The time factor has also driven developments in logistics / distribution services. Time has become a critical issue in the management of organisations. Product life cycles have become shorter with a requirement for faster lead times. All customers from retailers, manufacturers and suppliers to consumers, require “just-in-time” availability, which has implications of organisational activities if markets are to be obtained and retained. A factor which is therefore now being addressed is that of logistics / distribution lead times. In order to co-ordinate supply with the dynamic requirements of the marketplace, a different approach to the management of lead times is emerging. This suggests that an important feature of the environment facing haulers is ever increasing demand for improved response times and for new services such as tracking.
Companies are increasingly seeking competitive advantage by reducing costs and lead times, and by improving co-ordination of supply chain activities overall.
A consequence of the trend among some major users is to decrease the number of sub-suppliers including transport and distribution services suppliers.
Improvement developments in the logistics / distribution function have manifested themselves in a broad variety of initiatives with the ultimate objective being to reduce lead times, improve supply reliability (and customer service), and reduce costs. With an increasing range of products demanded, many with different logistic profiles, this is leading to smaller shipments and higher frequency of delivery. This has important implications for the road haulage industry and for Government transport plans.
Reliable operation is now a basic or minimum requirement for delivery, with measures such as “on-time-in-full” and “case fill rate” being used to capture the performance levels of the distributor. In more developed environments, both retailers and suppliers are consolidating their own supply base and are working with their key suppliers to jointly implement improvements within the business.
In terms of more complex distribution / logistics services, European and UK industry leaders have implemented initiatives such as continuous replenishment and automated ordering. Continuous replenishment means orders are driven by consumer demand and are replenished in both the retailer’s distribution centre and the retail outlet on a “just-in-time” basis. This requires the distributor to have visibility of the consumer demand patterns – be they actual or forecast – which in turn has substantial implications for the manner in which the distribution service provider operates. This trend is leading to increasing numbers of manufacturers and other suppliers opting for specialist logistic service suppliers. This is particularly evident among manufacturers who are expanding internationally but is also a more widespread development. The analysis of market trends highlights the future need to expand value-added services.
The environment facing haulers could be summarised as one where there will be increasing demand for more services at lower costs. This is discussed below in the analysis of the competitive nature of the market and the pressure on margins. In terms of enhanced services in addition to requirements for supply chain management the two other key trends relate to smaller and more frequent deliveries and greater emphasis on delivery reliability.
Very Competitive Market in Road Haulage and Pressure on Margins
The British road haulage industry is operating in an environment which is characterised by a very competitive market with resultant pressures on margins. This reflects demand side pressures previously discussed in this section as well as supply side factors. Some of the key features which give rise to this position are summarised in figure below.
The very competitive market in the road haulage sector and the resultant pressure on margins largely reflects the ease of market entry to the sector. The competitive nature of the market also reflects the fact that there are numerous small competitors in the market. Another important factor is intensified national and EU competition.
The road haulage sector in recent years faced rising costs for many inputs notably in terms of driver costs. This reflects labour market shortages. This is particularly important as driver costs represent the single largest component of annual costs for haulers. Increases have also been evident in other cost items including vehicle costs, tyre costs, insurance and high fuel prices.
Road haulers also face customer resistance to higher prices. Within the manufacturing, distribution and retail sectors clients are continually examining ways of achieving cost reductions and this applies to the purchase of road haulage and other transport services.
The combination of the supply side and demand factors reviewed above has placed pressure on margins in the road haulage sector and reflects the very competitive market.
Impact of Wider Economic Factors
The performance of the road haulage sector in part is determined by wider economic factors. Of particular importance has been the impact of economic growth.
Reflecting the growth in the economy there has been a marked increase in the level of business in the sector. Road haulers surveys have shown an increase in sales in this industry. (It should be noted that expanding demand does not necessarily imply rising profits. Low level of profits which have incurred reflects the level of capacity in the sector and the competitive nature of the market.
There are labour market shortages for drivers. This is demonstrated by the fact that a majority of haulers surveyed had experienced difficulties in recruiting skilled labour. Despite such difficulties labour market shortages are unlikely to have been a major constraint on the development of the sector but the tightening of the labour market is, however, likely to have impacted on the costs of drivers.
Increasing Delivery Pressures
A key feature of the environment facing road haulers is the increasing time and delivery pressures arising from a combination of factors. A summary of the factors resulting in increasing delivery pressures are presented in table below.
The analysis presented previously concerning trends in increasing customer requirements specifically in terms of enhanced services and in terms of smaller and more frequent deliveries required.
The graph below shows that no users favour either charges for long or short waiting times. While some users would favour a discount or bonus system most have a preference for the current situation to continue whereby no performance-related penalties / bonuses prevail. This may reflect a lack of user awareness of the economic costs arising from delays to haulers.
Source: Indecon Survey of British Road Haulage Firms
The pressure on time/delivery takes place against increased road-traffic congestion. This is particularly the case urban centres e.g. London. This highlights the importance of overall transport policies to the operating environment facing haulers. It also may suggest the consideration of some specific initiatives to assist haulers providing these would not further increase overall congestion levels.
Low Level of Development Assistance for Sector
Some of the features of development policy towards the sector are presented in the figure beneath.
Recommendations
- To improve lead times measures such as tracking can be introduced
- Just in time methods need to be emplaced for faster lead times which are needed for the dynamic environment
- Provide a variety of products so road haulage companies can attract a wide number of customers and thus gain larger volumes of deliveries and due to the increased demand of customer for the services provided by this industry
- Due to the competitiveness and pressures on margins in this industry companies may start merging or taking over. This will allow diversification and also will hope to gain from greater economies of scales and therefore reduce the pressures on margins
- The government may look to fund this industry if road haulage companies are leaving the market due to the low profit levels in this sector. The government may look to improve the infrastructure of the country to improve the congestion in Britain and allow for faster lead times for road haulage companies.
- Companies should ensure that they build up a good brand image by ensuring they meet minimum requirements such as reliability in deliveries by ensuring products are reached on time and in full. This is likely to enhance road haulage companies chances of gaining a long term contract with a supplier. This will also counteract the problem of road haulage companies being unable to forecast and predict revenue and costs and budget for the future which is a cost in itself.
