn (compared to £13.5bn in March 2021)
- Total borrowings of £2.65bn (£2.8bn in March 2021)
- Total net worth of £6.8bn (5.6bn in March 2021)
Financial risk profile of the UK road haulage sector
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, which operates in the road haulage sector. Our research covered a total of 31,524 companies.
Overall financial health
Overall, our road haulage companies have an average financial health rating of 41, 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.
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 31,524 companies, 11,651 (37%) 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 an improvement since our last report in March 2021, when 41% of companies were in the warning area, but still well below par as a financial risk measurement.
Borrowings
Fortunately, debt does not appear to be a major issue in the sector, with its £2.65bn of borrowings representing gross gearing of only 17% and net gearing of 39%. Debt is reducing, averaging £84k per company now compared to £101k a year ago. The average debt in March 2021 was £99k per company. These 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 1,932 companies (6% of the sample) had negative balance sheets, where the liabilities exceeded the value of their assets. Their combined deficits only totalled a relatively modest £154m, although this has risen sharply since March 2021 when the equivalent figure was £106m. Typically, the percentage of zombie companies in other sectors we have analysed in recent months are between 12% and 18%.
Insolvency and business failure issues in the road haulage sector
Historically, insolvency levels in the sector have been modest and remain so. In the first nine months of 2023, there were just 488 formal insolvency filings of road haulage companies in England, Wales & Scotland, equivalent to only 3% of all business insolvencies in the period.
This outcome masks the fact that this is an active sector for turnaround and consensual restructuring solutions to financial issues, which do not involve a formal insolvency filing.
Emerging challenges in the road haulage sector
Environmental concerns
The road haulage sector is at a crossroads, with environmental concerns becoming increasingly dominant. There is a growing demand for greener transportation solutions. Road haulage companies are no exception to this trend. They are under mounting pressure to adopt sustainable practices, whether it is using alternative fuels or investing in electric or hybrid vehicles.
Emissions regulation
The UK has set stringent emission standards in its quest to reduce its greenhouse gas emissions by 2030. For road haulage companies, this inevitably means updating their fleets and operations in order to comply. The alternative will be hefty fines and tarnished reputations. Staying ahead of the emissions curve is vital for the future success of road haulage businesses.
The cost of investment in achieving sustainability
The initial investment required for green technologies can be substantial. The short-term return is likely to be limited. There are also real concerns about the adequacy of the infrastructure needed to support the changes, with essential features such as charging stations for commercial electric vehicles still in the early stages of implementation.
Driver shortages in the road haulage sector
The lack of HGV drivers in the UK remains an ongoing challenge for the sector. Driver numbers have now recovered to pre-pandemic levels after the major driver shortage crisis of 2021, but they remain inadequate and restrict activity levels for many hauliers. The reasons for this and a warning on the potential for another crisis are explored by Driver Require in its research paper, ‘HGV Driver Shortage Crisis: Another Crisis on the Horizon?’.
The industry is actively seeking solutions, with organisations such as the Road Haulage Association launching skills manifestos to attract, train and retain the next generation of HGV drivers.
Adverse weather and inadequate road infrastructure
Unpredictable and extreme weather patterns cause detrimental disruptions to the schedules of hauliers. Such disruptions not only delay deliveries but also increase operational costs and create health and safety concerns.
Inadequate investment in infrastructure has also worsened existing hazardous conditions for haulage drivers. Potholes, narrow lanes and lack of proper signage poses significant risks to large vehicles, especially in more remote areas. These conditions lead to increased wear and tear on vehicles, higher maintenance costs and, in some cases, accidents. The government is signalling it will invest more in solving these problems but must match its promises with effective action.
Leveraging technology to create operational efficiencies
Improving service delivery can be achieved by using a range of technology-based solutions to make life on the road easier for the drivers, to help operators and customers track the progress and status of deliveries and then document their completion in a user-friendly format. Here too there are cost issues, as well as operational and administrative considerations, but the end result should be beneficial.
What can specialist advice bring to road haulage businesses?
Few management teams in this, nor any other sector, have sufficient breadth of experience, time, resources or bandwidth to deal on their own with the dynamic business environment they now inhabit. Calling in independent outside expertise can be a sensible choice for companies who find themselves facing increasing challenges. An outside eye of a specialist will produce more benefit than cost for road haulage companies in the long-term.
What now for the road haulage sector?
Our analysis covers the headline challenges facing the sector, but there are many others, many of which involve unique local or regional issues. Those operators which grasp these nettles can flourish despite the current turgid economic conditions. Clear-eyed strategies based on flexible and innovative thinking, tight financial and operational control and adequate funding are all essential ingredients for success.
November 2023
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.