How Finance functions are adapting to the challenges in the Transport sector

Introduction

The UK transport sector has come under considerable pressure over the last few years and with Brexit imminent at the time of writing this is unlikely to change in the near future, HGV drivers are in acute short supply and as Brexit is reducing the flow of experienced drivers arriving from Europe this is causing real issues.

The pay response

Companies have responded by increasing pay, part of the issue is however, that there are 45,000 less licence holders in the UK than jobs available so pay is not the only factor, availability is a big issue. Furthermore, drivers need to live within reasonable distance from their depot which then means the shortage is particularly acute in some locations. Job retention is a challenge as not everyone has good people skills and not every type of freight and customer profile are rewarding to handle.

Other costs

The living wage has impacted on a lot of companies as whilst drivers typically earn far above the National Living Wage, warehouse staff and admin typically don’t.

Auto — Enrolment, employers rates have rising from 1% of applicable payroll to 2% and are due to rise again to 3% from 1st April 2019.

Business Rates — Large depots mean significant rates bills, and the recent rebasing of business rates has increased costs for many.

The national objective.

The Government has set out an objective of moving the UK to a high pay, low tax economy, that is welcome as is the intention that everyone saves and enjoys a good standard of living in retirement.

Companies in the transport sector are however having to manage and adapt to this transition more than most.

The sorts of approaches that are being followed and are working are ones which involve economies of scale, at one level there are acquisitions which then means overheads are spread across a bigger revenue, other examples include pallet networks in which operators work together and focus on their home patch, which means a higher density of customers around each depot whilst offering a national operation without the need for small remote depots.

Fleets are being changed to include smaller van types of vehicles as these are easier to recruit drivers for, even though they may not match the freight profile in some locations there are fifty times more van driver applications per role than equivalent HGV ones. That reflects that HGV licences are not required.

Finance teams

Tracking revenue per customer and consignment levels per customer then ensuring cost increases are passed along is vital, therefore finance and sales need closer working than before.

Understanding costs in more granularity is the key to keep costs under control and the prevention of cost creep, here finance and operations need a better and closer relationship than many have seen or experienced previously.

Functions that are successful are the ones embracing technology for example OCR scanning of invoicing and developing departmental P&L’s and budgets which can be used by operational managers using the internet to approve and review invoices and expenditure.

Training and educating non-finance professionals is a key part of this.

Weekly flash reports that share key metrics around the senior team such as forecast sales, and forecast cost outturns help to ensure the direction of travel is the correct one and cost overruns are highlighted ahead of month ends rather only after monthly management accounts are produced.

In general, a far higher level of challenge and commensurate skill is needed than ever was the case before.

Conclusion

Stronger finance teams are increasingly required by Transport companies to address the changes and challenges in the industry.