Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


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


 
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