Recent rationalisation of haulage distribution contracts by firms such as
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Milk Marque and British Steel have raised questions about business thinking on this issue. David Craik finds out why some firms prefer a "safety in numbers" approach compared with "putting their eggs in one basket" and tries to locate hints of future trends.
Business collapses in the haulage industry in 1998 were For many on a scale never seen before in their lifetime. Excessive fuel prices were on many occasions the trigger for such dispiriting statistics. However, for at least six small hauliers from mainly the NorthWest of England another knockout blow, with the certain potential of greater long-term concern for hauliers' livelihoods, heralded the end for them.
Wirral-based L Lindfield had been transporting steel out of British Steers Shotton Plant for a number of years. And the other five hauliers' work history at the plant
totalled well over half a century. However, such experience and loyalty were lost on the management at British Steel when it decided to scrap its multi-haulier distribution arrangement out of the plant last year. The result was that the distribution contract was handed to just two firms, Bridgend-based Canine Transport and West Midlands firm Faber Prest Steel Distribution.
Barry Lindfield, director of the now defunct L Lindfield, says his company tried to continue its steel distribution work as a subcontractor out of Shotton but low rates made it impossible to continue.
Open tender
It is a claim denied by Carline Transport managing director Richard Brown. He says rates for subcontracted work have not fallen. He is also equally as dismissive of the effects of British Steel's decision to offer an open tender for the Shotton distribution contract. He describes it as "a fact of life, we have to operate commercially".
There seems little doubt that the collapse of L Lindfield and the other hauliers was triggered by British Steel's decision to offer an open tender for the contract.
So far, 1999 has seen further rationalisation of contracts. It's a worrying trend when companies begin to favour the use of a smaller number of hauliers on their contracts to the detriment of a growing number of spurned operators. Why do they see rationalisation as necessary? Do they feel a large number of operators on a contract is too unmanageable, too inefficient? What is an ideal size?
To make sense of these questions it is best to investigate the reasons and motives behind two of the most recent contract rationalisation announcements—those of milk marketing co-operative Milk Marque and Paisley-based Scottish Milk.
Earlier this month Milk Marque decided to cut out seven of its 14 milk haulage distributors from this November following a national strategy review (CM3-9 June). The result was the ending of contracts for ACC, Bulkfood Transport, G Easton & Son, Express Distribution, Merlin Distribution, Ryder and Wincanton. Pat Williams, director of distribution at Milk Marque, explains that "we are simply not hauling as much milk as we used to. Milk volumes have reduced."
Williams says this is the only reason for the cuts and denies that rationalisation to improve the overall management of the company's distribution operations by using a smaller number of hauliers was an impetus. "I can see that haying fewer hauliers and dealing with fewer numbers of people would mean a smaller amount of meetings, for example.," he says. "However, this is not what has brought our decision forward."
As for whether other firms will see this as a basis for rationalisation, Williams prefers not to speculate. He says no subcontractors will be affected by the firm's move.
John Duncan, chairman of Scottish Milk, says his company's similar cut in size of its haulier fleet was instigated to achieve "a more efficient and cost effective service". From r August six hauliers will distribute mainland milk compared with io before an open tendering process was deemed necessary.
One of the hauliers affected, and proving that in today's haulage climate no one is safe, was McKinnon's of Kilmarnock, owned by former Road Haulage Association chairman Bob McKinnon. Despite this reduction of almost 50%, Duncan is quick to calm fears that further dramatic rationalisation could happen in his company or indeed the industry as a whole.
"It would be a misplaced decision to reduce distribution contracts to just one or two operators," he says. "This would make your firm vulnerable. It is best to have the option of having a number of hauliers to compare each one's performance. This gives your firm greater flexibility."
One firm which would strongly agree with Duncan's advice is interrnodal operator Geest North Sea Line. Back in the spring (CM 8-4 April), it bucked the trend established by most, notably British Steel last year, by deciding to use four dedicated hauliers instead of only one.
Many quarters
The casualty was Securicor. Geest Transport manager Mark Bennett said at the time the move was made because "Securicor has been here so long maybe there was a bit of complacency." Bennett said the move was instigated by the realisation that Geest would become more cost efficient and would enjoy "increased flexibility".
It was hoped in many quarters at the time that Geest's move would herald changes. It was hoped it could bring to a general end the slashing effects of rationalisation.
On the outside, the decisions by Milk Marque, Scottish Milk and Marks & Spencer to move from three dedicated hauliers to two in May (CM 20-26 May) seems to have washed away those optimistic wishes but the issue is surely not that clear cut.
Although Geest has increased its number of hauliers, it still has only four, while Scottish Milk has six and Milk Marque has seven. There is deep concern for those hauliers left with no milk distribution come August and November but encouragement must be grasped by the strong words against further rationalisation by John Duncan and the comments of Pat Williams.
It seems that those companies which have already made recent changes to their distribution contracts are against the philosophy of "putting all your eggs in one basket". But to get a surer feel of the current thinking in major UK companies it may be necessary to ask one firm which has not made a recent contract change.
Current thinking
Mark Owens, of Boots' distribution support department, says its haulage distribution contracts have remained almost static "for years". What is its current thinking? The last review of Boots' trunking contractors came in 1997 when six hauliers were reduced to five. The loser then was Exel Logistics, due to an "unattractive rate offered compared to others", says Owens. A further reduction in the number of dedicated hauliers was not then and is now not part of Boots' thinking, he says.
"Some firms might reduce their number of hauliers to one or two because they might think their whole distribution operation would be easier to manage," he says. "I don't hold that view."
Owens warns of the lack of flexibility of using just one haulier if things go wrong. "The thinking is that with one you only have to pick up the phone to one person," he says. "However, there is not much difference in this and dialling five numbers as we do." But Owens believes that having too many hauliers on a contract is also unnecessary. "This makes the haulage contract that your firm is offering unattractive," he says.
Trends in this area seem difficult to pin down. The days of multi-haulage contracts might have gone but there is encouragement in the fact that there seems to be no rush to reduce contracts to just one or two operators. There still seems a desire to retain flexibility: This means that hauliers similar to those left high and dry by British Steel's move last year should be able to sleep easier—but they might be well advised to keep at least one eye open.