SMALLER hauliers bearing unfair share of business risk says Martin Reid
Nearly two years ago, in this same publication, I wrote an article voicing my concerns about the poor payment practices that are endemic within UK industry. Not only has there been a lack of improvement in payment practices, but it could be argued that things may have got worse.
The recession meant the end of the road for many of the lower tier contractors in the road haulage industry – the sub-contractor’s sub-contractors, if you will. Some surrendered their licences because chasing payment became too onerous, some were taken down by other companies going bust and some decided to sell out to bigger companies. Now anyone who wishes to engage with smaller haulage companies are left to fish in an ever diminishing pool.
Logic would dictate that Tier 1 contractors would be protecting such a vital part of their supply chain but what our members are experiencing is quite the opposite. In 2014 the European Commission proposed a maximum payment delay of 60 days from invoice unless both sides agree to longer terms, freely and without market coercion.
These 60 day payment terms (from monthly invoice date this generally means up to 90 days) are already the norm, but we are seeing invitation to tender documents stating that anyone tendering must agree to the payment terms (whether they be 40 days, 60 days or 90+ days) in order to be considered. I am not a lawyer but to me this would not appear to be agreeing “freely or without market coercion”.
The biggest single cost to hauliers is diesel, around 40 per cent of overall costs. Setting aside the ridiculous duty on fuel (don’t get me started on this!) most hauliers must pay their fuels costs up front, in most cases within two weeks, which can often be before the service has been delivered. The reality is that hauliers who are Tier 2 contractors or below are outlaying money and not getting it back timeously, bearing an unreasonable risk in supporting the supply chain. It is little wonder that during the recent recession ten sub-contractors were failing every day, 50 per cent of those down to late payment.
So what happens if the client is dissatisfied? We know that in cases like these the client has little reticence in backing out of the contract and finding another haulier.
Those that have the luxury of full order books can be picky, but full order books are rare and most hauliers must compromise, negotiate and work with their clients.
Updating these practices will take a seismic change in how industry procures services. It could potentially take a major player to say they will not tender for the work under those payment terms and I have little doubt that many will also stand up and say “I’m Spartacus” in support. That being said there is little doubt that as soon as these companies walk away from the contracts then there will be a queue ready to step in.
I guess what I am saying is when goods and services are procured and delivered on time then pay your haulier quickly. If you don’t, you may find the good ones will be working for someone else who pays quicker the next time you call.
• Martin Reid is business unit director (north) at the Road Haulage Association