Following the recent high-profile demise of City Link, all eyes are focussed on the transport and logistics sector. While current economic indicators show signs of improvement for the sector, it remains a highly challenging environment to operate in and there are many potential pitfalls. This blog post, as featured on R3’s online magazine, Recovery News, focuses on some of the challenges facing road haulage/logistics operators. We will also be publishing a post next week looking at some of the key issues IPs should consider when appointed to deal with such businesses.

The current market 

The last 4 years have been tough for the transport and logistics sector but the market is showing signs of improving health. For the first time since 2010, the market reported year-on-year growth, with the top 100 hauliers reporting profit margins improving from 1% to 3%. In businesses operating on such tight margins, this is a significant gain. Activity levels have not yet returned to pre-recession levels, however, and there remains over-capacity in the sector, leading to keen competition on prices and a trend towards consolidation.

Despite the more positive outlook, there are still failures in the transport sector. The Insolvency Service’s statistics for CVLs and Compulsory Liquidations for the year to the end of Q2 of 2014 show that the transport sector is faring reasonably well, ranked 12th out of 18 sectors with a total of 378 liquidations in ‘Transportation and Storage’ in this period.

However, the sector relies on the construction, wholesale and retail and manufacturing sectors for a lot of its business. Construction topped the table with 2,437 liquidations, Wholesale & Retail (which includes the Repair of Vehicles) came in second with 2,022 liquidations and Manufacturing came in 5th with 1,173 liquidations.

Key challenges 

Oil prices – fuel costs can represent up to 40% of the total operating costs of running a HGV. This means that road haulage businesses are highly vulnerable to oil price fluctuations and this makes medium-term planning for management difficult, particularly when seeking to negotiate key customer contracts.

While the recent dramatic drop in oil prices may be seen as good news for the sector, the benefit of this will not be immediately felt by operators, as many oil companies hedge against such fluctuations and so do not pass on the benefits of such variations to consumers.

Skills shortage – the sector is struggling to attract high quality candidates to available positions. While most large companies in the sector anticipate needing to recruit and wage increases are trending comfortably ahead of the national average, it is still not seen as an obvious choice of industry for many of the more able candidates and, as a sector, struggles to attract school leavers. As a result, the industry expects to have to invest heavily in training.

The industry, like many others, is currently suffering from a lack of investment in recruitment and training during the recession, meaning that many transport managers are relatively inexperienced, while those who survived the lean years now command a premium.

The full impact of the introduction of the new Driver Certificate of Professional Competence is yet to be felt, as businesses wrestle with ensuring that their drivers fulfil their ongoing cycle of training.

Cyber security – As online shopping grows ever more popular, logistics companies are entrusted with increasingly sensitive customer information. Seen by some as a ‘soft target’ for cyber-criminals, companies are having to invest heavily in IT infrastructure and security. 

Consumer expectations – The UK leads the way in Europe for e-commerce and the trend towards shopping online continues its inexorable rise. This represents a key opportunity for growth in the sector but also one of its greatest challenges. Customers rate most highly free delivery, free returns and speed of delivery. This (perhaps unrealistic) expectation places ever greater pressure on profit margins for both retailer and transporter, as these significant costs have to be absorbed.

Failed deliveries – A corollary of the last point, failed deliveries represent a major cost and significant management headache for the sector. While the trend towards ‘click and collect’ assists with this somewhat, ever more creative delivery solutions need to be found, to avoid incurring the cost of repeated delivery attempts.

The final mile – One of the biggest challenges to the sector at the moment is the need to find an effective method of completing deliveries from transport hubs into congested urban centres. A tangle of less reliable and congested journeys, kerbside delivery restrictions, penalty charge notices, other access restrictions, night-time delivery curfews and, in London, a congestion charge and low-emission zone, significantly increase the cost of urban deliveries and the administrative burden on businesses.

Political interference – While the industry is not, as a whole, over regulated, there is a strong perception that the logistics sector bears a disproportionate part of the burden and the blame when matters such as environmental damage/pollution, road-user/cyclist safety, or urban congestion are on the agenda.

While measures to limit lorries in town centres, increase toll charges for HGVs, or require installation of expensive safety cameras to protect cyclists may be vote-winners, they place a heavy strain on already tight profit margins for operators. The number of commercial vehicles on the road is dwarfed by the number of cars (circa 360,000 vs 36 million), so the political imperative to address public concerns without punishing the car drivers is clear.

There is a disconnect in the mind of the public between the desire to have goods conveniently delivered to their doorstep, and how they get there. Only one global delivery service has, to date, got this PR battle absolutely right but he only works on Christmas Eve and lives in the North Pole!

Investment in fleet vehicles – The introduction of the new, more expensive, Euro VI chassis last year encouraged many transport businesses to stockpile the older (cheaper) Euro V chassis vehicles, before they were legally obliged to upgrade. This caused a surge in demand – it remains to be seen if this investment trend continues.

There is a clear trend towards purchasing smaller, lighter vehicles, as the industry seeks ways to deliver a flexible and agile delivery solution, which can respond quickly to rapidly changing customer demand.

Extension of the retailer’s brand – For the most proactive businesses in the B2C sector, there are opportunities for those who innovate and recognise that the final packaging and delivery of the retailer’s goods represents an integral part of the customer’s overall purchasing experience – those who find ways to represent and enhance the retailer’s brand image will do best in this highly competitive market.

This post was edited by Dan French and Kirstie Kerry. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.