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Doing a sterling job on the Continent
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For UK hauliers that operate in Europe, currency fluctuations can make or break profits. But is it 'strong pound good, weak pound bad', or 'weak pound good, strong pound bad'? The answer, CM discovers, is far from clear cut.
Wards: David Harris
FOR EXPORTERS, a falling pound traditionally has distinct advantages. It makes British goods cheaper for foreigners to buy, so can increase sales abroad. As such, it has provided one of the few chinks of light in an otherwise unremittingly gloomy economic picture in the past six months.
So does this apply to hauliers, too? Yes and no. UK haulage companies that provide international services are probably more competitive now than they have been for years, simply because those buying their services in euros now find them much cheaper.
But the effects of currency fluctuations are rarely straightforward. Peter Cullum, head of international affairs at the Road Haulage Association, says that although "one or two" members have reported an increase in business since the pound plunged, the benefits are not all one way.
For one thing, as the euro has strengthened, so fuel has become more expensive for UK international hauliers that mainly fill up on the Continent, For another, the recession has hit everywhere, with the effect of overall economic misery more than enough to outweigh any temporary currency advantage.
And for a third, European hauliers are every bit as quick on their feet as their UK competition as regards currencies — and several, says Cullum. have now started quoting for UK business in sterling where they used to quote in euros.
There have been other increases in costs for UK hauliers, too. Anybody buying a new truck might find the good deals available because manufacturers keen to sell more trucks are offset by price rises imposed to reflect currency swings. DAF, for example, recently said it would need to put up its vehicle costs by around 7% in the UK to account for sterling's fall against the euro. Renault and MAN have both said they are in the same boat. This means that operators'
capital costs are likely to go up this year if they invest in new trucks. To top that, the cost of insurance is rising as well, All of which adds up to a position a little more complicated than 'weak pound good, strong pound bad: Indeed, some operators that withdrew from international work when the pound was strong have not returned as it has weakened, even if they had previously indicated that they might. This seems to be because any benefits of a weaker pound are far outweighed by other factors, including the hugely lower costs of some foreign operators (particularly the Eastern Europeans) and the depth of the recession.
Cullum says: -One haulier actually said to me previously that if the pound fell to f1.22 against the euro, he would look again at doing European work. When it did hit that level I rang him up and he said: 'Yes, I've looked at it He obviously hasn't seen enough advantage yet to go back in."
Subcontracting woes Furthermore, those UK operators that have done relatively well out of Europe up until now have often done so by sub-contracting work to those Eastern Europeans. Ian Baxter, managing director of RH Freight, which specialises in European groupage and part-load business, says the weaker pound has been negative in the sense that the company has paid more to many of the hauliers it uses, largely from Poland and the Baltic states.
Against this, RH Freight has found its export volumes up 6% this year compared to last a rise that may partly be due to the weaker pound attracting more foreign sales for UK goods.
Baxter says: This is the good side of things for our customers, because their goods have become more competitive in Europe.The downside for them is that transport costs may go up a little, but I'd say overall the position is positive."
Perhaps one of the most revealing aspects of RH Freight's business model is it has prompted Baxter to consider using UK hauliers rather than the Eastern Europeans to do most of the work on international runs, because the cost difference remains too great.
The sense of Baxter's argument would also be apparent to anybody examining the comparative cost survey of European hauliers carried out by Eurostat, the statistical office of the European Union.This found that the 10 new member states of the EU had staff costs that were 80% less than the older EU countries. Such a large difference is not going to be eroded by the fall in sterling we have seen so far.
Some UK hauliers are nevertheless noticing distinct advantages to the feeble pound. David Grocott, joint managing director of GroContinental, which has been involved in international haulage since 1966, says there has been an increase in the number of enquiries from customers that normally use hauliers from the eurozone, because UK hauliers are suddenly more competitive.
But Grocott also emphasises the mixed consequences of the currency fluctuations. He says: "The downside from our point of view has been that it is costing us more to service our British exporting customers who pay us in sterling." Grocott's point is that fuel and drivers' expenses on the Continent have to be paid for in euros, now as strong as the pound is weak.
The crux of the matter for many European operators seems to be that the strong euro brings as many downsides as the weak pound brings upsides.
Fewer backloads Vanessa Mills, partner in express freight specialist Euro2Go, says: "Fuels and tolls in Europe have quietly increased. Drivers' personal expenses have crept upwards but we cannot afford to increase their pay to allow for this. While we continue to take goods out to Europe, the number of backloads to the UK from our UK-based customers has reduced further shrinking already slim profit margins."
Arc there any answers'? For Mills, it is a matter of constantly reviewing operating procedures to minimise costs. Fuel, for example, which over a year ago would have been bought on the Continent to save money, is now not necessarily cheaper. Drivers are encouraged to fill up on the way to their UK departure port. For UK hauliers in 2009, it's not the weak pound they mind, it's the strong euro.