How Transport Companies are driving through business efficiencies in 2018
The period 2015 through to 2018 have been a very challenging time for UK companies involved in the transport and Logistics sectors, nationally there have been many challenges that have hit the transport sector hard, these include Brexit, National Living Wage, Auto Enrolment, Business rates and the apprentice levy. Some companies are however tackling the issues head on.
How are companies dealing with the challenging market conditions?
In the first instance it has been about keeping an ongoing dialogue with customers who at the end of the day pay for the services provided, costs have to be passed on as many changes such as the National living wage apply to everyone and these are signposted a long way in advance for example the employers increase from 2% to 3% employers pension contributions have been public knowledge for several years. Not all customers are willing to absorb these costs so sometimes it is about walking away from customers who then return when they realise that the issues and cost pressures are the same for all the players in the industry.
Fuel surcharges, the price of diesel has risen during 2018, so a good approach is to include a surcharge on every invoice which varies each month as the price of diesel varies. It is a fair approach to pass on costs which are not controllable by a transport company and allows customers to share in the pain or gain from rising or falling diesel prices respectively. The same approach is used by airlines and works well for the transport sector for the same reasons.
Use of Sub-contractors Agency staff can be very expensive and there are many issues with short term workers, a lack of familiarity with routes, less company commitment, less vehicle familiarity. Vehicle damages are typically far higher with agency drivers than inhouse ones. Increasing Transport companies are turning to sub-contractors as these are more flexible and don’t have many of the disadvantages of temporary agency workers.
Recruitment Recruiting is a large cost for any organisation, but there are many hidden costs to consider also, the lack of business and customer familiarity through to training needs for industry and company specific applications and processes. These can more than double the cost of recruiting. Furthermore customers can be lost due to staff not knowing them, or treating them in the same way as a longer term employee would and knowing the correct process and procedure when there are issues. Partly this is a cultural issue, as back in the 1970’s it was easy to hire and fire staff and there was a large pool of available skilled workers willing to start work. Now in 2018 the world is a different place, in many parts of the UK, the unemployment rate is as low as 1.2% and skilled workers are very hard to find. So training and retaining staff are the new mantras.
Depot Rationalising of depot networks is another way of reducing large costs, it can be cheaper and more efficient to run larger depots which reach across a region than having more smaller satellite depots in remote locations.
Fleets With the high price of diesel having a newer fleet with better fuel economy and better safety features such as reversing cameras can make a big difference to running costs. Additionally, smaller vehicles are cheaper and don’t need HGV licences to drive them, very important at a time when the UK has an acute driver shortage. Increasingly larger operators are moving away from 7.5tonne vehicles and towards smaller vans.
Doing more with Less Taking a hard look at how resources are being used in a Transport business can be very revealing, often lorries will go out full on one leg of a journey then return nearly empty on another. The number of drops made on each journey can also be an issue. Careful route planning can increase the number of drops and a more flexible departure time can lead to higher drops per route and therefore a lower vehicle and driver requirement, a vehicle and driver can typically cost £50K per annum so saving 20 routes can mean a £1m savings. These are big numbers.
There are many websites and organisations which allow for load sharing, these allow companies to reverse auction their spare capacity which as routes are already being run means profit straight to the bottom line. Then other companies work together in Pallet networks to share depots and locations thereby making the most of capacity in different networks, which then works to all companies mutual advantage.
Reducing Headcount Typically, a very emotive issue, many long-established companies have excessive numbers of admin staff whose productivity are at issue. Sometimes the work done by 9 or 10 of these individuals can be undertaken by 4 or 5 newer staff with different approaches and a more flexible skill set.
Using technology Products such as OCR invoice recognition can lead to some useful efficiencies, no more printing off invoices, no more filing and no posting of paper around remote depots with all the associated issues of items being lost in the post, not to mention all the time wasted in posting and moving around of paper.
Going to market Putting services and supplies out to tender is a text book way of challenging costs, whether it is printing and stationary or electricity there are always cost savings to be had when suppliers are challenged. Often in some long-standing businesses, relationships become expensive because the same level of challenge is not present and areas as diverse as insurance or diesel can end up being paid for at over the odds rates.
Competition in business is healthy and is nothing to be hidden away from, the companies who challenge retain valuable cash for investment or to support other areas of their business. Going out to regular tender is a great way to keep suppliers under pressure, it doesn’t need to be every year as building mutual experience of each other is also valuable.
Merger and Acquisitions Sometimes opportunities come along to merge or to buy a business with an overlapping or complimentary network. This is a great way of driving out costs and building an economy of scale which can bring benefits for all concerned. With all the industry pressures in 2018 more and more companies are consolidating as the perfect way to drive down costs. This has been popular in the parcel delivery sector.
Summary 2018 has been a year of challenges and pressure across the transport industry many companies thrive but some tired outfits are calling it a day, and that is to be welcomed as part and parcel (excuse the pun) delivery of the transport industries version of the survival of the fittest.