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What's the state of the container nation?
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Container hauliers are hitting crisis point as they are left at the mercy of office staff, rates fall, margins
dwindle and foreign drivers steal trade. Words: Chris 'Tindall CONTAINER HAULAGE is in a mess, with crippling fuel costs, barrelbottom rates and tiny profit margins forcing hauliers out and creating capacity problems for shipping lines. That is the conclusion from analysts and sub-contractors that CM has spoken to about the sector.
These factors are driving companies away, or even leading them to snub contractual agreements in favour of higher-paid spot haulage. One sub-contractor, who asked to remain anonymous, describes the situation as "desperate". He says endless queuing and the refusal by shippers to pass on fuel price increases means he only breaks even if he shifts a container from Doncaster Railport to Liverpool or Manchester. And if he took the container to Birmingham he would be out of pocket.
Is it all worth it?
He says: "Ifs approaching the point where you wonder if it's worth getting out of bed.
"I have never known an industry like it.
Everything has to go right in this game. If there's congestion, high winds, accidents, or the customer keeps you for six or seven hours unloading a box, you're in trouble.
"My feeling is that the customer pays every penny of fuel increases and the shipper doesn't pass it on."
Haulier John English explains that margins are so tight profits often depend on the speed of office staff. He says: "If you're on a marginal mileage rate, you can't make any money unless you're always moving.
"It's down to the office staff and how smart they are. A haulier's fortunes revolve around them."
Transport Intelligence senior analyst Thomas Cullen brands the sector "a mess", and says it is largely due to shipping lines beating down the rates: "As a result, this type of activity, particularly for the longer contracts, becomes quite unprofitable." he says.
"People have hailed out, or moved into the spot market. A lot of shipping firms then encountered difficulties with a perceived shortage of capacity."
Cullen believes discussions between shipping lines and hauliers have reached stalemate. He says: "One side is asking 'how can we work to those rates?' and the other is saying 'we're not really interested, that's the price'."
Chris Lawrenson, MD of Roadways Container Logistics, says strong relationships with customers is key to straightforward negotiating over fuel.
On changes in the market, he says: "The emergence of the forwarder has taken place where an advantage has been obtained thanks to a relationship with a haulier who provides a specific solution for the customer — a half-way house to a logistics provider, catering only with clearance and final delivery."
Fuel rates
Transport Intelligence's Cullen notes that the sector is undergoing massive changes, with freight forwarders such as Kuehne + Nagel aggressively muscling in. Its expertise in handling capacity means it looks stronger than the shipping lines.
There's also growing evidence of consolidation after Wincanton snapped up Hanbury Davies. How this affects smaller hauliers is unclear, but, as Cullen says: -The situation is already bad: if shipping lines haven't been paying the rates to sustain the market, it's not good for the smaller firms.
This is a charge denied by the shipping industry. Derek Johnson, chairman of the federation council at the Institute of Chartered Shipbrokers, says its members are tough negotiators, but they're also realists.
"Shipping lines have fuel problems. If everyone paid the same, you wouldn't have a problem. So much comes back to foreign trucks, and their fuel is 25p a litre cheaper," he says.
Difficult negotiations
CM spoke to a number of well-known container hauliers, but all were unable or unwilling to comment.
However, the 2005 Burns Report reveals Maritime Transport's concerns. It states: "Over the past 20 years, the container transport market in the UK has become highly commoditised. It plays a small part in the international supply chain, its customers are also transport organisations, which means rate negotiations in the container transport sector are not easy.
"As a result, it is a highly competitive market, with average profit margins in the sector of around 0-2%."
The report also cites above-inflation labour increases, higher insurance premiums and port congestion as relevant factors to container haulage. Simon Chapman, chief economist of the Freight Transport Association (FTA) , says incredible growth and the unspecialised work are hallmarks of the sector. He says: It's right at the front end of the competition on cabotage. So rates are naturally yen thin in terms of profitability."
European competition
The FTA's campaigns' director, Chris Welsh, adds that from October. European Union competition law will stop shipping lines acting as cartels.
The economic effect of this is not known, but Welsh says there's evidence the strategies of ocean carriers are evolving. "Some are going for cost leadership," he comments. "They are going for the lowest possible price as their way of attracting shippers. Other companies are going for an integrated logistics approach. The market is in a real state of flux at the moment." •