A P R I L International road haulage market conditions continue to be difficult for UK based carriers

Transcription

1 QUARTERLY TRANSPORT ACTIVITY SURVEY S U M M A R Y O F P R O S P E C T S F O R Q Domestic road freight activity during Q1 was weaker than anticipated, although there is greater optimism for the next quarter The market for third party logistics services remains depressed A P R I L International road haulage market conditions continue to be difficult for UK based carriers UK trade with continental Europe looks to be dominated by growing traffic with eastern Europe Few operators plan to expand their fleets of hgvs and light commercial vehicles Steady growth in demand is reported for deep sea and air freight services, most notably on Europe - North Atlantic trade routes Rail freight services are benefiting from higher demand for coal as major energy users reduce their consumption of high priced oil and gas Levels of staff turnover for most types of distribution employees has improved markedly since Local authorities can most effectively improve the operating environment for commercial vehicles in urban areas by focusing on road maintenance, effective enforcement of delivery bays and kerbside delivery facilities and better signage of routes Congestion charging is viewed to be the least effective policy measure that local authorities could implement to improve operating conditions 1 ECONOMIC INDICATORS Apr (average) Apr (average) Annual % change DOMESTIC ECONOMIC ACTIVITY GDP.% (Q1 ) UK EXPORTS Exports volume to EU* +9.% (Dec -Feb ) Export volume to rest % of the world* (Dec -Feb ) UK IMPORTS Import volume to EU* +7.3% (Dec -Feb ) Import volume to rest of the world* +.3% (Dec -Feb ) PRICE AND COMPETITIVENESS RPI.% (Mar ) Underlying RPI.1% (Mar ) /$ exchange $1.89 $ % / exchange % COSTS Wage settlements +3.% (Jan -Jan ) Bulk diesel 7.9 ppl 78. ppl +7.% Total hgv operating costs** +.% (Jan ) * Excluding oil ** 38 tonne gvw (+3) artic running 7, miles per year Hgv operating costs are rising by more than twice the headline rate of inflation year on year per cent change Jan-98 Jan-99 Jan- Jan-1 Jan- Jan-3 Jan- Total vehicle operating cost changes (including driver and overheads) for a 38t artic Jan- Jan- Diesel prices close to all-time highs reached in October pence per litre (excluding VAT) Contract Bulk Diesel Forecourt 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 Jan 1 Feb 1Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 Jan 1 Feb 1 Mar 1 Apr Source: John Hall Associates

2 DOMESTIC ROAD FREIGHT ACTIVITY.1 OVERALL ACTIVITY LEVELS per cent GDP growth, Q1 on Q1 Domestic road freight activity declined in Q1 continuing the overall picture of market weakness reported by respondents during. The current profile of the UK s economic growth continues to be concentrated on non-freight intensive activities such as business services and finance. Activity by freight intensive industries either recorded a year on year fall during Q1 or grew at a lower rate than GDP. UK production industries (ie manufacturing, utilities, agriculture and mining) as a whole generated one per cent less GDP in Q1 than they did in Q1. By comparison, services as a whole generated three per cent more GDP over the same period. Prospects for domestic road freight activity are expected to improve noticeably in Q Q1 98 Q 98 Q3 98 Q 98 Q 99 Q1 Q Q3 Q Q1 1 Q 1 Q3 1 Q 1 Q1 Q Q3 Q Q1 3 Q 3 Q3 3 Q 3 Q1 Q Q3 Q Q1 Q Q3 Q Q1 Q GDP growth is being driven by less freight intensive industries Agriculture Mining & quarrying Source: Office of National Statistics Freight-intensive Manufacturing Construction Utilities Retail/ wholsale Business services Freight-light Government (central and local) The downturn in the market for third party transport services, evident throughout, shows little sign of reversing. Demand for contract distribution services is less affected than for hauliers and contract hire; indeed, reported demand for contract hire has now reached its lowest level for seven years. A slowdown in activity by freight intensive sectors of the economy will encourage operators to optimise use of their own fleets, and scale back their use of third party transport activities to accommodate lower levels of demand. Contract distribution services are less vulnerable to short-term changes in demand since they tend to form a longer term, more integral part of the road transport buyer s operation. On the other hand, hauliers and contract hire companies are more frequently used to supplement a customer's core distribution fleet In the case of hauliers, they are also used more intensively by the construction, mining and quarrying sectors and the trunk movement of manufactured and semi-manufactured goods sectors where the UK economy has been weaker. The weak market conditions in third party transport reinforce the long-term trend of growing business failures in transport as a proportion of total business failures. Demand for third party services reach a seven year low Hauliers Contract hire Contract distribution Q 99 Q1 Q Q3 Q Q1 1 Q 1 Q3 1 Q 1 Q1 Q Q3 Q Q1 3 Q 3 Q3 3 Q 3 Q1 Q Q3 Q Q1 Q Q3 Q Q1 Q Business failures in the transport and communications sector are close to peak levels percentage Company liquidations in the transport and communications sector as a percentage of total company liquidations in England and Wales Bankruptcies in the transport and communications sector as a percentage of total business bankruptcies in England and Wales Source: DTI Insolvency Service Statistics Directorate, Quarterly report Q1 Respondents expect the overall market for domestic road freight to become more buoyant in the second quarter of. By comparison, the market for third party transport services looks set to remain weak.. SECTOR ANALYSIS Respondents engaged in manufacturing, distribution and haulage reported relatively weak levels of activity in Q1. Outturn performance was well below anticipated levels of activity when respondents were surveyed in January. Most sectors report renewed optimism for Q, especially construction, retail, utilities and manufacturing. Distribution and haulage operators anticipate only modest growth in the coming months. Strong growth anticipated in most sectors, especially retail and construction Agriculture Quarter 1 Quarter Retail/ wholesale Manufacturing Construction Public authorities/ utilities Distribution and haulage

3 .3 REGIONAL ANALYSIS No UK region saw the anticipated growth in freight activity levels for Q1 expected in January QTAS. All regions reported a decline with the exception of the Midlands. Prospects for Q are much more positive with all regions predicting notable increases in activity levels. The most widespread growth is expected in Scotland, Northern Ireland and the Midlands. Widespread increases in freight activity anticipated across all parts of the UK London & South East Quarter 1 Quarter Midlands North Northern Ireland Scotland 3 INTERNATIONAL ROAD FREIGHT ACTIVITY There was little change in the difficult trading conditions for UK-based international hauliers in the first quarter of, and there is little sign that this situation will improve in the second quarter of the year. The factors behind the persistent market weakness for UK carriers (despite steady overall growth in crosschannel freight volumes) are fourfold. Effect of exchange rates on competitiveness Sterling strengthened sharply against the Euro between 199 and from 1.1 to 1.. Since then, the Euro has regained some of its value (averaging 1. in April ). Nonetheless the competitive position of transport services whose costs are paid in Sterling (with the exception of diesel which is purchased on the continent to take advantage of lower duty rates) is approximately 18 per cent worse than 1 years ago. Effect of East European vehicles on competitiveness and capacity East European carriers represent a rapidly growing component of the cross-channel haulage market. Between and the market share of East European hauliers rose from eight per cent to 1 per cent according to DfT statistics. 1 These hauliers can operate at a much lower cost base by virtue of lower driver wage levels than their UK counterparts. Effect of import growth on UK international hauliers market share Since, imports from the rest of the EU have grown more strongly that UK exports to the EU. The comparatively weak performance of exports over the past five years reflects the low levels of growth and 1 Road goods vehicles travelling to mainland Europe Q, DfT Wales & West poor economic performance seen in key EU export markets (Germany, France and Italy) relative to the UK economy. This shift in the balance of trade has favoured foreign carriers who are on hand to take the additional outbound freight to the UK. Role of web-based freight exchanges Foreign hauliers are becoming increasingly established within the UK international and domestic freight market place through use of web-based freight exchanges. This enables them to compete on price for return-leg haulage services to mainland Europe or cabotage services within the UK where they can also take advantage of using cheap foreign diesel. UK-based carriers continue to struggle in the international haulage market Q 99 Q1 Q Q3 Q Q1 1 Q 1 Q3 1 Q 1 Q1 Q Q3 Q Q1 3 Q 3 Q3 3 Q 3 Q1 Q Q3 Q Q1 Q Q3 Q Q1 Q With only limited growth across many of the Eurozone economies in the past five years and additional East European haulage capacity coming onto the market, the haulage market in western Europe is oversupplied. Buyers report that haulage rates continue to be stable. Most customers have resisted German MAUT supplements and fuel surcharges. The East European haulage market remains in a transitional state. Non-asset owning forwarders who have traditionally used small hauliers (many of which left the industry last year) are struggling to hold onto contracts and are consequently going out of business. INFRASTRUCTURE AND SERVICE RELIABILITY Road freight operators reported a slight increase in the rate of deterioration of journey time reliability since the beginning of. Thirty nine per cent of respondents believed that road network reliability worsened in Q1, with 7 per cent reporting no change. Rail freight customers reported that the decline in rail service reliability for both bulk/conventional and intermodal rail services in Q1 has become less acute. The main issue for rail freight operators continues to be the need to use freight train paths as efficiently as possible. As freight volumes continue to rise it is more and more important to ensure every train is fully loaded, both in terms of weight and length. However, load gauge constraints on the UK rail network limit load optimisation opportunities for 9 containers in particular.

4 Deteriorating reliability persists on the road network and for rail freight customers Bulk/conventional rail services Intermodal rail services Road network by strong increases in trade to and from eastern Europe. Elsewhere, export traffic volumes to the Mediterranean are expected to rise sharply, as are import volumes from western Europe Q 99 Q1 Q Q3 Q Q1 1 Q 1 Q3 1 Q 1 Q1 Q Q3 Q Q1 3 Q 3 Q3 3 Q 3 Q1 Q Q3 Q Q1 Q Q3 Q Q1 Positive balance indicates improvement Short sea shipping activity growth concentrated to and from eastern Europe 3 1 Exports Imports INVESTMENT INTENTIONS Few respondents expect to increase the size of their commercial vehicle fleets in the coming months. Vehicle registration figures published by the Society of Motor Manufacturers and Traders (SMMT) have also generally shown a benign market. The exception is registrations of trucks which spiked during March and April (April saw 11 per cent more truck registrations than April ) as operators brought forward vehicle purchases to delay having to begin using digital tachographs - which became mandatory on new vehicles from 1 May. Benign market for both hgvs and small commercial vehicles -1 - Western Europe Scandinavia Eastern Europe Mediterranean. DEEP SEA ACTIVITY Freight activity on most deep sea routes is growing steadily with import and export growth in broad balance. The main exception is trans-atlantic routes where import growth remains very strong. This may reflect the continuing effect of a sharp fall in value of Sterling against the US Dollar in the second half of, the effect of which has been to reduce the cost of goods produced in the US. Steady growth expected on most deep sea freight routes hgv sgv Exports Imports - Q1 98 Q3 98 Q1 Q3 Q1 1 Q3 1 Q1 Q3 Q1 3 Q3 3 Q1 Q3 Q1 Q3 Q1 North America South America Africa Middle East Indian subcontinent Far East Australasia until operators raced to register new trucks before fitment of digital tachographs became mandatory on 1 May percentage change on the same month a year ago Source: SMMT Trucks and artics All vans Jan Feb Mar Apr SEA FREIGHT ACTIVITY Members report that shipping rates have remained weak on many routes in Q1. Few shippers were paying Bunker Adjustment Factors that shipping lines sought to impose. Many routes continue to be dominated by over capacity. There is some evidence that as a result of weak freight rates on liner shipping, there has been a switch from moving freight in bulk to containers. In terms of rate movements on specific routes, the current status is: Trade route Far East Europe Europe Far East Far East USA North South Europe US US Europe Direction of deep sea freight rates rates falling sharply, by up to per cent rates remain low rates falling sharply rates falling, by around five per cent rates stable rates stable.1 SHORT SEA SHIPPING Growth in traffic volumes on UK short sea routes in the second quarter of is expected to be dominated

5 7 RAIL FREIGHT 8 Focus on SKILLS SHORTAGES Despite a benign picture from QTAS survey responses by rail freight customers, rail freight operators are more optimistic. In particular, coal tonnage is expected to reach record volumes as power stations and major energy consumers use coal rather than high priced oil and gas. The attractiveness of using rail to move this traffic is reinforced by availability of longer, heavier trains that have the advantage of being more efficient. However, operators report that the physical size of loading and discharge facilities can be a limiting factor. Demand for intermodal services is also expected to remain buoyant, reflecting steady growth in unitised freight on all deep sea routes. The positive message from rail freight operators is tempered by external cost pressures; chiefly in the shape of rising fuel prices. Duty on rebated oil is set to increase by 1.ppl from September. Because rebated oil is taxed at a lower rate (. ppl compared to 7.1 ppl for white diesel), the rise will have a proportionally greater impact on rail freight operators than users of regular (road) diesel. Intermodal services remain the strongest part of the rail freight market Skill shortages continue to ease within the transport industry. Eighty three per cent of respondents report either only a short delay or no problems in finding warehouse staff and 73 percent report short delays or no problems in finding hgv drivers. There is still a problem in recruiting fitters, with per cent of respondents experiencing either long delays or unable to find suitable staff. The most recent Skills for Logistics (SfL) Survey of Employers of LGV Drivers (published March ) also demonstrates an easing of the skill shortage with fewer people leaving the industry in than the previous year and a relatively small but significant influx of foreign drivers as a result of the EU s expansion in. Skills for Logistics also cites the slowdown in economic activity in as a likely contributory factor. The job market for hgv drivers has improved although there remains widespread difficulty in recruiting skilled fitters Unable to find suitable replacements/recruits Long delays in finding suitable replacements/recruits Short delays in finding suitable replacements/recruits No problems in finding suitable replacements/recruits 9 Bulk/conventional services Intermodal services per cent of respondents Hgv drivers Warehouse staff Fitters Transport managers -3 Q1 98 Q3 98 Q1 Q3 Q1 1 Q3 1 Rail operators report there is a growing case for a European gauge network in the UK. This, it is claimed, would encourage through-train services from Scotland to the Continent. Freight trains from Europe cannot currently be accommodated due to the differences in gauges. The UK s existing gauge also creates problems when moving the increasing numbers of 9'" containers arriving in the UK unless pocket wagons are used. These are less efficient than regular wagons since they can only take one container each, but represent the only viable solution for rail operators given any gauge change (even if limited to certain routes) is a long-term solution. An ongoing concern among rail freight service users and providers is the Crossrail Bill. Under existing proposals, Crossrail passenger services are given priority over other rail services using the lines, serving to tighten freight capacity on the London routes. Rail traffic from ports at Harwich and Felixstowe moving South usually goes through the Greater London area so the issue is more significant than it first appears. Q1 Q3 Q1 3 Q3 3 Q1 Q3 Q1 Q3 Q1 Driver skill shortage has eased significantly over last two years =no problems, 3=unable to fill vacancies 3 1 Apr Jul Oct Jan Apr Jul Oct Drivers Warehouse Fitters Managers Jan Apr FTA also sought to establish staff turnover rates for distribution employees in the year to April. Compared to data, it appears that there is generally a lower level of employee churn within the industry. This change is most marked for skilled workshop staff and non-hgv drivers. Hgv drivers (multi-drop and trunking) also show slightly lower turnover rates to those witnessed in. In all cases, reported levels of staff turnover were below the all employee average of 1.7 per cent published in the Chartered Institute of Personnel and Development s Recruitment Survey.

6 When management staff turnover rates are considered in isolation, the QTAS average turnover rate for transport managers over the last 1 months has been 1. per cent. This compares to a national average for all management staff of 9.1 per cent (according to the Chartered Institute of Personnel and Development. When QTAS responses were analysed on a regional basis, the North of England and Midlands have the highest staff turnover rates for warehouse staff, fitters and trunking drivers. Scotland has the lowest overall rate of staff turnover. Staff turnover rates for distribution staff have generally eased since per cent staff turnover Chartered Institute of Personnel and Development all-employee average staff turnover per cent for QTAS CIPD Management Avg 9 Focus on LOCAL AUTHORITY TRANSPORT PRIORITIES FTA has sought to establish what local authorities should do in order to improve operating conditions for commercial vehicles in towns and cities. The most important issue for members, across all UK regions, is sufficient spending on road maintenance, followed by effective enforcement of delivery bays and kerbside loading/unloading provision. Congestion charging received the lowest support from operators. Whilst congestion charging applies to all, road freight operators are often unable to capitalise on incremental savings on journey times. In many cases the vehicles are scheduled to undertake a predetermined number of drops and the potential time savings are insufficient for additional drops to be added. Even when multi-drop activities are concentrated in a specific area, some journey time variability would still have to be factored into schedules to ensure customer expectations are consistently met. Hgv drivers multi drop Hgv drivers trunking Non hgv drivers Skilled workshop Warehouse staff Transport staff managers Sources: QTAS April and Chartered Institute of Personnel and Development (CIPD) Annual Survey Report Local authorities must concentrate on improving road maintenance and ensuring delivery facilities are available for commercial vehicles Congestion charging More truck stops Relaxation of delivery curfews More loading/unloading bays in town centres Create lorry and bus lanes Better signage for hgv routes Stricter penalties for motoring offences Road maintenance = least important, = high importance FTA's Quarterly Transport Activity Survey in April is based on over 1 returns from member companies. Altogether these operate over 1,3 hgvs (goods vehicles over 3. tonnes) and,1 vans at or below 3. tonnes as well as having extensive interests in international trade. For further information on this survey or other economic information related to freight, please contact: Elizabeth Leroy, Economics Analyst, FTA Tunbridge Wells, eleroy@fta.co.uk tel: H E R M E S H O U S E, S T J O H N S R O A D, T U N B R I D G E W E L L S, K E N T T N 9 U Z T E L E P H O N E : FA X : W E B S I T E : w w w. f t a. c o. u k Freight Transport Association Limited Registered Office Hermes House, St John s Road, Tunbridge Wells, Kent TN 9UZ Registered in England Number 39197