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Lorry driver shortage not a threat to retail earnings – yet

Claims of crisis in the logistics industry not yet mirrored in comments from retail
June 30, 2021
  • Perfect storm for logistics industry has created massive driver deficit
  • Impact is yet to pose a major threat to company earnings

The cries are getting louder, the headlines scarier. Recently, a steady drum beat has been sounded out by the logistics industry, warning of imminent shortages on supermarket shelves and damaging disruption to retailers if the UK’s deficit of lorry drivers isn’t rectified soon.

On 23 June, the Road Haulage Association (RHA) and 21 other freight industry groups wrote to the prime minister to ask him to intervene in what it described as a sector at crisis point. The trade body estimates the country's shortage of HGV drivers has grown from 60,000 to 100,000 since the pandemic hit and that critical supply chains are now failing.

Underlining the impact on business, the letter was co-signed by chief executives of listed haulage specialists XPO Logistics (US: XPO), Kuehne und Nagel (Sw:KNIN), Wincanton (WIN) and Logistics Development Group (LDG), formerly known as Eddie Stobart.

Another survey, carried out by the Chartered Institute for Logistics and Transport and Logistics UK, found that one in three hauliers cannot fill driver vacancies.

This week, it was reported that the government held discussions with retailers to ease their concerns about any looming shortfall. Both retailers and logistics firms have called on the state to relax restrictions on workers’ driving hours, provide emergency training for new drivers and boost capacity to clear a backlog of HGV driving tests created by several lockdowns.

But so far, the Cassandra-like noises from hauliers aren't being mirrored in comments from retailers themselves, suggesting labour issues in the logistics sector aren't yet a threat to sales or earnings.

Andrew Opie, director of food and sustainability at the British Retail Consortium (BRC), said the driver shortage had so far only resulted “in minor disruption” to some supply chains.

“Supermarkets are working closely with their suppliers to ensure that consumers still have access to the same great selection of goods,” he added. “Government must rapidly increase the number of HGV driving tests taking place while also looking for a longer-term solution to this issue."

Another industry source cautioned that while the issue had reduced choice or shortened durability dates of some products, there was no sign that goods are in short supply.

This sentiment was echoed by Tesco (TSCO), the UK’s largest supermarket chain, which acknowledged the problem on a recent call with analysts but said it was comfortable with the availability of drivers to cover its deliveries. "We're also working exceptionally hard in terms of our driver numbers and making sure that we can keep that availability very high," added chief executive Ken Murphy.

For smaller businesses and those with greater reliance on third-party contractors, anecdotal evidence suggests the shortage may have started to affect stock turnover and cash flow.

The Federation of Wholesale Distributors, a trade association, has said its members were struggling to deliver to convenience stores, pubs, restaurants and care homes, and has called for the government to place army drivers on standby to ensure food distribution is not interrupted.

One operational director at a major fast-food chain told the Investors' Chronicle that driver shortages were leading to regular and sporadic changes in food availability. "The challenge is trying to proactively manage the risk and share the load across stores - i.e. rather than closing stores can we share the shortage across all stores to spread the impact," they said.

To help mitigate the impact, both the BRC and RHA have asked the government to update immigration policy so drivers are added to the skilled worker list. The twin effects of Covid-19 and Brexit uncertainty has led many drivers to return to their home countries since the start of 2020. According to the RHA, the vast majority have not yet come back.

"We are not going to solve this now by training drivers and as such need access to EU and EEA labour," the group said in its recent letter.

Compounding the problem has been the introduction of the IR35 accounting standard. Though designed to combat tax avoidance, the rule has made it uneconomical for agencies to place drivers in industry. This suggests one solution may be to raise wages, which could in turn create cost inflation for businesses, though this is complicated by the highly-commoditised nature of logistics work.

Another industry source said some self-employed drivers had stopped working in the pandemic to qualify for the Treasury's self-employment income support scheme, or had taken local delivery jobs with a better work-life balance. With fewer than 1 per cent of the HGV workforce aged under 25, and the average age of a driver now 55, the sector also has a demographic challenge on its hands.

However, it remains to be seen whether acute labour shortages will hamper margins and growth within the logistics sector. Some have at least adopted a proactive approach. Wincanton, which along with peer Clipper Logistics (CLG) declined to comment for this piece, is in the process of funding 200 apprenticeships this financial year. This includes paying for training, which at a cost of up to £5,000 has been cited as one of the obstacles to attracting new drivers.