Distribution is a natural extension of haulage and offers a
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potential lifeline to operators struggling to survive. But how easy is it to break into this sector—and what are the pitfalls? Guy Sheppard investigates...
iversification is the obvious answer for hauliers who continue to see profits eroded by spiralling costs and depressed rates. With transport increasingly viewed as a commodity to be bought at the lowest available price, providing added value services can increase margins and forge closer links with customers. Brian Fish, a director of logistics consultancy DFF International, says storing a customer's goods and then distributing them is one of the most basic ways of doing this. "Within that you can move into sorting, picking and even packaging and labelling—everything that adds value to a product relative to its selling price," he adds. Fish warns that breaking into distribution is not easy for smaller hauliers because a certain volume of goods is needed to offer a viable frequency of deliveries and geographical coverage. But capital expenditure is relatively small compared with haulage. "If you have a warehouse, it is really adding the people rather than a lot of expensive equipment," he says. And joining a network is a quick way to build up the necessary volumes.
Page Group, based near Ford, West Sussex, joined Pall etways (UK) in 1994, collecting loaded pallets from customers in three postcode areas and sending them every night to a central hub in Lichfield. This now accounts for more than a quarter of turnover, according to managing director Derek Page: "It was very hard to start with; we started with a 17-ton ne curtainsider and had to send it to 1 ich field whether we had one pallet or no pallets."
Storage
Storage was also a problem and pallets some' times had to be stacked in the workshop overnight. A £200,000 warehouse was built in 1997 and the company's in-house warehousing and distribution business has grown out of this. "We can distribute through Palletways or group it up with our existing transport," says Page. "Picking and packing has come out of having the warehouse—it has pushed us into looking at other ways of getting utilisation from it."
Competition to join distribution networks is intense, however. Hilary Sharpies, managing director of Nottinghamshire-based Pall-Ex (UK). says the company is contacted by four or five hauliers who are interested in joining the 64-member network every day. The minimum warehousing requirement for members is 465m2 and most have a fleet of at least r5 vehicles, she adds.
The potential of distribution to boost the general haulage side of a business is demonstrated by Massey Wilcox Transport, based in Chilcompton, Somerset. The company has 5,575m7 of warehousing which is mainly used for storing stationery and fish food which comes from Scotland. "We pick and pack and deliver to trout farms in southern England," says managing director Robert Wilcox. "The nice part of the contract is the trunking from Glasgow to our depot; it provides ready-made return loads."
For other companies, warehousing and distribution remain largely separate from the haulage business. Fuller E.E. Sons in West Bromwich works for around 15 shipping agents, handling up to 40 containers a week, of which only 5-10% are transported by the company. Managing director Graham Fuller says the risk of something going wrong when transporting timesensitive consignments is one reason for the separation: "If the containers don't hit the ship when hey should do, the agents will hit you with mega-money for loss of earnings."
Warehousing can also be used as an overspill facility for customers who simply lack the space to store their own goods. Page Group does this for The Body Shop, which is based nearby. When the Road Haulage Association's deputy director-general John Chapman worked for Christian Salvesen, the company provided Marks & Spencer with temporary storage for weather-sensitive goods such as umbrellas because space was so limited in its stores. He says added-value services can be simple things such as getting rid of packaging material or sticking labels on fruit. "It's a question of looking at a customer's business and asking what else happens in the supply chain," says Chapman.
Profit
"It does not necessarily add to your profit but it gets you away from being in a purely commodity market. When the time comes for rate reviews at the end of the year, the customer doesn't just go for the cheapest. He will say 'I have got a good partnership there'."
Apart from developing closer partnerships, distribution also promises greater profits than haulage. Stan Robinson, managing director of Stan Robinson (Stafford), which has more than 23,000m2 of warehousing and a fleet of 90 rigids and 30 tractive units, says margins in haulage are between 1-3%. "A lot of people are doing distribution for 8-9%," he adds. "Our margins are well above that."
Graham Fuller of Fuller 8r, Sons says the other big advantage distribution has over haulage is cost control: 'You know how much a warehouse costs you; it's much more costly running lorries than forklift trucks."
DRAWBACKS OF STARTING A DISTRIBUTION SERVICE
• There are no figures to show how many hauliers offer distribution services but they have become increasingly widespread since the 1980s and, as a result, competition has intensified. Robert Wilcox of Massey Wilcox Transport in Somerset says: "Rates have dropped because of the competition. Over the years, everybody has caught up with the idea. There are some really silly rates being quoted now."
Dr Mick Jackson, the Freight Transport Association's head of logistics, says customers have pushed prices down as well: "In the early and mid-'80s buyers of distribution were not as cute as they are now. They are aware of what you are doing and want to share some of the returns."
Well-located warehousing is not cheap and, if it is storing high-value goods, security adds considerably to the overall costs. Lincolnshire-based Grinner's Transport announced last month that it was investing £3m on a 6,000m2 warehouse and eight-acre site at Wakefield Europort. "It's no good buying a warehouse and saying am going to do storage'," says joint managing director Paul °rimer. "You have to have contacts and contracts which last about five years."
Information technology can also be costly. Brian Fish of DFF International says that as distribution grows, the business needs to become more sophisticated to handle multiple packages and multiple consignments. "It's very, very difficult to get it right," he says. "Sooner or later, if you are getting it right, you will have to get more sophisticated and invest money in the back-up systems."
Despite the relatively high margins in distribution, Stan Robinson of Stan Robinson (Stafford) advises against trying to make the transition from haulage which he began doing 15 years ago: "I think, basically, the market is sewn up now. I was in the right place at the right time, luckily."