Monday 29th Oct 2018
Funding Problems in the Haulage and Logistics Industries
19 Apr 2018
As we move into 2018, there’s much discussion around the challenges facing businesses in the coming year, particularly as Brexit approaches without significant clarification. In this article, we’re going to take a look at some of the big funding issues that the haulage and logistics industry are facing. This is a significant industry in the UK, and one that can be easily affected by a number of factors. You don’t have to dig deep to unearth some of the elements that cause them major headaches.
Haulage Industry Overhead Costs
The most significant of these issues is likely the very high cost of operation, which is intrinsic to the industry. This is not an industry where overheads are low, nor is it an industry where overheads can be grouped together and easily paid monthly, or even over a period of months. Every single hour of operations costs money, with a very significant portion of this coming from fuel, which is a very regular financial commitment, and one which is rising in 2018. Without spending money, operations simply cannot continue. On top of this are repair costs to vehicles, which could happen at any time, and all manner of other sudden costs. It therefore becomes apparent very quickly that any problems with cash flow can become quite serious.
When you take into account staffing costs, and the costs associated with running and maintaining warehouses and other buildings, it’s easy to see that the haulage and logistics industry needs significant cash available at all times. Bills will be regular, and the cash needs to be there to deal with them, even if the business is otherwise performing very well. In 2017, Hitachi Capital conducted a survey within the industry to find out what the transport industry was thinking about for 2018, and the biggest concern was indeed cash flow, with more than 20% of businesses saying it was their greatest concern.
Part of this problem is that haulage and logistics companies can often find themselves at the lower end of the supply chain, depending on what they’re moving. When this happens, they may well be one of the lowest priorities for receiving payment on time with invoice finance being a popular product to circumvent this issue. End purchasers and retailers are generally the first to exchange money, and this ultimately means that payment terms will be pushed as far as they can go the lower down the chain you move. This naturally affects cash flow considerably, and it’s all too common in haulage, logistics and transport. The uncertainty of Brexit certainly isn’t helping, both on terms of the knock-on effect from other businesses, and in regards to potential future regulation or a lack of such.
Transport Funding Solutions
So where does this industry look to help with funding? Interestingly, this will depend on the age of the business. The findings may surprise some, with newer businesses and startups more likely to trust the more traditional lenders such as banks. It’s more likely that businesses that choose these lenders will opt for the better known financial products such as overdrafts, which offer the ability to dip in and out a set line of credit in order to even out cash flow. On the other hand, larger and more established companies are fairly unwilling to work with common lenders, with only 14% of them fully trusting banks and similar organisations. It’s likely that these businesses may be more likely to consider alternative finance products such as transport specific invoice finance, which releases the cash tied up in invoices. These products may be especially suitable for larger businesses that are effective at making money, but still need cash at hand for operational expenses.
It will be interesting to see how 2018 plays out for the haulage and logistics industry as Brexit becomes clearer, but what we do know is that this is an industry that doesn’t like to borrow if possible, and will be agile in looking for alternative solutions.