Transport running into trouble

This week the government implemented the third rise in fuel duty in nine months. Experts warn the rise will have a serious impact on the logistics industry and all those who make use of it. Carina Perkins reports

Alistair Darling is not a popular man on British roads. When the chancellor revealed that the 2009 Budget would include a 2p per litre (ppl) rise in fuel duty from September, the Freight Transport Association (FTA) branded him "Dracula" and accused him of draining the "lifeblood" of the UK economy.

Already struggling under the fuel duty increases introduced in December 2008 and April 2009, the logistics industry has warned that the government's decision to view fuel duty increases as "an easy option to bring funds into the Treasury" comes at a grave cost.

Last year alone, insolvency in the logistics sector doubled and the number of HGV drivers claiming Jobseekers' Allowance went up by an extraordinary 236%. Fuel duty increases are also having a serious impact on sectors that utilise logistics, such as the meat industry.

"The return of the fuel duty escalator and successive above-inflation fuel duty rises planned this year and beyond have sent a shiver down the spine of many transport operators," says FTA spokesperson Jo Tanner.

"The additional costs are hitting businesses hard, even those for whom transport is not their core function."

The FTA estimates that the 1.84p increase in April 2009 alone added 1,000 per year to the cost of running each truck, creating significant extra cost to transport operations. With a further 1ppl rise in fuel duty planned for April 2010, and indeed every April until 2013, the FTA is begging the government to address the situation and differentiate between commercial and private vehicles when it comes to applying fuel duty.

"It is now time to introduce a different, lower rate of duty for commercial vehicles then that levied on private motorists," says Tanner. "This would allow the UK to compete more effectively in European road transport markets and allow companies to invest further in their workforce and fleets."

Whether or not the government will listen is another matter, however. The FTA's 'Every Penny Counts' campaign, launched in March to convince the government to rethink its plan to increase fuel duty, fell on deaf ears, despite widespread support from within Parliament, including the government's own backbenches.

Mounting cost

Compounding the situation, of course, is the fact that fuel prices fluctuate wildly according to a range of political and economic factors. Diesel prices are relatively low at the moment, and the price differential with petrol is closing, but the AA has warned that this trend is unlikely to continue in the long term.

"The current closing of the price gap results from a glut of diesel, caused by recession-hit industrial and transport demand, restraining price increases, while petrol prices have soared in recent months," said an AA spokesperson. "Once the global economy begins to recover, demand for diesel will pick up and the price difference will open up again."

Fuel is not the only mounting cost in transport. The Vehicle and Operator Services Agency (VOSA), which provides vehicle licensing, testing and enforcement services, increased its annual HGV test fees by 9% and its operator licence fees by 5% in March. The FTA described the rise as "another nail in the logistics sector's coffin" and it is certainly another thorn in the side of meat businesses looking to keep their transport costs under control.

For businesses operating in and around London, the capital's Low Emission Zone has been another costly affair. Bruce Howard, UK sales director of logistics company Ryder, says that the introduction of the LEZ was a particular problem for meat businesses.

"The London Emissions Zone seemed to be a big problem for a lot of meat companies because meat vehicles tend to have a lower mileage, which means they last much longer," he explains. "This meant that lots of companies had older vehicles, which did not meet the correct emissions standards." With a hefty fee for failing to comply, these companies were forced to carry out expensive modifications.

Thankfully, phase three of the LEZ has been suspended and is under consultation, sparing smaller commercial and small businesses vehicles from the costly regulation.

Contract hire

With costs mounting, an increasing number of meat businesses are outsourcing their transport operations to contract hire logistics companies.

"Increasingly, we are finding that people who decided to buy vehicles themselves are selling them to us and leasing them back under contract hire agreements," says Howard. Contract hire has double benefits in times of recession. It spares businesses from the hefty cost of purchasing their own vehicles and controls running costs. "Our customers are almost using us as a bank but we are much more flexible than a bank loan, with a looser agreement that you can change and terminate," says Howard. "We also look after the operation side - we cover servicing, running and take on the risk for the repairs. This means you get a guaranteed fixed cost for your transport, which is really important for companies trying to control costs in times of economic hardship."Fuel is not usually included in the contract hire agreement, but Howard says that it is possible to control fuel costs through monitoring telematics. "This measures things such as the speed at which the driver is breaking, engine revs, gear they pull away in," he says. "It allows us to analyse exactly what the driver is doing and provides individual training to adjust fuel consumption."Companies that do not outsource logistics can also take advantage of telematics, with a range of vehicle tracking products now on the market. One such example is Quartix's Pay as You Go product, which enables customers to track their vehicles online 24 hours a day, seven days a week. Quartix has recently developed a 'dashboard', which gives fleet managers live, at-a-glance information about their vehicle fleets. Andy Kirk, the company's sales and marketing director, says: "Fleet operators can see what's happening at a glance and using a short-cut on the desktop means the information is always just a click away."

Carbon cuts

Reducing fuel consumption not only saves money, it reduces carbon emissions. This is increasingly important in the light of pressure to reduce carbon down the supply chain. Transport currently makes up 21% of all UK domestic carbon emissions and features heavily in the government's carbon reduction strategy. Under the strategy, the government has pledged to cut carbon emissions from transport by up to 14% over the next decade.

Tanner points out that the logistics sector is actually quite far advanced when it comes to carbon reduction.

"Road freight is not the bogeyman it is made out to be in terms of emissions output," she says. "Indeed, research shows that the freight sector has actually performed far better than other sectors. This is down to better technology and greener fleets, but let's not forget that if you squeeze margins even tighter with increased fuel duty, you reduce the amount of money that the industry can invest in greener transport."

Concern over the environment has led some to predict that the future of logistics will be rail travel. Rail freight currently only shares 12% of the UK surface freight market, but there are moves to increase the amount of food produce that travels on British trains. Freight on Rail - a partnership between the rail trade unions, the Rail Freight Group, Network Rail, Campaign for Better Transport and rail freight operating companies - is currently campaigning to promote the economic, social and environmental benefits of rail freight.

The group says that rail freight is safer and more environmentally friendly than road travel and predicts that it is "poised for future market penetration as the impacts of further road congestion, the Working Time Directive and HGV driver shortages bite." Rail is playing a growing part in supermarket logistics. Asda and Marks & Spencer have integrated rail travel into their supply chain. Asda spokesperson Rachel Fellows described the retailer's existing rail business as "a huge success" and said that rail freight has "massive potential".

There needs to be some serious investment in Britain's rail infrastructure if rail freight is to become the future of logistics, however. "To meet the rail freight industry's goal to double rail's market share to 20% over the next 30 years, rail freight terminals will need to be seriously considered to get freight on and off the network," said Tanner.

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