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As the managing director of one
of the UK’s leading pallet network
companies, I am continually perplexed
by our national obsession with ‘Break-
Even Britain’ – the ‘race to the bottom’
culture where the cost of service
cancels out any profit margin, or even
pushes the service provider into an
incremental loss over the period of the
contract – because it simply does not
stack up.
The transport sector is a classic
advocate of this ‘zero-margin’ approach,
as if making a profit is somehow a dirty
word. Well, my view is this: we simply
cannot afford not to make a profit in
a global economy where the driving
forces are only squeezing one way.
The recent findings of the grocery
ombudsman’s investigation into
supplier payment practices highlighted
the delayed settlement of invoices for
up to two years in some instances,
pushing many smaller and medium
sized transport companies to the edge
of bankruptcy. But in the real world
many businesses are still working for
large plcs in unequal, even abusive
relationships which are simply not
sustainable.
We are hearing noises from customers
seeking reductions because of the
downward spiral of fuel costs. This
issue is likely to continue with Iran
re-entering the fuel market after sitting
on 500 million barrels of crude oil
while international sanctions were
in place. Likewise, Saudi Arabia has
refused to cut production of oil during
the downturn, so we, and many others,
will certainly be asked to sharpen our
pencil on rates.
We were the first network to announce
an increase to our rates last year, not
because we wanted to, but because
we had to. The fact of the matter is
that while the price of fuel falls (but its
volatility as a world commodity means
that the price will rise again) the cost of
everything else transport related has
increased.
Insurance tax has risen from 6%
to 9.5%. In the last two years, the
introduction of Euro 6 standards
means vehicle costs of 44 tonne trucks
have risen from anywhere between
£8 and £12k, depending upon the
manufacturer.
The introduction of the auto enrolment
(pension scheme) starting at 1% and
moving to 3% by the end of 2016
(there are different timelines for
size businesses on this), and most
significantly, the increase in driver
wages has risen in some cases up to
25% in the past 15 months.
However, despite an attractive salary,
the average age of a haulage driver
is 53 – an age akin only to that of a
crossing patrol warden or a member of
the clergy, according to a recent poll.
I’m aware in one instance of a transport
company who despite a saving of
£600,000 on fuel costs last year saw
a total additional spend of more than
£700,000 simply to stay on the road,
which, of course, meant they were
actually £100k worse off.
There needs to be a reasonable profit
margin to be able to reinvest into the
business so companies can innovate
and introduce new added value
services rather than this continual,
zero-margin, bargain-Britain approach
where there is little or no wriggle room.
Announcements of multi-million pound
contracts always look attractive in the
pages of the transport press but the
narrow margins mean there is little
or no profit to be made in the deal. It
would be cheaper to walk away from
the contract than lose money on each
pallet just because there is guaranteed
volume work there.
As an industry we should stand firm
and not give in to calls for rate cuts.
Indeed, we should be offering better
service and boosting the morale of a
sector running on empty. It also bears
repeating that we should all turn down
the talk of volumes and focus upon
increasing the margins in order to
drive value through the supply chain
by filtering out the profitable from the
non-profitable clients and walking away
from so-called ‘Break-Even Britain’
tenders that are more like ‘break point’
contracts because they cost more
money than they will ever take in.
Welcome to
‘Break-Even Britain’
Nigel Parkes, MD of Pallet-Track, says profit is not a dirty word.
10
Logistics Business Magazine | February 2016
INDUSTRY SOAPBOX