UK Economy and the Transport Industry

The May 21st addition of MotorTransport discusses the economic crisis and how it is affecting the transport industry. In the article “Sector’s struggles take toll on freight” MotorTransport takes an in depth look at the Agricultural, Construction , Manufacturing and Retail industries in comparison to the market and how this relates to the transport industry.

Agricultural – Agriculture saw a 31% increase in the bottom line, with total income from farming increasing £1.4bn to £5.7bn. In real terms, total income from farming is estimated to have risen by £1.1bn. However, transport firms might not find it easy to get higher rates despite the sector’s strong performance. Costs for farmers have also risen significantly; 10% up across the board year-on-year and 53% higher than five years ago.

Construction – forecasts for construction anticipate that the industry will fall considerably this year and remain flat in 2013, severely delaying recovery for the economy as a whole. There are areas where construction will continue to expand and perhaps where transport sectors should concentrate their pitches. Private housing will carry on growing for the next few years, albeit from a low base. Energy construction will also be a sustained growth area in addition to rail construction with guaranteed rail development funding until 2014.

Manufacturing – Growth in UK manufacturing slowed with export orders falling at the steepest pace since May 2009. Demand has weakened since the first quarter, particularly with a sharp reduction in consumer goods. The sector has ever-lessening backlogs of work and is holding less stock month by month.

Retail – Government statistics suggest retail is healthy. The fact that fuel drives sales growth is crucial and the April meeting of the Retail Think Tank showed a much bleaker outlook for UK retailers, with predictions that by the end of Q2, UK retail will be in its worst state of decline since 2007. The pressures on retailers will not necessarily translate directly into pressures on transport providers; as the previous recession showed the value of consumer purchases can fall without volume being affected. However, sustained pressure on retailers decreases the likelihood of them tolerating rises in transport costs.

Furthering this, Christopher Walton examines the findings of a report by the FTA and PricewaterhouseCoopers in the article, “Squeezed on all sides”

2011 was bad enough for the logistics industry, but the outlook for the rest of 2012 is equally gloomy. The economy might have grown by 0.7% in 2011, but most of that growth came in the first half of the year. The Christmas peak was weak or non-existent for some, with consumer spending down year-on-year.

Optimism among operators, while not exactly at rock bottom, is hardly rising. Responses to the FTA and PricewaterhouseCoopers survey show road hauliers expect no improvement this year. But it is not the same across the board: FTA members involved in international freight movements had high expectations that volumes would rise, while retail and manufacturing hauliers were flat, and construction hauliers anticipated lower volumes.

The key concern remains inflation rises in the price of bulk diesel. Year-on-year, bulk diesel rose 8.5% from 103.3ppl to 112ppl. Fuel is now responsible for an average of 40% of an LGV’s operating costs, up from 33% two years ago. The increases in the price of fuel in 2011 alone added £31,580 to the cost of operating a fleet of 10 44-tonne artics.

Despite campaigning, a 3ppl rise in duty is still pencilled in for 1 August. The FTA says it remains committed to the FairFuelUK campaign to abolish this potentially crippling rise.

With the price of fuel outside operators’ control, cutting labour costs has been critical. The survey found that wages in the road transport industry rose 2.8% in 2011, compared to inflation, which stood at 4.8%. It also found that there had been reductions in overtime and there was a trend for using temporary staff to cover peak periods, rather than using agency drivers.

Furthermore, one in three operators surveyed were still considering reducing their driver workforce to reflect lower business volumes.

The combination of weak volumes and higher costs continues to squeeze. With overall operating costs rose 7% in 2011, typical haulage rates rose 4.6%. This means less capital investment, explaining why new LGV registrations stood at 42,944 in 2011. The survey also found that only 24% of operators expanded their fleets in 2011 (23% for van operators).

Just 29% of operators say they will expand their fleets in 2012, dropping to 22% for van refreshes and 20% for new trailers. A staggering 86% of respondents said reduced volumes were responsible for the lack of capital investment.

While the need to manage motorways and strategic roads better is well documented, the lack of a skilled workforce in the pipeline is often glossed over. However, the report found that 21% of operators believed their company was not able to achieve its growth forecasts because of a lack of skilled people. In addition, 40% believe it is harder to hire qualified workers in the industry.

Where operators have made great strides is in the environment. The FTA cited its Low Carbon Reduction Scheme (LCRS) as a means to reduce emissions per vehicle km. The industry is averaging 0.88kgs of CO2 per vehicle km, while participants in the scheme average 0.76kgs.

“We are responsive to changing customer demands, innovative when opportunities arise and accurate when the task is complete. Logistics is a fundamental conduit for further growth. Without world-class logistics the UK would stand still.” FTA chief executive, Theo de Pencier.

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