Our third Sector Spotlight explores trends in the haulage industry. Providing a brief history of asset-based lending in this area, together with thoughts on economic outlook, funding challenges and funding solutions, this section aims to equip you with essential knowledge needed to deal with potential cases.
The haulage sector is a significant part of the UK economy and often acts as a connecting link to other sectors. Stimulating productivity and competitiveness in the UK economy, the haulage sector is a significant cog in the UK supply chain wheel and is responsible for the transportation of many of our daily necessities such as food, drink and clothing items, not to mention other notable contributions to key sectors such as construction.
According to the Road Haulage Association (RHA), haulage services account for 89% of all goods transported across Great Britain and contributes approximately £124 billion to the UK economy. Unsurprisingly, given the scale of this sector, RHA also mentions that the sector is the UK’s fifth largest employer with over 2.5 million people working in it.
The success of haulage businesses are largely dependent on customer demand. As a result, this sector is highly competitive and one that carries relatively high risk.
In recent years however, small to medium-sized enterprises (SMEs) have found it increasingly difficult to operate profitably in this sector, due to rising operating costs that in many cases can be difficult to pass on to customers as in the case of fuel price increases. Added to this, the complexity of Brexit and the prospect of a no-deal agreement has done little by way of boosting confidence amongst SMEs in this sector.
Should we ultimately find ourselves in a no-deal Brexit scenario, the haulage sector will unfortunately face a “lorry lottery” with there being only 4,000 permits available for allocation of over 40,000 vehicles. Currently, there isn’t a cap on the amount of UK haulage businesses that can travel across the EU, but in the event of a no-deal Brexit, UK haulage businesses (particularly SMEs) will find themselves in fierce competition with stronger, larger players to obtain an ECMT permit. With a disproportionate number of permits available relative to the number of vehicles there are, preference will be given to those businesses whose vehicles meet the Euro VI emissions standards and make a large number of international trips.
All this is likely to put a strain on UK haulage companies, forcing the industry to become increasingly concentrated. We have already seen many larger players completing acquisitions in an attempt to dominate the market and conversely, we have observed companies reducing fleets and sub-contracting out. Whilst this activity will undoubtedly continue to be observed amongst the larger players, we are likely to see struggling SMEs look towards increased funding as a way through this.
Access to working capital and maintaining a healthy cash flow is imperative to success in the haulage sector. However, due to the nature of the sector this isn’t always possible, especially for the younger SMEs. Common challenges experienced by such businesses are outlined below:
• Extended payment terms: As haulage is at the bottom of the supply chain, businesses sometimes find themselves having to wait approximately 72 days for invoices to be paid.
• High overheads: This sector is known for its high costs from vehicle repair, account staffing to maintaining warehouses and other buildings, the list of outgoings is endless.
• High fuel costs: Although the Chancellor maintained the freeze in his Autumn Statement, fuel prices are still higher than anywhere else in the EU. Not only does it impact the cash flow of SMEs as they don’t have access to fuel deals like some of their larger counterparts might have, but it also has a negative impact on their competitiveness and business growth.
Despite the fact that there are a myriad of funding challenges experienced by the transport and haulage industry, the good news is that access to finance is available. With the right help, advice and access to expert knowledge, haulage SMEs will be able to benefit from securing cash immediately via a number of different solutions. Get in touch with us now to find out more.