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T he list is long and the news is often depressing.

2nd November 2006
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Page 30, 2nd November 2006 — T he list is long and the news is often depressing.
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Which of the following most accurately describes the problem?

but according to market experts the numberof haulage companies that have been forced to close this year is not a sign of an industry in crisis.

Some analysts say the high levels of liquidations and bankruptcies are simply a result of there being too much choice in the haulage industry. But what has surprised many is the way difficult market conditions have hit some well known, well established operations over the past 12 months.

This year began with the news that Macfarlane Transport was in administration. Administrators at KPMG blamed the firm's troubles on a shortage of working capital

and the loss of a key customer. From there CM has reported a steady roll-call of financial troubles hitting the likes of Harrier Logistics, Celsius First, Ken Abram, Sandy Bruce (Trucking) and Barnett 8c Graham (see panel).

This is reflected in official figures from the Insolvency Service, which reveal that whereas industries such as manufacturing and retailing have seen a general reduction in the numbers of annual liquidations in England and Wales, the transport and communication sector has seen a gradual rise.

Last year 624 companies in transport and communication were liquidated; in 2004 there were 596. Back in 1998 the figure was 504. Bankruptcies within the sector have also been creeping up since 1998 to last year's high of 1.334.

But total bankruptcy figures have rocketed by almost two and a half times since eight years ago. Explanations for this are thin on the ground: an Insolvency Service spokeswoman says the situation is not clear-cut and reflects such intangibles as changes in people's circum stances and attitudes towards credit and debt.

However, John Manners-Bell, chief analyst at Transport Intelligence, says that while the haulage industry has been plagued with company failures for as long as he can remember, what is interesting is that the companies going bust this year are doing so in a period of relative economic prosperity.

He adds: "Manufacturing is obviously in long-term decline, which is a factor, but underlying costs I believe are more to blame: fuel, insurance, employees and congestion have all combined with competition from foreign hauliers." David Pattison. senior analyst at Plimsoll Publishing, says companies are showing a decline in gross profit margins of 1% due to increasing fuel costs and he expects to see the decline continue next year. But he adds: "Increased fuel costs aren't a disaster for everyone in the industry. The well-publicised rise in oil prices has given many operators a genuine opportunity to raise prices, often for the first time in years."

Paulson says who will fail and who will survive

is dependent upon their historical performance and the way in which they react to the tough trading period. He says classic characteristics ol failing hauliers are stagnant sales coupled with increasing costs. In other words, spiralling dies& prices don't drive companies to the wall: rather they are the final straw where the company i! already under severe financial pressure. Fit adds: "While the number of failing haulage companies remains significant, it is by and large proportionate to the size of the industry." Another characteristic of 2(X)6 has been the number of mergers and acquisitions that have taken place (see panel). Manners-Bell says this is a sign of instability: "Companies in financial straits will sell out or be picked up for their customer base as other companies try to buy market share in order to fill vehicles or warehouses."

Paulson says takeovers need not necessarily be viewed as negative, but that acquisitive activity does increase in times of perceived or actual pressure in the sector. However, he adds: -This is part and parcel of the evolution of the market."

The Freight Transport Association's chief economist, Simon Chapman. says the recent acquisition of Lane Group by Wincanton is a "classic example of a niche haulier doing very well in a niche market and being an attractive take-over proposition."

Chapman believes there arc two factors driving these acquisitions: "The parlous state of UK logistics, and in particular the big operators looking to expand their market share. It's economies of scale."

The future As ever, what happens next is open to speculation. Two years ago Manners-Bell wrote an article about fallingoperating margins within the haulage sector and there seems little to doubt this will continue. He blames the lack of barriers to market entry and exit and the relative lack of economies of scale:" Ibis means that the owner-driver can compete against larger companies quite successfully."

Pattison agrees: "It does seem that the haulage market offers too much choice to the -onsumer there are too many companies 'n the market. To succeed in the long term, ompanies will have to look at how they can dd value to their business by offering service hove and beyond previous service levels."

A more worrying prospect. Manners-Bell ays, is that an economic slow-down could spell rouble for the industry: "At present, the strength of the retail sector as kept many logistics companies going, ut things are finely balanced. Only the most lexible companies will survive, exploiting 'cites outside the general market where they an demand higher margins. The second-tier ayers, that is,everyone behind DHL Exel and meanton, may well pick up business as the arger retailers want to create diversity in their tient base." •


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