How hauliers can reduce cost and improve cash flow with the right transport management software
Hauliers have long been under constant strain to remain profitable, but perhaps now more so than ever before as three major events in as many years are taking its toll on the British economy.
In the same year that Brexit significantly affected commercial activity levels, export costs, driver availability, transit time between the UK and EU countries, order times and supply levels, Covid-19 lockdowns exacerbated the impact through global supply chain issues.
Unsurprisingly, the Office for National Statistics (ONS) reported that the UK economy shrank by 0.3% in the third quarter of 2022.1 Whilst a 0.5% expansion in October and 0.1% growth in November mean that a technical recession (two consecutive quarters of contraction) has been averted for now, economists say it still seems inevitable.
Add to this the Russia-Ukraine conflict that led to soaring oil and energy prices – including June 2022 seeing the highest fuel price in five years – and it’s no wonder that profitability in road haulage is under significant pressure.
The challenges for transport operators
Despite road haulage being a crucial industry in the economy, it is fiercely competitive and often self-defeating when it comes to pricing, rendering hauliers particularly challenged to survive in tough times.
Industry profit margins are expected to shrink as a result of increased depot rental costs due to the base interest rate hike announced by the Bank of England, the record-high fuel prices, and a severe shortage of qualified drivers. Subcontracting drivers for certain jobs rather than employing them directly, leasing vehicles rather than buying, auditing, computer systems, tax, insurance, and telecommunications all come at significant costs.
There are also the everyday issues that hauliers face in the running of their operations. These include:
- Empty running. Recent figures by the Department for Transport estimated that about 28% of HGV travel in the UK involved vehicles running empty. It’s a costly problem as operators have to charge more to make up for empty running but then risk pricing themselves out of work.
- Ineffective route planning. Because routing errors lead to extra costs for operators by way of delays, increased fuel consumption, more wear and tear on vehicles, and fines and penalties for passing through restricted areas, proper route planning is critical yet often not addressed fully.
- Manual invoicing. Some of the most common challenges cited with manual invoicing include incorrect or partial information recorded, illegible handwriting, and low-quality images. Aside from delaying the issuing of invoices, these factors can also delay payment, as the wrong details recorded can lead to disputes, further delays and perhaps worst of all, a tarnished reputation. The knock-on effect for the haulier isn’t only that all their cash becomes tied up in invoices; it’s also felt in their ability to take on more jobs as there isn’t enough cash to cover fuel, wages, and vehicle maintenance.
- Lack of IT skills and hardware for digital transformation, plus associated costs. In a survey conducted by Mandata, 40% of respondents said that a lack of in-house IT expertise and technical knowledge was a major barrier to adopting new technology.
- Misplaced or lost proof of delivery. A serious issue impacting haulage companies’ ability to complete the order-to-cash cycle is inaccurate or misplaced proof of delivery, required for invoicing.
- Providing customers with the updates they want. Visibility isn’t just important to the haulier; customers are also increasingly demanding full visibility of their orders, every step of the way. But for back-end haulier staff, answering customer queries can be time-consuming.
Cost savings under the microscope
The Road Haulage Association recommends that hauliers should work towards adding at least a 5% margin to total costs on every job.7 This number is achievable, as recent figures show – Motor Transport’s annual Top 100 report outlines what the UK’s top logistics companies are achieving in the market. In 2020, average profits before tax were reported at 1.51%, improving to 3.4% in the following year, and again to 5.2% in 2022.8
That said, many hauliers will agree that raising prices isn’t always possible. So, unable to change the economy and with limited scope to increase costs, the next natural step is to re-assess internal costs as a means of keeping cash flow in the green.
Reducing waste in all areas of the business, from small wastes like unnecessary printing to large wastes including empty miles, has never been as critical for survival as it is now. Some solutions will become immediately apparent just from everyone being ‘waste aware’, but others will undoubtedly be harder to pinpoint and solve. As the saying goes: you can’t get a different result by doing the same thing. If hauliers truly want to change their game in tough times, the answer potentially lies outside of ‘how it’s always been done’.
Technology as a tool to reduce hidden waste
It is well documented that the logistics industry is lagging behind other industries in adopting technology to improve operations. And yet, the right transport management system (TMS) makes it entirely possible for hauliers to achieve cash flow improvements, which is why so many of the country’s most successful hauliers are fully bought into dedicated transport management software to help them with the following:
Minimise empty miles
According to a 2017 Transport Research Laboratory freight collaboration study, achieving a 5% reduction in base mileage could save operators up to £4,600 per vehicle over six years.2
One reason for empty running is a reliance on outdated, manual processes. A transport management system offers solutions that help transport planners optimise their routes to reduce empty miles. For example:
- Map-based planning tools allow planners to see where their vehicles are doing trips that are bringing in revenue, and where they’re running but not making money.
- Maps allow planners to fill these non-paying parts of the journey, helping them save on fuel and other operational costs while reducing greenhouse gas emissions and their business’s carbon footprint.
Avoid costly planning inaccuracies
Route planning errors can be costly and disruptive to any haulier’s operations, impacting profitability. That is why accurate planning is critical. A 2020 Aptean article on the cost of inefficient route planning states, “We’ve found old-school route planning methods could mean your overall transportation operational costs are 10-30% higher than they should be.”3
Transport management systems with route planning functionality and functions such as built-in availability alerts, next-stop suggestions, and planning and arrivals boards prevent these costly route errors. Plus, planning teams know the status of every job in transit.
Increase invoicing speed and accuracy
With many operators still spending a lot of time managing manual invoicing and allocating payments, most will agree that as a manual task, it’s one of the most time-consuming processes in the industry.
A 2018 Dutch survey by Betaalme.nu among small and medium-sized suppliers showed that 49% of respondents send out invoices more than five days after delivery has been made.4 Yet prompt, accurate invoicing is critical to maintaining a steady cash flow and withstanding economic volatility. Therefore, speeding up the process, especially in small businesses without sufficient cash flow reserves, should be a top priority.
TMS invoicing tools can remove the need to duplicate job data on an invoice, saving finance staff considerable time spent on support and administrative tasks. The TMS can also batch-send invoices via email, freeing up time for admin staff and saving on postage costs.
RJK Logistics, a Staffordshire bulk aggregate and waste removal specialist, last year reported that they have saved 20 hours a week on invoicing alone since implementing a TMS in 2019.5
Remove the need for IT skills and hardware cost outlay
With the right cloud transport management software and support in place, hauliers don’t have to deal with the headache and expense of buying and maintaining hardware, so they can focus on running their businesses.
Eliminate lost proof of delivery documents
Electronic proof of delivery (ePOD) not only ensures that lost paper PODs are a thing of the past, but it also allows for faster invoicing and shorter payment cycles while reducing the cost of buying stocks of paper. Plus, it increases the accuracy of details recorded, reduces disputes, and ultimately protects revenue.
Empower customers to access consignment updates independently
Investing in a self-service customer portal that also gives customers access to proof of delivery documents and invoices is one of the fastest ways to increase their satisfaction and transform a business.
A 2022 Digital-First Customer Experience Report showed that 81% of customers want more self-service options.6 Many transport management systems come with a built-in customer portal so hauliers can give their clients the ability to place and amend orders online. This eliminates manual job entry for the haulier and the customer and reduces staff hours spent answering customer queries.
Thriving despite a tough economy
While it isn’t possible to change the economy, it is possible to respond in a way that addresses the areas where waste most commonly occurs – not only to survive, but to grow. By using the right transport management software, hauliers give themselves the best chance of successfully navigating the looming recession and emerging stronger from it.
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