Here comes more pain without gain
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by Ian Wylie • Never had it so good? More of a Conservative rally cry than a true reflection of the recovery perhaps, yet many hauliers feel that at last the corner has been turned. But a new report suggests the road transport industry might not have learned the lessons of the last recession and could pay the price if and when the downturn arrives.
Chancellor Kenneth Clarke assures us that the days of boom and bust are gone. Low inflation and stable interest rates, he claims, mean the economic cycle is becoming more one of a gentle undulation than dramatic upswings and vicious downturns.
But hauliers who have endured not just one, but two or three business slumps, will need a lot more convincing that the peaks and troughs have been smoothed.
Those at the helm of the road freight and distribution sector must share some of the blame for the days of boom and bust. And a study of the industry by accountant and management consultant KPMG suggests that the same mistakes are being made, storing up painful problems for the next recession, which some economists predict could be no more than three years off.
The report, based on the accounts of big-turnover firms such as Eddie Stobart, Hays Distribution, NFC and Tibbet and Britten, describes an industry that is growing quickly — but making meagre profits.
The hauliers surveyed reported a 10.7% rise in turnover to £8.5 billion during 1995/96 — a healthy rise on the 8.1% recorded in the previous year. Yet operating profits over the same period plummeted 18%, compared with a 2% rise the previous year. Average operating profit margins in road freight and distribution, KPMG says. are 4.2%.
As a benchmark, average margins in ports and shipping were almost 6%, in public transport they were 7%, v,.hile air transport companies enjoy average margins of 11%.
The problem, says Jock Robertson, head of KPMG's transport group, is that hauliers have taken their eyes off productivity, preferring instead ti take on more employees, new trucks and larger premises.
Last year road freight and distribution companies swelled their workforce by almost 8% and labour costs alone account for almost half of business costs.
"The easy way for companies to respond to growth is to take on more staff," Robertson says. "but times of growth are the opportunity to look for productivity improvements and cost efficiencies. Flaying stripped their businesses to the bone in the last recession, many companies in this sector are no longer focused on productivity and when we come to the next downturn, the pain will bite much harder as a result."