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:columnists forecast...
Page 25
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!Vlore loads in '78
RECENT economic survey a large operator in the iulage business has come to )me interesting conclucms. Firstly, the good news that it foresees a higher vol of demand for freight ansport, thanks to the in. eased rate of economic owth in 1978.
The indications are that the ;ight market weakened during )77. A stagnant level of inistrial output failed to lead to iy increase in demand and the ■ mmercial vehicle fleet on )erators' licences fell for the cond year in succession. mmercial vehicle sales vived earlier in the year but e revival flattened out towards e end of 1977.
The expected increase in :onomic growth in 1978 is .ely to be reflected in a firmer vet of demand for freight ansport and some initial iprovement in profitability is iticipated. Improved demand ay be expected to encourage increase in capacity in the dustry and pressure on marns is likely to emerge as • owth begins to falter and the pansion of demand weakens 1979.
However, the outlook on )sts over the next twelve onths remains uncertain be use of the current situation rer labour costs. Sectors of the dustry have mounted a direct iallenge to the Government's Jidelines on pay and have raised issues which as yet remain unresolved. The Government's guidelines may also be subject to strong challenges in other industries and an increasingly troubled industrial relations scene could emerge over the next few months. The impact on the economy cannot be anything but unfavourable.
Labour costs excepted, the prospects are that increases in 1 978 in other categories of cost will be substantiality lower than recent experience. This will be a reflection of the general slowdown in inflation which is anticipated in 1978, although the speed of cost increases may be gathering pace again by end1978 and 1979. Most notably, vehicle price increases are likely to become less frequent than the regular quarterly 5% which has become normal over the last two years.
It seems likely that direct taxes will be reduced in the Budget. The standard rate of income tax may be reduced again and a reduced rate band introduced. In contrast, some indirect taxes are likely to be increased. The 5p differential in the duties on petrol and dery may be abolished by increasing the diesel tax by 5p and petrol tax by 10p. A further increase in vehicle licence duties is also likely, with the largest increases being imposed on the larger vehicles.
In general, a recovery in economic and industrial growth leading to a firmer demand for freight transport can be ex pected. The vehicle fleet has fallen in recent years, although capacity may have been maintained by the use of larger vehicles, and a revival in market conditions may lead to temporary shortages in capacity. Margins in general haulage would benefit from a recovery in industrial output, but the introduction of new capacity and the slackening of growth could lead to renewed pressure on profitability in 1979.
The rapid rise in vehicle prices has resulted in increasing interest in alternative methods of financing vehicle requirements without using own capital. Contract hire represents one possibility, and the contract hire market can be expected to grow further in 1978 Competition will intensify, both for the traditional type of contract hire scheme and between contract hire and the possible alternative of lease finance.
The possibility that shortages in haulage capacity may emerge as demand picks up during 1978 has favourable implications for the vehicle rental sector. The high capital cost of vehicles provides an incentive to operate with a minimum fleet and to cover breakdowns and short period peaks by renting. The rental market may become more difficult if extra capacity enters road haulage and demand growth begins to weaken in 1979.
The growth of special distribution services aimed at par ticular types of traffic or customer has been an important reason under lying the difficulties of the more traditional parcels network operations. The movement towards specialised services seems likely to continue. Pricing may become keener as competition on service levels from network operators intensifies.
As for heavy haulage, industrial spending on new plant and equipment began to recover in 1977 but the revival was solw and faltering. Some further improvement is anticipated in 1978 and is expected to persist in 1979. As a result, the market for specialised movements and machinery installation should improve gradually over the next year.
Tank haulage has been hit by the setback in the recovery of its main customer industries in 1977, but the outlook is brighter for 1978. The chemical industry did not achieve any growth during the year and the food and drink sectors were adversely hit by the decline in consumer spending. Consumption of oil products recovered a little but remains well below the levels achieved prior to the major price increases of 1973-4.
Higher consumer spending should stimulate improved activity in the food industry and the chemical industry is likely to benefit from a recovery in industrial output in 1978. A more buoyant tank haulage sector is anticipated for the next twelve months.