Memorandum by Exel (RH37)
INQUIRY INTO
THE ROAD
HAULAGE INDUSTRY
Role in the Economy
A supply-chain service provider like Exel, which
is both an operator and user of transport in the UK, and Road
Hauliers deliver the majority of goods and products demanded by
customers to the point of sale. The number of deliveries is dictated
by consumer demand, and the method of delivery is driven by the
needs of the market and the cost of the service. The importance
of freight movement in fulfilling these market expectations cannot
be overstated and is a major contributor to a successful economy.
As markets become global the success of the
UK depends on being competitive in world markets. The cost of
getting goods to market through the supply-chain, is directly
related to the amount of stock held and the costs of transporting
it. Without a thriving road haulage industry in the UK, our manufacturing
capability becomes more vulnerable, and the market price becomes
unacceptably high, thus affecting our competitiveness in the global
marketplace and consequently damaging the UK economy. Currently
supply-chain management in the UK is highly regarded around the
world but it is important to retain our world class position.
Exel is the market leader in the UK and a global
player with international expertise in efficiently managing supply
chains and the resources that service them. A £1.8 billion
business that operates in nearly 600 locations throughout Europe
(including the UK), the Americas and Asia, the company has 35,000
employees who deliver supply chain, e-commerce and technology
solutions to leading companies in the automotive, chemical, consumer,
retail, electronics and home delivery industries world-wide. Its
breadth of industry activity gives it a unique visibility of "best
practices" across the world. Exel has headquarters in the
United Kingdom, Hong Kong and the USA and is part of Exel plc[30],
which is traded on The London Stock Exchange.
It maintains a fleet of over 4,500 vehicles
operating for customers from over 130 sites in the UK. This number
has been reducing over the last three years. The majority of these
vehicles are Euro 2 category with none in the Pre Euro 1 category
and five on trial in the Euro 3 category. Many vehicles have been
fitted with particulate traps but the rebates offered by Government
do not encourage retro-fitting on vehicles that have only two
or three years remaining on a lease.
The company takes its market leading and community
role very seriously and ten years ago created a logistics Environment
policy that was adopted by the Government as the industry standard.
Its environmental activities continue to progress with research
ongoing into Zero Emission and Compressed Natural Gas (CNG) vehicles
and support for academic research into urban distribution.
Road haulage is seen to be a quick, cost-effective
and flexible method of delivering goods to industry and the consumer.
Although the demand for delivery of goods by road has been increasing
over the last five years the trend in the number of goods vehicles
being used to deliver those items has decreased, demonstrating
that the efficiency of the industry has improved.
Exel has over the last three years developed
new technology to improve efficiency further and in particular
to drive up the utilisation of vehicles and drive down "empty
running" (industry average 29 per cent). Results after the
first two years of operation indicate that utilisation and efficiency
can be improved by up to 20 per cent. At the advent of e-commerce
with the forecast rapid increase in home delivery, this technology
has significant implications for both congestion and the environment,
especially that is, if it can be applied more widely.
These industry generated efficiencies have to
some extent mitigated the effects of increasing taxation and the
rising price of fuel (over 20 per cent in 1999), to suppliers
and the consumer. However the cost to the independent road haulier
in reduced margins and increased competitive pressure from mainland
Europe, in many cases, has been terminal.
Continued subsidised competition from mainland
Europe and tax rises, could eventually lead to the demise of the
road haulage industry in the UK. It will also drive the cost of
the supply chain up faster than efficiencies can be made, leading
to an eventual increase in price to the end user reflected in
the Retail Price Index. The effective management of the supply
chain and its costs is therefore important to the UK economy.
Impact of Tax
Exel's fuel bill for its owned and managed fleets
is over £80 million per year of which £65 million is
fuel tax. To this needs to be added the fuel costs contained in
the charges from sub-contractors. Each 1p rise in fuel price adds
£1.4 million to Exel's annual fuel bill. Its total VED costs
are around £7.5 million per year.
A large proportion of Exel's business is contract
backed and therefore contains a clause to reduce the impact of
tax rises (which are out of the company's control). However, higher
taxation cannot be absorbed by the haulage industry where margins
are historically very low. The size of the industry in the UK
will therefore be reduced progressively if UK taxes are higher
than those in Continental Europe. In addition, pressure from customers
to reduce costs, forces users to increasingly consider employing
foreign hauliers which represents a loss to the UK economy and
The Treasury.
In the last four years the balance of Exel's
core activity has progressively moved from resource provision
(road haulage, distribution or transport) which is perceived by
the market as a commodity business selected on price and therefore
offering very low margins, towards a solutions and consultancy
service. The new direction uses the company's sector industry
expertise to create efficient supply chain solutions for world-class
companies and has the potential of creating much more value for
customers, which can command higher rewards. Increasing costs
have made the company consider again new ways of working and further
efficiencies including the option of fewer sites, vehicles and
drivers. Capital investment decisions have been deferred not so
much by Fuel and Vehicle taxes but by the uncertainty of legislation
surrounding vehicle weights and the associated taxes. This is
another factor that gives the European transport industry advantages
over UK hauliers.
Regulations and their impact on Safety and Profitability
The safety and health of Exel employees is paramount
to the company which has a history of enlightened people management
and high quality employee policies.
The existing Drivers' Rules have been in force
since 1986, since when there have been significant changes in
traffic conditions and operating practices. Road congestion, and
the resultant delay factor, make it important that current flexibility
is retained, otherwise significant additional vehicle and labour
costs will be incurred by the industry. However, Exel believes
that, in the interests of road safety, there is room for a "sensible"
review of the rules—some work patterns whilst legal can
be unsafe, if pushed to the extreme by irresponsible operators—which
might take the form of an Approved Code of Practice rather than
wholesale changes to the existing regulations. For example, alterations
to the working time of drivers may have the impact of extending
the use of irregular shift patterns to achieve schedules and variability
of duty start times can have a negative impact on road safety.
This is making the recruitment of experienced drivers, who are
increasingly being asked to work anti-social shifts, much more
difficult, and the long-term viability of the sector may soon
be jeopardised.
The industry is highly regulated and safety
performance is good in comparison to other European countries,
yet it is perceived poorly. The industry fully recognises the
need to continually improve, but with low profitability some operators
may be encouraged to cut corners. Exel would welcome more enforcement
of existing legislation to further improve safety performance.
This coupled with a greater industry determination not to use
sub-standard transport suppliers, and for performance to be more
closely examined by company and Government bodies' monitoring,
will contribute to further improvement.
Restrictions on night working under the proposed
Working Time Directive would be counter-productive to efficiency
and Exel believes it will push some journeys, at present made
during the night-time, onto days, increasing congestion, decreasing
efficiency with the associated detrimental effects on the environment,
and compromising safety.
Night-time and other lorry bans reduce delivery
windows, and force vehicles on to already congested roads during
the day; also daytime delivery restrictions, along with congestion,
are extremely stressful for drivers and impact adversely on driver
recruitment and the long term prospects of the industry.
Existing and further regulation has the effect
of encouraging a greater than needed use of smaller vehicles,
with negative effects on both environment and costs. This does
have an impact on safety with more vehicles being used, often
at peak times. At the same time the advent of home shopping is
also encouraging the use of smaller vehicles for home delivery
with the same effects on congestion, environment and safety. These
vehicles will largely be unregulated as they fall outside the
normal operators licensing regime.
Changes required
The e-commerce future will have a significant
impact on supply chains. It is likely that total volume will increase,
while the average volumes per delivery will reduce. More will
be delivered directly to the home. New operating centres will
be developed to support this, and it is likely that more smaller
vehicles will be needed to fulfil the consumer demand created
by this new channel to market. Flexibility, agility and excellent
planning processes will be vital to ensure that distribution chaos
does not follow. The new generation of technology being used by
Exel would allow the necessary control and information feedback.
— Any legislation that affects working
flexibility in the supply chain needs to be considered to check
its effect on other parts of the supply chain. The suggestion
of an eight hour limit on night-time working is a good example.
Exel endorses any move to increase safety and acknowledges the
need to tighten up some aspects of the existing drivers' hours
to eliminate practices that are potentially dangerous, but it
believes that the proposed limits would not do this. As already
described they would force more goods vehicles onto the roads
during the daytime.
— Congestion is recognised as one of
the main limiting factors to economic growth and the CBI estimates
that it costs UK industry about £20 billion per year. In
the road haulage industry it adds to cost, increases competitive
pressure and puts more goods vehicles on the road to complete
deliveries, which leads to more congestion in a vicious circle.
Cars constitute 91.2 per cent of all vehicles on the roads and
until there is an alternative means of public transport that competes
with the private car in terms of convenience, comfort and speed
there will be little reduction in traffic levels.
— Exel believes that Vehicle Excise
Duty and Fuel Tax are punitive, blunt instruments for reducing
congestion and that the Government should look for a more discriminating
and constructive taxation regime which would address the behaviour
of the road user and encourage co-operation and conformance. Hypothecation
of all the taxes collected from the road user into passenger transport
and the transport infrastructure, is one example and the research
that Exel is at present conducting may help to address the issue
within the transport industry.
— A "road charge toll" should
be levied from all vehicles visiting the country from Europe to
pay for their use of the roads. This could be set at 1/250 (the
average number of working days in the year) of the total cost
of a year's road tax for the vehicle. All goods vehicles would
be charged a standard tariff which redressed the imbalance with
operators from mainland Europe.
— Exel is opposed to building more
motorways and supported the recent rigour with which new road
building proposals were being scrutinised. Managing priorities
in transport, however, requires an appreciation of the role of
the road network in creating an integrated system and investment
in certain strategic road links. The road infrastructure to support
industry supply chains will need to be first class and a policy
on the development and improvement on strategic routes and by-passes
should be introduced. Priority should be given to known pinch-points
on the motorway network and a sensible programme of motorway widening
introduced to alleviate these problems. This will have a beneficial
effect on industry, the consumer and the economy.
— A quick decision on the 44-tonne
issue is required to encourage standardisation on vehicle types
which will allow the haulage industry to compete equally with
European operators, aid the economy, and increase both flexibility
and efficiency. Further incentives should also be given to develop
cleaner, quieter and safer vehicles.
— Enforcement of the current legislation
should be increased to ensure high standards are maintained and
illegally operated vehicles should be impounded.
— Reduced restrictions on out of hours
deliveries would be helpful, although a balanced approach is needed
to take account of environmental concerns.
— A national database should be constructed
to improve "O" licensing administration. Identity discs
should be discontinued once the database is in place.
— The Government needs to introduce
a national training scheme that could be funded from hypothecation,
to reverse the trend in driver shortages and improve safety and
the quality of professional drivers. The industry has reached
a critical stage in the supply of experienced and trained drivers,
and failure to tackle this problem will have severe implications
for road safety and the future of the UK road haulage industry.
— Exel would welcome the greater use
of road toll systems, with central government regulating motorway
and main road charging and local government controlling urban
road pricing (though at technical level a standardised system
is essential.)
In order for any road pricing initiative to
be successful, two commensurate policies are essential:
— Investment in public transport (either
through fiscal hypothecation or adjustment of spending priorities)
and in developing or purchasing the technical means of improving
road usage; and
— Improved communication with business
and the travelling public to broaden support for the social and
environmental benefits of Government policy.
February 2000—Revised
June 2000
30 Exel plc (formerly NFC plc) has been merged with
Ocean Group. The new merged company will be called Exel plc and
be listed on The London Stock Exchange under this name after a
short transitionary period where it will appear under the Ocean
Group name. Back
| 
