T he pound is at its strongest for nearly two years,
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and getting stronger by the day. In little more than two months, sterling has climbed more than 7% in value against the German mark, and by around 4% against world currencies, But while this is great news for those of us off to the sun at Christmas, it is becoming a headache for many international hauliers.
Those carrying goods from the UK abroad are worrying that their work will begin to tail off as it becomes more expensive for foreigners to buy British goods. The main loser is the haulage industry, which carries most exported goods.
When the pound is worth more, British haulage itself becomes dearer if the UK haulier is paid in sterling—and most are—unless they are larger and operate as part of an international group or a network of individually owned partner operators. So for the smaller haulier's customers charged in sterling, the question is how long will it be before they get fed up with losing out on the exchange rate, and begin to think about sourcing their goods and haulage elsewhere.
Now that the pound looks as if it will continue to gain in value, at least until the end of the year, international hauliers believe that the good times they have enjoyed for the past two years may be over.
Department of Transport statistics show there was a 5.5% increase in international truck movements between 1994 and 1995. Goods exported from the UK rose 7% in the same period. The evidence is that this year has been
Ill
1." even better for internation
• al operators. Eurotunnel, o
which now claims to carry F, around 35% of trucks cr
Lu moving goods abroad, m
g says that in September it
O carried 40% more vehicles cc LI than it did in September L., ct 1995.
f Last year's boom in i international haulage was 8 enjoyed by all the major b international hauliers. E Among these, Laser
International Transport reported a 22% increase in in jobs and tonnage handled, while 1995 was the best year for the largest operator using English Channel routes, Norbert Dentressangle Holdings nine operating companies, So far this year, work has been harder to come by, mainly because of the recession in France, with the first two quarters described as hard—although the third has improved.
While all international operators are affected by a decrease in exports, and the rising cost of British haulage, those whose businesses are more at the mercy of currency movements are the very large operators who have costs and customers in a number of different countries.
Export business
For these major companies, the recent boom in export business has amounted to a less than adequate payback for months of chaos which followed the events of September 1993 when Britain suddenly withdrew from the European Exchange Rate Mechanism (ERM). The immediate effect of this was the devaluation of the pound—and a complete rethink of the way they ran their businesses.
Alan Coffey describes himself as feeling passionately about the way currency values play havoc with international hauliers' operations. As a director of Star Cargo, the parent company of Sealane Freight, international reefer operator Armoric Freight and Gap Europa, which hauls steel to Germany and the Czech Republic, he says the last thing that international operators need now is a strong pound.
"The effect of our withdrawal from the ERM was to substantially and irrevocably change Sealane from ' a provider of unaccompanied services on a fleet of 300 flat trailers to a much reduced fleet of 150 specialist driver-accompanied services," he says. The effect on Armoric, which used to use French hauliers on West Channel
44 routes, and on Gap, was just as profound.
Before September 1993, export loads were seen as a hindrance as import rates into the UK were so high. After that month, exports rose and the cost of continental traction went up, causing the company to buy its own trucks for the first time and start to use a substantial number of British subcontractors for the first time. Star's relationships with foreign hauliers, forged over many years, were broken overnight because they were too expensive. If a weak pound caused Star to completely reorganise three of its businesses, it can hardly welcome a complete reversal of sterling's fortunes. Neither will its British subcontractors.
Formidable turmoil
Group managing director of 450-vehicle operator GB Express Jeff Duval describes the year following ERM withdrawal as "formidable turmoil—the worst 1 have known for 20 years—a situation we could well do without again". But he is determined to do his utmost to protect the company in the future against the vagaries of exchange rates.
Duval says: "Our 1994 profits were wiped out because of sterling being devalued. The majority of our operating costs are in hard currencies—the German mark, the French franc, rather than the peseta or lire—and our trucks and trailers are manufactured in hard currency areas, so our asset purchase costs also spiralled."
Since September 1993, GBE has managed the crisis by switching direct operating purchases such as fuel to soft currency areas like Northern Italy and Spain. But even this does not go far enough for GBE, because it invoices its customers in all European currencies.
The only lasting solution to gaining true long-term control over its costs and so be able to sign contracts with any degree of foresight about its outgoings on that deal, is to opt out of sterling altogeth er. One way to do this is to get a transfer pricing agreement with the Inland Revenue which allows firms to trade in one currency only— say the US dollar. But no one country's economy is 100% watertight and Duval wants to take as much speculation out of his contract negotiations as possible. The only way he believes he can do this is to trade in an internationally regulated currency—the European ecu.
Corporate accounts
"We have very recently started negotiating with our largest corporate accounts to trade in ecus. On current advanced talks, we should be able to move around a third of our turnover to ecus in the next few months," says Duval. However, he admits that he can only do this with the largest multinational corporations.
John Smith, managing director of Kent's Laser Transport, agrees that invoicing in ecus is inevitable for the future, although the 50-vehicle operator is not as badly affected by exchange rates as others because it has a network of partners across Europe which invoice in the local currency.
The Freight Transport Association also believes that trading in ems could be the way forward. A spokesman says that more cabotage operators may come to see the value of this as the pound strengthens and they find them disadvantaged against their Continental colleagues.
C by Amanda Bradbury