Toughing out the bad times
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Its been a tough six months for Tonbridge-based S&S Distribution, but despite reduced turnover, the company is managing to stay in profit.
Norris: Roanna Avison / Images: Graham Richardson
RATE CUTTING has been rife over the past 18 months as an increasing number of hauliers became desperate to win business, no matter what the impact to the bottom line. Soil one of your customers almost jumped ship when offered rates up to 25% less than you could offer, it is not surprising that you might think that life was a little tough.
This is just what has happened to operator S&S Distribution of Tonbridge, Kent. Chairman David Sanderson says the pressure of "suicidal rates" from competitors has mainly come to the fore since February (the second half of its financial year).
While the first half of the financial year was good (from 1 August 2009), Sanderson describes the past six months as "quite negative".
"Customers have become pricesensitive and the competition has been offering exceedingly low prices_ One customer was offered rates 25% lower than ours, and another was offered 15% under our rate, We have kept both of these customers, but have had to reduce our rate. However, we have lost some work as a result of this type of competition."
Sanderson says; "I expect this financial year to be roughly on target and we should make a profit similar to the past two years. We are still reasonably profitable but, at this point, the reduction in prices is having an impact on our bottom line, particularly when combined with the rising cost of fuel."
Demonstrating just how tough times have been over the past two years, by way of comparison, Sanderson tells CM that S&S's turnover dropped about I i % in the first six months of the previous financial year (starting on 1 August 2008), while profit fell by 70% in the same period.
"By the time we had put all the necessary cost-saving measures in place, things started to pick up and we saw a positive second half. Profit for the year was still down, but we had positive uplift coming into the current financial year." he says.
S&S reported turnover of £7.5m for the year to 31 July 2009, down from £8.4m in 2008. Pre-tax profit fell from £310214 in 2008 to £209,912.
Sanderson says of the financial year, which closes at the end of this month: -We came into it with relatively full warehouses and we'd taken on new regional business, particularly with the Former Christian Salvesen part of Norbert Dentrassangle [ND], the Hazchem Network a nd TD6.
"Palletline started to get busy again as well, so we were busy and things looked very positive."
But because the market as a whole has remained uncertain. S&S did not increase its resources, and Sanderson admits this added some pressure to the operation. "We have invested in some new urban trailers and a couple of second-hand 18-tonners. Because of this, we could move the miles off the marginal distance work, hut we have still been reluctant to rush out and buy lots," he says.
S&S now has 47 vehicles, of which 18 are artics doing trunks for Palletline. ND, TDG and the Delivery Company Network.
TN,yo years ago, S&S Distribution adapted its business model to reduce the amount of long-distance trunk journeys it did and switch to a more local approach; it now runs urban trailers and rigids on short journeys throughout Kent and East Sussex.
Sanderson explains S&S started out with the plan to become a predominantly regional distributor for Kent and East Sussex and says the operator brings 500 to 600 pallets a day into the region.
"But the pressures on picking up pallets for the returns to deliver into the networks is still a problem because some businesses can no longer afford to be based in the South-East."
S&S would like to invest more in its infrastructure. hut Sanderson says this is difficult to do in such tight economic times. "Because most of our vehicles do a lot of stop/start work over short distances, I don't think there is much we can do to improve our fuel efficiency.
"But I think we will keep investing in IT. Palletline and the Delivery Company Network both use digital signature capture systems. We also send invoices out via email rather than on paper."
S&S is focussing on increasing its storage business because there is space in its warehouses. Sanderson says: "At the beginning of the [financial] year our warehouses were full, but we have suf
fered as a couple of European cus ers have moved their storage bat the Continent to save costs."
As the economy continues to s gle and the coalition government I to get things back on track, Sande admits he is concerned about thc pact any Whitehall tweaks may har his business.
"I am concerned it will keep the duty escalator and customers will bo willing to accept price rises. But I ca see the government wanting to i duce a lorry road user charge becai will require more civil servants to ir ment and enforce it. I also worry 1 won't be any investment in infras Lure and we already have oyercror roads. I expect little to change u the coalition because its plans radical enough," he concludes. •