A costly decision

With the world’s economy at its lowest ebb for decades and companies going bust across every sector, gloom and despair were the overriding characteristics of 2008 and look likely to pervade well into 2009.

All the more amazing, then, that the UK’s logistics industry – arguably the cornerstone of our commercial society – seems to have been left out in the cold by an unsympathetic government.
    
“If you’ve got it then it arrived on a truck” is a well-worn phrase, but apparently unheard of by the Chancellor. Last year, Mr Darling effectively increased the cost of commercial deliveries in the UK by over half a billion pounds with his seemingly arbitrary decision to introduce a succession of fuel duty rises: more a kick in the teeth than the shot in the arm that the industry so desperately needed.
    
The cost to the logistics industry of these rises is estimated at £533 million. In a sector where the margins are already notoriously tight, the real price (to commercial vehicle operators) of absorbing a two pence per litre (ppl) rise in December, a 1.84ppl rise in April this year and a further 0.5ppl rise from April 2010, will be paid by the workforce, as operators will need to make cut-backs.
    
Fuel costs account for about 40 per cent of the overall transport costs for a heavy lorry, so what may seem a manageable rise in the eyes of the average motorist could be the final nail in the coffin for an ailing retailer faced with higher operating costs. Sadly, redundancies represent the only real option left to beleaguered companies trying to avoid insolvency. The impact is even greater for companies whose business is haulage, a heart-rending situation for Commercial Vehicle Operators (CVOs) given that they are often family-run businesses with loyal staff, many of whom have been in their employ for many years.

Escalating prices
With fuel duty rises penciled in for 2009 and 2010, the dreaded fuel duty escalator seems to have been turned back on – next floor complete insolvency, anyone? The proposition that this above-inflation rise in fuel duty is supposed to help to protect the environment is all very good from a motorist’s perspective, where public transport is often a viable solution to gas guzzling cars. But if we want our shelves stocked and supplies delivered then lorries simply have to be driven. Putting the price up doesn’t prevent the journey from being made, it just increases the cost of making it. Paradoxically, greater fuel costs will mean CVOs will have less money in the kitty to invest in newer, greener vehicles.
    
The government’s heavy reliance on road tax to boost its coffers is so entrenched that it would be wildly optimistic to predict that a significant reduction in fuel tax is on the cards to bring us in line with the rest of Europe. But the common-sense solution would surely have been to cut fuel duty just on commercial vehicles. The Freight Transport Association (FTA) has long-since advocated the decoupling of fuel duty, as it would bring instant relief to struggling firms in the sector, help CVOs to consolidate in hard times and, heaven forefend, even turn a decent profit.
    
The only silver lining in recent months has been the dramatic reduction in the price of crude oil which, at the time of writing, had fallen to about $40 a barrel following a peak of over $140 last July. However, any reduction in crude is likely to be short-lived in this volatile market, and with OPEC looking to limit supply who can say how long it will be until we see a return to the highs reached last summer?

Continental competition
Foreign truckers still enjoy a massive competitive advantage over their UK counterparts, with diesel duty on the continent half of what it is here. For many in the logistics industry, the obvious way for the Treasury to have raised cash and establish some parity between domestic and foreign freight operators would have been to reduce fuel duty to European levels.
    
Any shortfall in revenue resulting from a fuel duty reduction could have been met by enforcing the long-overdue and eagerly anticipated Eurovignette. We’ve been waiting for this for over eight years and, given the huge increase in overseas trucks on our roads, it is very disappointing that the political will seems to be lacking to implement what would most certainly be a substantial contribution to the coffers. After all, the fact that a non-UK truck can roam the country freely and unchecked is totally out of alignment with both the shipping and aviation industries where unregistered transporters are intercepted and accompanied to secure ports and airports. So why not trucks too?
    
While this was a missed opportunity, albeit a screamingly obvious one, it was perhaps the decision to reduce VAT by 2.5 per cent that caused spleens to vent among CV operators – a worthless gesture to an industry where this tax is already claimed back.  

All change please
Escalating fuel duty, meaningless VAT reductions and unfair competition from the continent aside, transport managers and CV operators are in for an interesting year as other important procedural changes facing them. Since last July’s decision to keep VOSA in the public sector, the need to modernise its testing procedure seems to have become its raison d'être. While VOSA should be applauded for the improvements it has made to forward booking times and testing procedures – essentially allowing for more flexibility and dramatically reduced test times – it has also set out some very complicated fee increase proposals designed to incentivise use of non-VOSA test sites. Adding to its unpopularity is the cost: the nine per cent increase in fees seems incongruous when put in the context of the deflation facing the UK’s economy as predicted by the Bank of England. Is this another case of an unfair burden on an already overstretched industry? With higher driving test fees on the cards too, it would certainly seem so.
    
There can’t be many other sectors as heavily-regulated as the logistics industry and only those operators that can adapt to a changing regulatory environment will survive. The need for government to act on industry concerns and implement its suggestions has never been greater. For example, increasing the length of trailers will undoubtedly reduce road congestion and pollution and allow for larger loads and maximum gains in efficiency. As such it has gathered strong industry support yet ministers seem unprepared to consider longer semi-trailers.
    
It is not all bad though. Graduated fixed penalties should come into force by April 2009 and will differentiate between varying levels of offence, giving VOSA officials the same authority as the police to issue fines and even immobilise unroadworthy vehicles. For the compliant this will be good news as – with data capture on foreign vehicles allowing for more efficient roadside targeting of non-UK vehicles – it may level the playing field somewhat and reduce the number of high-risk, non-compliant overseas vehicles on the road. However, it remains to be seen how well and how consistently the new operational guidance will be applied by VOSA staff.
    
The logistics industry forms the UK’s commercial and industrial backbone and the government must work harder to act on its concerns or face the prospect of it being paralysed by ill-conceived policies. Instead of kicking it while it is down, the government should support the logistics industry before it becomes another casualty of this global, economic crisis… starting with an about turn on fuel duty.