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Plotting a course for survival

22nd November 1974
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Page 43, 22nd November 1974 — Plotting a course for survival
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Which of the following most accurately describes the problem?

by John Darker

THE home and overseas members of the British Association of Removers in London last week got to grips with the problem exercising all road transport operators — rampant inflation. Sessions were also devoted to the urgency of revised conditions of contract consequent upon "Consumer" legislation and the current inadequacy in the supply of containers — a great embarrassment to overseas removers.

Group Captain T. A. Trotter, managing director of Cantay Ltd, of Aldershot, was loudly applauded for a brilliant address, "Living with inflation," which reflected the views of many thoughtful road transport operators beyond the bounds of the removals industry. His speech is worth a full summary.

Most of us, said Mr Trotter, recognized that we were faced with continuing and probably accelerating inflation until the point of confrontation was reached: confrontation. not with miners or power workers, but with truth and reality.

For years, he said, we had been paying ourselves more than we had been earning. We must all now come to terms with the reality that if we did not stop this process we should destroy the whole fabric of democracy and the whole structure of capitalism. Two elections might have brought us nearer to this moment of truth but no political doctor was yet strong enough, nor certain enough, to cut off the drug and subject the nation to the withdrawal symptoms that must follow.

Against this background, directors and managers must seek to plot a course for survival in a storm of unknown ferocity and unknown duration.

There was no port to run to and no means of opting out of the situation — so we might as well consider what could happen in our journey into the unknown. What should we seek to avoid and what measures might enhance our prospects of survival?

The deployment of assets was a vital matter as was the nature of liabilities. Could assets be liquidated if necessary and what was the time scale and, above all, the cost of liabilities? Trade creditors, which naturally reduced with reducing activity, were a very different form of liability to expensive forms of financing like hire purchase or bank borrowing.

Looking to the assets of typical removals firms, Mr Trotter said the industry was highly property intensive and quite profligate in its waste of potential earning power.

We were now faced with a crisis situation in which one City firm of liquidators alone had over £400m worth of property for disposal and this was probably the tip of the iceberg. Many experienced property men believed it could be 10 years before a normal market was resumed. By normal, they meant capital values related to rental values and an ability to sell at those capital values for cash. It was the inability to sell, coupled with high borrowing costs and low profit margins that posed the greatest threat.

The inability to sell, said Mr Trotter, arose from a combination of political action last December plus an almost total lack of liquidity, while the two karate chops of high borrowing cost and low profit margins were essential concomitants of inflation, likely to persist.

In this kind of "lock-in" situation there were only three possible courses of action: (a) To reduce the level of borrowing. This might only be possible to a very limited degree by such conventional methods as tighter debtor control, It was hardly possible to raise longer term, lower interest funds or to appeal to shareholders or to the owners of businesses for more cash. Nor was it generally feasible to undertake sales and lease-back deals. There were unfortunately no Arabs in Aldershot nor Bedouins in Basingstoke.

(b) To raise the level of profit margins. A splendid idea but one representing a forlorn hope at a time of falling demand and excessive competition.

(c) To maximize the earnings of assets into which we were largely locked in.

"Here I mean well beyond those earnings which arise from your professional competence as furniture warehousemen. I mean a complete and total reappraisal of the true potentials of your properties."

Mr Trotter said he believed this exploitation of property values to have been necessary for many years. The fact that it had not been done extensively was a main reason for low return on capital. Now it could be a key to sur vival for in a property situation of no buyers and with a halt to the provision of new commercial and industrial property the demand for rented space was increasing fast. Rental values were also rising.

His experience suggested that the very best professional advice and assistance was called for in negotiating planning consents, in meeting market demand and in negotiating the most advantageous return from space avail able. With modest assets Cantay Ltd, with no fresh capital, with minimal borrowing and without prejudice to its competitive position as a furniture warehouseman had achieved, within three years, an external rents receivable income of £55,000 a year. "If nothing else this gives us a few chips to throw on the mad, romantic, roulette table of the removals and storage trade."

Trend of profits

Mr Trotter next turned to the likely trend of profits. First, there was general agreement that paper profits were largely illusory; in the first quarter of 1974 the total of gross trading profits recorded in Britain was £2,700 m of which only £700 m was cash profit. The balance arose from stock appreciation or under provision for replacement of wasting assets. But the whole £2,700m was taxable and the tax payable some C 1.200 m — exceeded cash generated by E500m. This was the primrose path to arey Street — a path which beckoned the removals industry as much as others. Even if revenue in a removals business had increased by 30 per cent in the past year it would not suffice to renew roiling stock and other wasting assets unless the original base was adequately profitable. The 30 per cent uplift figure was already outdated.

Analysing profits and losses, Mr Trotter listed demand — to provide the opportunity of achieving the volume of business necessary to attain or exceed break-even point; cost control — to provide the opportunity of keeping break-even point below enough to make profits a possibility; price — to give an opportunity at a given level both of demand and of costs to make a profit.

The first two of these factors were largely outside the control of removers. The worst effects of inflation on cost control and of recession on demand had yet to be seen. In normal times the balancing figure would be price. "If your present norm was, say, two jobs a day each earning £50 you could put up with both a faIl in demand of 50 per cent and a rise in costs of 50 per cent if the one job a day now open to you could achieve a price of £150. But as this Association, above all, should know, price is not a derivative of costs or of demand but of competition."

Pickfords less

There was much basis for the removers' aphorism that the price of a removal was Pickfords less £1.50, said Mr Trotter — to general amusement. While it was vital that transport operators should know their costs and the Association was helping to educate members to avoid price-cutting, a time of 20 per cent inflation was no time for gradualness. He saw no hope that the industry's freedom from price control would enable adequate levels of profitability to be achieved. Competitors could not be trusted to charge realistic prices under conditions of reducing demand and escalating costs and many removers would be out of business in the next two years. He hoped to survive until sanity returned to the economic scene.

The only hope for removers lay in a reduction of operational base levels by upwards of 20 per cent, not when demand dies away but NOW. Five vehicle fleets should be reduced to four, and pro rata. If 10 men were employed, get rid of two. Only when vehicle strength was too low to meet demand would removers cease to price jobs below their competitors' level. In brief, only when the operational base level of the industry throughout the country was severely reduced, either voluntarily or by bankruptcies, would we command the prices justified by removers' costs and services.

It used to be argued, said Mr Trotter, that a fear of unemployment was a spur to productivity and discipline. A contrasting Left Wing view was that unemployment was socially unacceptable and that it could be wished away magically. Neither tenet was true. Fear was not a spur to anything. It was a destructive and degrading emotion leading first to hesitancy then to flight and capitulation.

It was, alas, inevitable that there would be unemployment and the fear of unemployment among employees, giving employers a very special responsbility for calm management and for lack of hesitancy in making decisions. There would be a need for frankness and disclosure in dealing with subordinates. Much would depend on managements' ability to lead and maintain some form of cohesion and confidence in times unparalleled since the thirties.

Mr Trotter said he spoke as no "urbane guerilla" of the removals industry. There was no way of avoiding the effects of inflation only, perhaps, survival by drastic and determined measures. It might be no bad thing that the candy floss, "you've never had it so good" era was ending.

"At worst you may see a nation not just divided, but splintered into a hundred sections held together themselves only by self-interest and a will to survive quite regardless of the rights and claims of others. An abandonment of any pretence of cohesion or consensus and the exercise of naked power which in the end, society must break lest it break society."

Where the needle of actuality would settle depended on events but the shaping of those events and the hardening of that sentiment would to a large extent be determined "by little people like us".

Said Mr Trotter, in his peroration: "How small we seem in our pleasant little industry how ineffectual are our derisory profits — how old-fashioned are our labour relations how unclever are our capital structures. Yet, we are the epitome of the silent majority of industry who still want to do a good day's work for a fair day's pay; who still want to have variety and personal contacts in their work; who still believe that good service carries its own reward; who still want to do their own thing and to control and manage their own business when the opportunity arises. Who knows but, if we can survive to be there, that we shall be less incongruous in a new age of truer values."

Container shortage

There was a warm debate after Mr N. H. Brown, assistant general manager of Overseas Containers Ltd, . had spoken on "Container shortages and commodity rating."

Mr Brown said it was no secret that many customers had had to complain recently about shortage of container space to Australia and New Zealand. Some even introduced the question of Fair Trading! The situation went back to June 1973 when the floating of the pound boosted some British exports by 25 per cent or more. The capacity shipping lines provided was insufficient to cope with this rush of exports. Perhaps his company had been caught napping, but this also applied to major customers who had not foreseen the export boost.

Arising from the difficulties, OCL had strengthened its market planning team and in the past six months 40 major customers had been asked their plans and expectations. In the past market forecasts had been left to the company's economists, but it was hoped space difficulties would not arise in future.

Apart from insufficient shipping space the turn round of container vessels was often slowed down by labour disputes in Sydney and Melbourne which had greatly lengthened the normal 21/2 days turnround and effectively reduced capacity by 15 per cent. So even with perfect planning there would have been difficulties.

Mr Brown said that containers had been spread fairly around this country with no preferential treatment accorded even to customers of OCL.

As to the different rates for baggage and household effects OCL had thought it sensible to move to a single container .rate which was simpler to administer, although there were a series of rates for some trades and on the Atlantic. OCL had not realized the extent of goods piled up in warehouses awaiting shipment.

Mr Gordon Steele (Martells of Sutton) said he was worried that escalating costs would drive away traffic. Mr Brown said he could not agree as information from Australia suggested that high prices there encouraged British emigrants to take out more of their household effects, rather than less.

Black market

A number of questioners suggested that there was now virtually a black market in containers, so acute was the scarcity in certain areas of the country. Were forwarding agents given a rebate? Why was it sometimes possible to get hold of a container within a few hours after some high level string pulling whereas lengthy delays were usual in the normal channels?

Mr Brown said no specially favoured traders received rebates for container use, not even customers in the P and 0 Group who were members of the OCL consortium. Anyone demanding extra money for the supply of a container would be denied future supplies — if OCL were informed of the abuse. He had been surprised at the strength of criticisms about container shortages in several parts of the country, besides Birmingham, of which OCL was aware. The position should be greatly eased by the end of the year. In a special session on the wages explosion Mr Geoff Pygall (Pickfords Ltd) stressed that removers were critically affected by higher wage demands since 45 or 50 per cent of their operating costs were absorbed by wages. He thought it likely that drivers' wages would be up by 25 to 35 per cent throughout the country by the end of the year. This would have a corresponding influence on salaries.

A number of removers present gave details of current wages of drivers and other crew members. Arising from -the Scottish lorry drivers' settlement, there was general agreement that Wages Council scales were merely waste paper, though there was support for the view that because the unions wanted to abolish the Wages Council the employers should try to preserve it. An RHA Southern area member said the TGWU was asking for £40 for 35 hours and higher meal break allowances. If granted the guaranteed week with 50 hours would yield some £62. A London remover paying his drivers under £37 said they had a take-home pay of £55 or more. Given the £40 deal his drivers would earn over £70 — more than many senior transport managers earned.

Mr Pygall said the industry was now on the way to comprehensive national pay negotiation for the first time. Almost everyone would be involved — something that had not happened previously. "We as an industry could all be on level terms, putting competition on all fours. If we don't drive customers away we'll all have a chance of a fair share of business."

Mr Neil Mackintosh suggested that BAR should negotiate with the TGWU on behalf of all members. Mr John Tarsey said that he had been one of those meeting the TGWU to discuss this sort of arrangement some four or five years ago. The union had not been very keen on a deal and the Association decided it was premature. If members wanted to revive the proposal well and good, but national negotiations implied that all members must honour a national agreement. Mr Pygall agreed. The risk was that there would be no legal commitment for all removers to pay the negotiated wages. It would make more sense, he believed, if Wages Council rates were realistic, and had the force of law.

Fair trading

In a closing debate on "The remover and Fair Trading", Mr Len Cox referred to some comments of the lunch-time speaker, Mr John Humble, assistant director at the Office of Fair Trading (Consumer Division). The OFT had informed BAR that it would welcome our help in revising BAR's Conditions of Contract. "Many of our conditions are o date," said Mr Cox, "but you change a winning team if you can kit. However, Government pressure on; we're told that our arbitn system is no good."

Mr George Skelton, a fo president, who as chairman of Association of British Travel Agent had much to do with consumer lo recent months following the Court debacle, said the travel trade had v the "close print" of condition contract to such good effect as to been given a bouquet in the Daily graph as a model of self regulation. Office of Fair Trading wantec industries to co-operate • in ge contract conditions fair and reasot from the customer's angle.

Declared Mr Skelton: "You wil crucified over your Contract ce tions. They were evolved by a pi empirical process. You must fi them and start again. Contracts I be seen to be fair. In the tours inch a defaulting member is put out, ark is a good thing as it stabilize: industry. The travel industry hope the support of the Office of Fair 1 ing when harmonization starts to b the EEC."

BAR, suggested Mr Skelton, w have to devise satisfactory scheme arbitration and conciliation voluntary code of conduct migh necessary and anyone breaching would have recourse to the Associl who would be expected to deal a customer complaint to the sati tion of the complainant lest the ; name of the Association be prejud Mr R. 0. Barrett, immediate president, suggested that BAR sh set up a contingency fund to protec customer of a BAR firm in the eve bankruptcy. "Our greatest asset i: security we can offer our custome against some non-member ( petit ors." To criticisms that such a would involve the prior vettini members as to their financial stab Mr Barrett agreed that such a ye system might be called for in cast doubt.

Mr Michael Gerson said he had come from a FIDI meeting where statutes were being revised. I members national associations BAR would have to provic guarantee against a consumer plaint and if an arbitrator decide favour of the customer the guara sum would be forfeited. "All over members of BAR could be involve this within a year. Similar condition likely to be applied in Britain be long."

The 1975 annual conference of I has been arranged — on package • terms at the Hotel de Franc( Jersey, from Sunday May 11 to Ma)


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