Rates: all pain no gain
Page 28
If you've noticed an error in this article please click here to report it so we can fix it.
Despite stories of a shortage of sub-contractors, the major players still have the whip hand when it comes to setting rates. Are healthy profit margins really a thing of the past?
by Karen Miles • Just over a year ago a group of owner-drivers were in conflict with Archbold, one of the largest hauliers in the NorthEast. There is nothing unusual about friction between a haulage contractor and its subcontractors: in this case Archbold had imposed a 10% rate cut on its Magnet Joinery contract and the 40 owner-drivers employed on the contract brought in the United Road Transport Union.
Despite some angry meetings Archbold enforced the cut needed, it said, to help its customer through a difficult period—and in the event only one or two of the owner-drivers walked out.
It was just one more example of too many subcontractors chasing too little work. URTU regional officer Graham Bird says: "It was Catch 22. They couldn't afford to work and they couldn't afford not to work."
Since then, the Government says the economy has been moving slowly but surely out of recession. So if a large operator now tried to impose rates cuts on its subcontractors, how successful would it be?
The likely answer emerged a few weeks ago when the brewing giant Courage changed its distribution policy. Instead of using a large number of subcontractors it brought in Transport Development Group's Beck & Pollitzer to organise the whole operation.
The move created uproar. Hauliers who had worked directly for Courage claimed they were expected to work for Beck & Pollitwr for up to 15% less. They threatened to reject the deal. But once again the economic reality has forced them back to work.
TDG chief executive Alan Cole is adamant that his company is not a rate cutter, but the subcontractors are still angry. One accuses TDG of putting rates back 10 years. He says he will only work on the contract until he can "tie up work with other customers". Another operator, who claims to have last up to £65 a load, says he "isn't too happy", but has no choice but to stick with the work.
So if the economy is supposed to be improving, why has there been no noticeable improvement in the subcontractors' lot?
Conflicting
There are conflicting views on the availability of subcontractors; some say the market continues to be flooded while others talk of shortages.
But everyone seems to agree that customers will never again let distribution contrac tors enjoy the high profit margins of the late 1980s.
The "never ending boom" psychology of that period is long-gone. Sophisticated logistics solutions to customers' transport requirements are now expected as standard, not as high-cost extras. As one industry observer suggests: "Contractors are now expected to be fit and lean as well as running at 100mph." Economy watchers also cite the near-impossibility of getting price increases from customers in a lowinflation environment.
Ford has just rejigged its UK component deliveries by giving F:xel Logistics extra work worth £3m a year. It says the good old days are over for its main contractors and, as a result, for their subcontractors.
Stephen Harley, Ford's European manager for trans• portation and logistics services, says: "They (the main contractors) do not operate without reasonable margins, but some of the demands they have to live up to stretch them a bit."
The engineering industry isn't alone in this. The supermarkets have entered a price war in the last year and are trying to recoup their margins through their suppliers, including their distribution contractors.
The major transport operators are also coming under pressure from the City. As many other industry stocks improve their performance on the Stock Market, shares in many of the public transport companies, including NFC and TDG, are lagging behind. Their management teams are under enormous pressure to produce business growth through winning new business, almost at any cost, and then to claw back some of their profit by demanding more of their subcontractors.
URTU's Graham Bird is advising owner-drivers to avoid work paying less than 11-a-mile for a 38-tonner, but he is the first to admit that most are probably working for less.
At the same time the City analysts are waiting for the publicly quoted transport companies to bump up their stagnant profits by reaping the rewards of their newly sown Continental business.
Small hauliers able to wait for that day may then want to capitalise on the statements from the big boys that they hold their subcontractors in high regard.