Road Haulage - UK - February 2015
Executive Summary
 
"Falling fuel prices in 2014 provided much needed relief for hauliers, whose margins remain thin - if a little healthier than in previous years. Modest economic growth is expected in 2015, but trading conditions will stay highly competitive."
-Ben Harris, Industrial Analyst

The market
The UK economy grew in 2014 as both construction and production sector output increased in the year, while retail sales volumes climbed. Rising demand in the road haulage sector followed, with goods lifted in the domestic market estimated to have increased by 8%.

FIGURE 1: Total annual road freight transport in the UK, 2010-14
 
(Million tonnes lifted and billion tonne kilometres moved)
 
Note: Excludes freight carried by light goods vehicles weighing less than 3.5 tonnes
Includes international freight transport (goods loaded in the UK, goods unloaded in the UK
and cabotage)

Source: Eurostat/MBD

The weight of internationally-transported freight unloaded in the UK is estimated to have grown in 2014, with import demand boosted by greater disposable income among UK households. The figure of 8.35 million tonnes represents a modest cumulative increase of 2% over the five years from 2010.

FIGURE 2: Annual international road freight transport to/from the UK, by type, 201014
 
(Million tonnes lifted)
 
Note: Excludes freight carried by light goods vehicles weighing less than 3.5 tonnes

Source: Eurostat/MBD

Annual road freight transport in the UK is expected to increase by 3% in 2015, in terms of goods lifted. The cumulative increase from 2015 to 2019 is forecast to be 13%. The impact of the 2015 general election on business and consumer confidence will play a significant part in determining demand in the market over the second half of the coming year.

FIGURE 3: Forecast total annual road freight transport in the UK, 2015-19
 
(Million tonnes lifted and billion tonne kilometres moved)
 
Source: MBD forecasts

Market factors
Rising retail activity in 2014 boosted demand in the road haulage industry as greater volume sales were reported by a wide range of stores. Retailers’ monthly sales volumes in 2014 were higher than 2013 in ten consecutive months to October. The most marked increase was in April 2014, with a 7.2% rise compared with the previous year.

FIGURE 4: Retail sales trends, 2013-14
 
(Percentage volume change on previous year, seasonally adjusted)
 
Note: Figures are for all retailers, excluding fuel

Source: ONS

The shortage of qualified drivers is one of the most significant issues faced by hauliers. The industry is struggling to attract young drivers and firms have had difficulty meeting the rising cost of mandatory training under European Union (EU) regulations. The shortage amplifies margin pressure and has an inflationary effect on wages.

The number of people taking and passing large goods vehicle driving tests has increased since 2010/11, indicating that some progress is being made in attracting new drivers to the industry. Nonetheless, the number of tests passed annually remains well below the 32,000 achieved prior to the recession in 2008.

FIGURE 5: Practical large goods vehicles tests, 2010-14
 
(Number)
 
Note: Year end is April

Source: Driver and Vehicle Standards Agency

The number of heavy goods vehicle registrations provides an indicator of the health of the haulage industry, with increased demand prompting fleet investment from hauliers. However, after an exceptional 2013 in terms of new registrations, it was always expected that there would be less registrations in 2014.

FIGURE 6: UK heavy goods vehicle registrations, by type of vehicle, 2010-14
 
(Number)
 
Source: SMMT

Companies
Gregory’s incremental expansion continues
Gregory Distribution continued to take advantage of expansion opportunities with its purchase of the local Devon-based logistics company M&D Transport in July 2014. The addition increases its capacity in specialist refrigerated storage, which encouraged the company to begin a recruitment drive in late 2014 to ensure it maintains driver capacity to meet rising demand.

NFT primed for growth follow private equity takeover
NFT Distribution attracted new investment in 2014, as private equity firm EmergeVest acquired the shareholding in the business previously held by Phoenix Equity Partners. As part of the transaction Investec provided a debt funding package of up to £42 million to support expansion plans. NFT is expected to target new business abroad following the investment.

What we think
Falling fuel prices in 2014 provided much needed relief for hauliers, whose margins remain thin - if a little healthier than in previous years. However, the driver shortage that was foreseen a year ago has begun to bite, with rising wages affecting costs. Furthermore, while an improvement in economic conditions has not helped resolve the industry’s difficulties in ensuring prompt payment from customers. Modest economic growth is expected in 2015, but trading conditions will stay highly competitive. By focusing on recruitment, investing in staff retention and improving bid management planning, operators can increase their chances of organic growth in business volume growths.