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Driving change; credit management challenges for the road haulage sector

In this article, we look at the steps transport and logistics companies can take to ensure they have a good handle on credit management and control, ahead of any potential problems.

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30/09/2022 · 3-minute read

As we emerge from the worst grips of the COVID-19 pandemic, businesses across the UK are facing a new set of economic challenges. The impact of rising inflation on the cost of raw materials and consumer demand, coupled with the fallout from geopolitical events including the war in Ukraine and Britain’s exit from the EU, are putting pressure on businesses of all types, not least those in the road haulage sector.

Road haulage plays a major role in the UK economy ꟷ it’s the fifth largest employer in the UK and contributes some £124 billion to the financial system each year. From small owner-operators through to companies running large fleets of vehicles, haulage companies are a vital cog in the machine ensuring that supplies reach consumers in a timely, safe, and secure way.

Current pressures have posed some particular challenges for the road haulage sector. The pandemic had an impact on staffing as well as causing supply chain crunches, for example. Recent industrial action also has caused supply chain pressures. Fuel prices have risen sharply, affecting not only transport and logistics companies themselves, but also the companies they service and supply. And while a reduction in consumer spending has meant that some transport companies have seen road haulage volumes decrease in line with a drop in spending on discretionary purchases, this has resulted in an increased need for warehouse space.

The road haulage market is fiercely competitive and companies typically operate on slim margins. Many companies in this sector have seen a rapid rise in turnover as they emerge from the pandemic. But their focus on sales and growth means there may have been less focus on credit control, particularly for those companies with fewer resources. Those transport and logistics firms with a high proportion of trade with a few select customers may find themselves particularly exposed to credit risk if their customers face testing times in the months ahead.

Economic headwinds beginning to bite

Credit insurers are already reporting an increase overall in notifications of non-payment and overdue debts. For example, Atradius, one of the largest global trade credit insurers, reported a 67% increase on notifications at July 1, 2022 compared with the same period in 2021. The volume of non-payments is predicted to continue to increase as the effects of inflation and rising energy prices, among other factors, take hold.

In the UK transport sector specifically, Atradius noted that, according to data from the Office of National Statistics, as of July 2022 there had been 365 insolvencies in year-to-date compared with 532 for the entirety of 2021.

The next few months will doubtless pose challenges to the sector as inflation bites and the sector-specific impacts of Brexit and the war in Ukraine continue to have an effect. But sound credit and risk management steps can help haulage companies weather this potentially difficult period and come out the other side in good shape. Improvements to driver wages and training and warehouse expansion, are creating greater security for haulage firms as they move forwards.

Driver shortages cause problems but training improvements bring stability

The issue of driver shortages hit the headlines late last year because of a combination of factors, including the impact of Brexit and career changes of drivers during the pandemic. This problem was not confined to the UK ꟷ indeed, the International Road Transport Union reported a shortage of drivers in all regions around the world except Eurasia.

In the UK, publicity around the driver shortage helped to boost interest in the profession and even to drive up wages. It also highlighted the existence of government-backed Heavy Goods Vehicle (HGV) boot camps and in-house training schemes, resulting in an increase in drivers eligible for class 1 or 2 HGV licences, which enable them to drive larger vehicles.

While the number of HGV drivers in the UK continues to fall, the rate of that fall appears to be slowing. Figures produced by Logistics UK, based on the Office of National Statistics data, show that the rate of decline in the number of HGV drivers slowed in the first quarter of 2022, while the number of people taking practical HGV driving tests increased by 43% in the first quarter of 2022, compared with the same period in 2019.

This has brought some stability to the turnover of drivers and has prompted fleet insurance underwriters to be more flexible about their terms ꟷ particularly for experienced drivers.

Warehousing

Increased demand for warehouse space has kept the vacancy rates for prime space below 3%, according to a study by property consultancy Savills, while the cost of warehouse property rose by 8.4% as of June 2022 compared with the previous year.

In part because of this rise in warehouse property and retail costs, some transport and logistics firms have been investing in built-to-suit warehousing. This involves warehouses being customised specifically for a firm’s needs and requirements ꟷ clients either buy land and build their own warehouse, lease or buy an existing property and renovate it to suit their needs, or partner with a developer and agree to make the space suit the client’s needs.

When done well, built-to-suit warehousing can have the long-term effect of reducing costs and may help transport and logistics firms to benefit from a stable income stream from warehousing.

Credit management

With economic uncertainty, and evolving dynamics within the road haulage sector, it is easy to see how companies might lose focus on their major assets ꟷ their debtors. Thankfully, there are steps companies can take to ensure they have a good handle on credit management and control, ahead of any potential problems.

According to Tracey Westell director at credit management specialist Pecunia2016, companies often ask for help with credit management too late: “The decisions a business makes on managing its accounts receivables will have an impact on the profitability, cash-flow and investment capacity of that business. That is why it is essential that firms implement a company credit policy signed off by the Board.”

It is vital to have a tailored, company-wide credit management process in place and to review and renew it regularly. This will help to ensure that sales teams and credit control teams are working with a common approach to credit management. Westell suggests upskilling sales staff to understand what credit management colleagues do, and why, particularly in relation to credit control issues.

Supply chain

Volatility across supply chains is well documented — it is imperative for a company to understand its own position within other chains and how its clients and suppliers perceive it as a credit risk. This is especially important for a transport company, that can feature at any point within a supply chain and often more than once.

This is the juncture between internally focused and externally focused credit management, the point where the credit team becomes an extension of the finance team to ensure that suppliers have confidence in the business’s resilience and ability to fulfill its role within the chain. Companies should consider whether they have optimised their sources of working capital — through securing credit lines to suppliers and collecting the cash from customers — to keep the cash flowing through the business.

The coming months will be challenging for transport and logistics companies, but also full of opportunity. Those companies that have put in place robust credit management plans ꟷ and that review and update those plans on a regular basis ꟷ should be well placed not only to survive the changes that are likely, but to thrive.

Meet the authors

Ian Leslie

Ian Leslie

Sales & Business Development Leader, Trade Credit

  • United Kingdom

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Jono Hall

Trade Credit Development Manager, Trade Credit

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