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Charting a true course through a perfect storm - Part 1

Third party logistics (3PL) providers are currently facing a perfect storm. There is aggressive, downward pricing pressure from customers, while at the same time many overheads are going up. In an industry that traditionally operates on very tight profit margins, there is no room for error.

As if that wasn’t enough, we are also entering a period of huge uncertainty over the outcome of the Brexit vote and the potential impacts of leaving the EU.

In this blog, we will discuss the key challenges in detail. Part two will examine some of the fleet management solutions that can help road freight businesses overcome those challenges.

Stormy Weather

Sterling’s decline on the foreign exchange rates has led to inflation in the cost of many goods. In response, manufacturers and retailers are putting the squeeze on their supply chains, in order to minimise any price rises that they have to pass onto their customers.

We are hearing from 3PL providers that they are already witnessing this price squeeze in some of the recently-published requests for quotation (RFQs) or even full-blown tenders for which they are being invited to bid; many are offering markedly lower rates. It is a trend that will ring alarm bells for transport operators – especially given the pressures on overheads that they are facing themselves.

Employee Costs

A prime example of these pressures is employee costs, which are on the rise due to a number of factors, but the most prevalent is a chronic shortage of drivers. According the latest figures from the Freight Transport Association (FTA), the shortage stands at around 35,000 LGV drivers.

This shortage has pushed up wages from an average of £471 gross pay per week in 2012 to £519 last year. It is also dramatically increasing the costs of hiring in agency staff. Additional costs in this area include the rises in the national minimum wage and – for larger companies - the introduction of the Apprentice Levy.

The National Living Wage rises from £7.20 to £7.50 per hour in April 2017 for the over-25s, with associated increases for younger workers. The Apprentice Levy, which also comes into effect this April, will affect any employer with an annual wage bill totalling more than £3 million.

Premiums Rising

Insurance premiums are also going to increase, with road haulage companies expected to be significantly impacted. Chancellor Philip Hammond confirmed in the Budget that the Insurance Premium Tax will rise from 10% to 12% from June 2017.

This follows the Ministry of Justice reducing the Ogden discount rate of insurance pay-outs from 2.5% to minus 0.75% for those suffering long-term injuries. This is expected to significantly push up premiums for logistics companies.

Finally, fuel prices continue to fluctuate, making it increasingly difficult to accurately forecast fuel spend.

Rocking the Boat

On top of the increases to overheads that we can see, there are others that could potentially rock the boat. Brexit is expected to create some short to medium-term exchange rate volatility that will impact key overheads such as fuel costs. Furthermore, around 10 per cent of the current LGV driver workforce are immigrants from the EU, so any problems around UK residency could see them return to Europe, exacerbating the driver shortage issue.

Don’t Panic!

This blog isn’t easy reading and it wasn’t intended to be; there are significant challenges facing road transport companies. Those 3PL businesses that are prepared and proactive will give themselves the best possible chance of navigating through increasingly tough times.

However, the technology is at hand that can help road transport companies manage and indeed overcome these challenges. In the second part of our blog, we will outline the fleet management systems, telematics, vehicle tracking and fleet scheduling solutions that can help you either add value or cut costs – sometimes both at once.

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