As one of the most regulated industries in the UK, the road freight industry is well used to change. From the use of mobile phones to this week's partial opening of the M6 toll road, legislation often impacts either directly or indirectly, forcing the sector to adapt.
At present, the most contentious issue is the Working Time Directive (WTD) ñ affecting drivers and hauliers from August 2005. In an industry where 60-hour weeks are the norm, many feel this directive could have devastating effects, adding to an already acute shortage of drivers and increasing costs.
The WTD was first implemented in 1998 and for many sectors meant a restriction of working no more than 48-hours in an average week. With the reliance on long working hours within the transport industry, mobile workers have remained exempt from this legislation allowing truck drivers and hauliers to continue operating as usual.
The first stage of the WTD was introduced in March this year, allowing all employees in the transport sector to opt out of the 48-hour rule. However, in little more than two years there will be no opportunity for opt-outs or exemptions and, despite finishing touches still being put to the directive, the industry is having to face-up to the implications, and fast.
Alan Waller, chairman of the Institute of Logistics and Transport, believes the industry is far from ready for this change. “A lot of people think this is about a bit of legislation that has a small impact on costs and can be implemented like any other piece of legislation,” he says, “in fact, nothing could be further from the truth. It is going to dramatically affect the way transport fleets operate.”
Waller believes that for the WTD to work, the UK's entire transport and logistics structure needs to be reassessed. “If you look at the complexity of picking up goods from a supplier or a factory, the way in which that is done in terms of timing, scheduling and the distance traveled ñ you will see that it is a scheduling operation, determined and refined over a period of time based on existing legislation. If legislation is changed in terms of working hours and night shifts then the whole of that operation is severely disrupted. This could prove to be key within the food and drink industry, where freshness of product is obviously vital,” he says.
The transport industry already has a growing problem of driver shortages and estimates put the current shortfall at 50,000. Many believe that the WTD will severely exacerbate this situation. “The assumptions are that this piece of legislation will push up those figures to 70,000 or 80,000 because of the inability for those drivers to work as many hours,” Waller continues.
Steve Williams, information officer at the Road Haulage Association agrees. “There is already a driver shortage in the industry and that is only going to get worse,” he says. “Most drivers now are aged 45 and over and it only gets harder to recruit younger people. Society has changed a lot and driving is not seen as a sociable job, especially if it involves the just-in-time deliveries that the fresh produce industry relies on. It is not a nine to five job and there are so many regulations coming in ñ it seems that people would much rather do a job in IT.”
Ryder plc is one of the biggest names in the transportation and logistics sector, providing solutions to companies such as Sainsbury's with a range of vehicles for ambient, chilled and frozen foods. Paul Westwick, Ryder's senior human resources manger, outlines some of the problems the company is working to rectify. “We know the industry is already short of drivers, in terms of attracting people into this kind of work, and this issue will be compounded as a result of the WTD,” he says. “A lot of drivers throughout the industry already work in excess of the stated hours and if restrictions on working hours come in, then our first challenge is to support the knock-on requirement for more drivers to satisfy the demand. As we know the industry cannot satisfy the shortfall in demand with no restrictions, so the implementation of this legislation is going to result in quite an acute shortage of drivers.”
Although the directive stipulates drivers may work up to 60 hours in a seven-day week, over a rolling period of 17 weeks, the average hours worked must not exceed 48. Other restrictions include a maximum of 10 hours work in any single day. A weekly rest period of 24 hours after six consecutive daily working periods will also be imposed.
Westwick believes these restrictions will impact on costs. “If it means we need to employ more drivers to supply the level of service to a customer or allocate more trucks to a particular contract then, unless we can rework the solution, or together with the customer, agree to a change in service levels, this is likely to have a cost impact. Ultimately that could affect the cost to the consumer as well,” he says.
“Looking specifically at the price increases you have to ask what is going to happen,” Waller adds. “Can transport companies absorb these costs? The answer is obvious, if you're talking about cost increases in double digits then it seems a big ask for these to be absorbed in an industry where margins are typically three or four per cent ñ it's just not possible. The costs will be passed on and this will strain relationships in a market place where they are already stretched.”
Despite the evident problems, Waller believes that many companies feel the effects of the directive will somehow disappear. “The companies I talk to are concerned about the legislation's complexity and the time-scale over which it has to be implemented,” he says. “But there is a whole grey area where it is not clear how to interpret the law. A case law will need to be established to define how the legislation is going to be applied.
“We're very early on in the learning curve here and although the level of awareness has increased dramatically in the last few months many questions still can't be fully answered. I still suspect that the majority of businesses are unaware of the implications. This legislation has to be planned well in advance and my strong suspicion is that most of the industry is not ready for this.”
Ryder is currently putting initiatives in place to lessen the impact of the directive's introduction. This began with distributing internal questionnaires to the company's drivers. “We've conducted detailed analysis following a thorough survey in terms of what is important to drivers and what makes them stay at Ryder,” says Westwick. “We're in the process of collecting a lot of internal data, but it is difficult at the moment because the legislation may well be diluted. It will be tricky until we get an exact fix on the legislation, as opposed to the perceived legislation.”
Ryder is also considering the option of setting-up a driving school to encourage non-class one drivers to train and achieve the standard to address the driver shortage problem.
In addition to the potential effects on the number of drivers required in the industry, the WTD could also impact on the sizes of fleets required by many companies, says Waller, stressing that this could have a detrimental effect on far more than just the transport and logistics industry. “If the 48-hour rule is imposed, then a side-effect of that may well be that we are forced to put more vehicles on the road to deliver the same kind of service level,” he says. “That has an obvious environmental impact in terms of traffic congestion and environmental issues. Anything that puts more vehicles on the road is going to have a negative impact on the whole of the UK.”
Williams agrees. “Traffic congestion is a major problem and we need more help from the government in terms of easing it,” he says. “We also need subsidies to train drivers. We are the only country in the EU not to get subsides for training and we're currently lobbying the government on that issue.”
Waller also warns that the WTD will give a key advantage to self-employed drivers who are exempt from the legislation for a further four years. This has the potential to create a two-tiered marketplace where self-employed drivers will be cheaper than their employed equivalents because they will be legally allowed to work more hours.
“Countries like Spain, which are far more reliant on self-employed drivers would like to extend that four-year gap, while here in the UK we would like to bring it down,” he says. “One of the dangers is that pressure from continental European countries will, in fact, make this distortion even worse.”
Despite the problems the WTD could potentially bring, Waller is keen that the directive is also viewed as an opportunity for the industry to improve in key areas. “Typically the supply chain and logistics are at the Cinderella end of British industry in that they don't get the attention they need,” he says. “Here is an opportunity to focus attention on the service and cost elements and there is plenty of scope for improvement. We have to re-visit the way in which the supply chain is structured and we can see this as an opportunity to take out some of the costs and improve the service where possible.”
With less than two years remaining until the WTD becomes a reality, will the legislation prove to be a disaster of epic proportions or a blessing in disguise? “The WTD is not a bad thing and everything has two sides,” says Williams. “But the UK does always seem to have to work to the letter with directives whereas in other countries they might be able to work round them.”
The cost implications, says Waller, will be significant “but let's see it as an opportunity to use transport better”.
Forthcoming legislation is not the only issue that is currently impacting on the freight industry. According to Richard Turner, chief executive of the Freight Transport Association (FTA), the next six months represent a crucial period in the UK ñ a period in which key decisions on taxation and spending will be made.
UK road freight operators face the highest levels of taxation in Europe and although countries such as France are planning to set freight taxes at rates which reflect commercial and economic considerations, the UK continues to add more taxes on to operators. The 2004 Budget statement must reflect the need to redress the competitive distortions created by freight taxes, and, says Turner, the FTA has told the Chancellor that he must set out the government's intended course for lorry road user charging.
“Industry would welcome reassurance that lorry road user charging will be introduced on an overall tax neutral basis for UK operators and the government also needs to confirm that it remains committed to the 2006 target introduction date,” says Turner. The government must also inject certainty into business supply chain planning and industry's use of rail freight. In particular road investment should be focused on the motorway and trunk roads that are industry's key trade routes.
“On behalf of my members I have told the Chancellor that the freight transport sector cannot be expected to flourish in a high tax, low spend environment. He must use this tax and spending round to take decisive action to underpin the innovation and investment which industry itself is committed to deliver. As I have said, the FTA regards this round of financial policy making as critical. We are expected to deliver the product of the world's fourth largest economy in a high transport tax environment and on a failing transport infrastructure.”
All the cards are stacked against the UK-based operator says Don Armour, the FTA's manager of international services.
As the Department for Transport releases provisional figures revealing that UK truck numbers traveling to Europe have fallen to an eight-year low, Armour continues: “UK international haulage is in a one-way street. No matter what companies do, they can't turn things around. Sterling's strength against the euro has meant strong growth in imports from continental Europe, which operators based in those countries are better placed to take-on. Sterling's strength also makes wages and inputs paid in pounds more costly.”
On top of this, says Armour, operators from eastern Europe, with wage rates less than a quarter of those borne by UK companies, have been steadily gaining market share by under-cutting rates. “The number of eastern European trucks in the UK has doubled in just over two years,” he says. “Volume business for UK international hauliers is simply no longer commercially viable and the activities that are being retained by UK international hauliers tend to be in niche markets.
ëThe enlargement of the EU from May 1, 2004, is likely to be a mixed blessing for UK international hauliers. At present, market access by non-EU hauliers is restricted to international movements and the number of journeys that can be made are limited by quantitative restrictions such as permits. These restrictions and quotas will be swept aside next year.
Despite this, the removal of barriers to employment of staff from eastern Europe in the UK will, at the same time produce conflicting prospects for UK transport. “On one hand the industry is facing an acute shortage of lorry drivers that could, potentially, be reduced by the availability of labour from eastern Europe,” says Armour. “On the other hand if UK hauliers elect to reduce overheads by recruiting eastern European drivers for international work, then there could be a further destabilisation of rates. At present nobody can predict how this will play out.'
Ultimately, there are many issues for the road freight industry to address, including soaring road freight insurance costs. FTA chief economist Simon Chapman says: “Industry's management of risk has shifted in response to significant rises in premiums in recent years. Management focus is now on progressively reducing exposure to risk and using insurance as a long stop rather a first course of action. The sector has an increasingly strong culture of safety for its staff, the loads it carries and for other road users.
“Nonetheless businesses must protect themselves in an increasingly litigious environment. Rather than encouraging operators to take out appropriate and sufficient insurance to cover their activities, the government is cashing in on an Insurance Premium Tax windfall, where receipts have risen in line with premiums.”
For those in the road freight industry there is a lot to think about, but with preparation and adaptability when it comes to dealing with the constant changes of this fast-paced industry it looks as though the industry will continue to deliver as long as it gets government support. As Turner concludes: “The Chancellor and the government should recognise the own-goal which failing the freight transport industry constitutes. And it must recognise and respect that our industry is important to the whole population.”
CHRISTMAS LIGHTS UP ROADS
Domestic road freight operators have seen an early build up to Christmas trading this year according to the FTA's latest Quarterly Transport Activity Survey. In the final quarter of the year, operators anticipate even stronger levels of activity growth, with levels even expected to outperform last Christmas.
Operators in the retail and wholesale sector should anticipate the strongest activity with those in the parcels and distribution sector also planning for widespread growth. Both the market for commercial vehicles and demand for third party services are expected to grow in the final quarter of 2003 as operators supplement their core vehicles fleet with additional vehicles to meet the Christmas demand peak.
Simon Chapman, FTA's chief economist says: “These results are great news for the UK economy. Christmas 2002 was generally a good one for retailers. Christmas 2003 doesn't look like it will disappoint.
“However, even the run up to Christmas has failed to help international hauliers to regain any of their market share lost in the last few years. Despite the recent depreciation of sterling against the euro, UK hauliers remain unable to compete with continental competitors and their lower overall cost base.”
THE PRICE OF COMPLIANCE
The FTA has launched an Operator Licence Compliance Information Service for businesses running small commercial vehicle fleets. Transport may not be a core business for many, but 18,000 companies in the UK run their own trucks to support core business activity, and the service has been set up to ensure legal compliance in existing and forthcoming legislation.
The continually updated service provides subscribers with an extensive guide to vehicle operations. The guide focuses on each of the main compliance risk areas including: operator licensing; drivers hours; tachographs; maintenance requirements; vehicle loading and driver licences.
Current news and upcoming changes are included as well as in-depth briefings on topical issues likely to affect organisations such as the recent mobile phone legislation and working time directive. Subscribers are also provided with access to the most comprehensive transport compliance website available to the industry,
FTA compliance produce manager Mark Cartwright says: “Enforcement in the transport sector is getting tougher and tougher and not only do you put your business at risk if non-compliant but you also your personnel and the general public. How would you serve your customers if your transport operation was taken away?
“The best possible advice, peace of mind and the fire brigade for your transport problems would cost you £495 per year. With constantly changing transport legislation and regulation, subscribers not only have peace of mind in compliance today but also safe guard compliance tomorrow. Transport may not be your core business but... You'd be lost without it. Make sure you're not.”
The FTA has also published guidance for transport managers and drivers on the use of mobile phones. The compliance guide provides comprehensive information on the use of hand-held phones, actions for employers, scope of the legislation and exemptions, frequently asked questions and a model guideline to employees. www.compliance.fta.co.uk www.fta.co.uk
No comments yet