There is a crisis building in the UK transport industry; you may have heard about it in the news. The shortage of HGV drivers has been widely reported but the causes and their actual and potential impacts are perhaps less well reported. Delfinity has had a detailed look at the reasons for the current challenges in the sector, the impact and, most importantly, what the direction of travel suggests could be waiting for us down the track.
Firstly, we have all heard the term HGV driver, but what exactly does that mean?
An HGV driver is tested for and holds a special driving licence, enabling him, or her, to drive vehicles over 3,500kg (3.5 metric tonnes) in weight. The job involves being in charge of a large vehicle, responsible for the delivery of goods nationally or internationally, and can include loading and unloading the vehicle and navigation. Drivers are often required to sleep in their vehicle. So it's quite a bit more than simply driving a large vehicle around. Most drivers work for a manufacturer, distributor or transport (road haulage) firm for an average of 48 hours a week, although drivers can’t spend more than nine hours per day on the road by law. However, they can work more hours on non-driving duties if required.
Now the well documented driver shortage. Where have all the HGV drivers gone? Clearly this is all down to Brexit, isn’t it? Well, Brexit is part of the issue.
Not so well documented is that there has been a shortage of drivers for some time; an estimated 59,000 in 2019, so pre-Brexit / pre-Pandemic the issue was live and growing.
The Road Haulage Association (RHA) reported last week that there is currently a shortage of 100,000 drivers and warned the situation has reached a “crisis point” with critical supply chains at risk of failing. That is a stark warning, and it follows a number of articles widely reported in the media over the last few weeks. An article in the FT recently reported that research suggested 12,000-15,000 EU drivers had returned home, partly because of the Brexit and/or the Covid-19 pandemic but also partly because of tax changes to the operation of IR35 regulations.
Many of these EU drivers were self-employed, operating as small limited companies to reduce their tax liability. This has now been stopped following IR35 changes by HMRC that requires all contractors with turnover above £10m or 50 staff to pay full tax and national insurance on their drivers. These reforms were identified as adding to the exodus of EU drivers who won’t accept the drop in incomes that come with regularising their tax status.
The research further added that while Covid was undoubtedly the initial driver of the driver exodus, a further estimated 5,000-10,000 were leaving now because of IR35.
Companies and industry associations have lobbied for HGV drivers to be put on the shortage occupations list but so far, the government has opted not do this. Covid has undoubtedly sped up what would have been a slower drip-drip effect as EU drivers returned home over time, with fewer new EU workers taking their place due to the ending of freedom of movement with Brexit.
That is not the whole story. Enter the pandemic and the cancellation of an estimated 28,000 HGV driver tests because of the Covid-19 restrictions. This has had a direct impact on efforts to expand domestic recruitment of drivers into the pool of some 300,000 qualified lorry drivers in the UK. Just 2 weeks ago the UK Government announced that HGV drivers will only need to pass one test, rather than two, in a bid to speed up the process and bring more drivers into the workforce. Under new rules, drivers would need to take one test to drive both an articulated and rigid lorry, potentially streamlining the process for new drivers to gain their HGV licence and increase lorry test appointment availability.
So a combination of Brexit, Covid-19, IR35 and driving test cancellations has had a massive impact on the number of drivers.
But is that the whole story? Not exactly!
We have all heard of the “demographic timebomb” and the UK truck driver workforce is a perfect example of this. The average age of an HGV driver in the UK is 48 years old. 47% of drivers are over 50, and only 1% are under 25. Ageing drivers retiring and not being replaced fast enough has been turbo-charged by Brexit and the pandemic. Throw in a negative industry image that includes poor working conditions, poor work-life balance, average wages and an uninspiring career path, then little wonder younger generations are put off from becoming HGV drivers – exacerbating the lack of new operators joining the sector. Even when younger drivers want to join the industry, many operators don’t want to take on drivers under 25 years old because of inflated insurance premiums. For SME fleet operators in the UK, profit margins usually range between 1-2%, which means they cannot afford to insure or train younger drivers. It is also expensive to qualify as an HGV driver – with costs ranging between £3,000 and £5,000 to gain the necessary licences and Certificate of Professional Competence (CPC.) Staff turnover for drivers is also very high, and driver retention is a big problem for the industry. The industry claims that there are nearly 80,000 qualified lorry drivers, working in other professions.
Issues on the supply side of the number of available drivers has also been compounded by the massive growth in online retailing during 2020. Online grocery grew from 8% of total spend (pre-pandemic) to 15% in the space of a few months. This almost doubling has increased the demand on an already stressed sector.
Perhaps a less well reported impact of the current driver shortage is the potential impact on smaller businesses. Last month the Grocer magazine, a trade publication, reported that wholesalers were capping deliveries to some Spar convenience stores in the Midlands where driver shortages have been most keenly felt. Many transport sector observers are indicating that there may be restrictions applied going forward; less delivery slots, more restricted supply. For businesses which don’t operate with transporters under a formal (e.g., annual) contract that could be an issue, as they may be the more likely to see their availability of transport reduced. Now may be the time to make sure that as a business you have alternative suppliers, should issues with your principal transport provider disrupt your supply chain.
The shortage of drivers is already impacting wages and will inevitably drive price inflation across most sectors. Drivers are already seeing increased pay and conditions, but these cost increases will ripple through most supply chains as costs increase as a result. The price paid by consumers in the shops is bound to rise.
Other factors are at play too.
There have been huge increases in commodity prices in 2021 across multiple sectors: wood, building materials, steel and ore, oil. Some of these directly impact the transport sector, such as oil (up 30% in 2021) and will add to the cost pressures already being driven by the driver shortage. We have all seen the price at the pump creep up over the last few months but less well known is that the pandemic plus increase in steel prices has led to a big increase in the lead times for new vehicles - and an ensuing vehicle shortage.
In England and Wales the “Pingdemic” is also impacting on driver availability. During one week in July we saw over 650,000 individuals being advised to self-isolate, some of whom will have been drivers. Whilst changes in the self-isolation rules are coming in to effect across the UK over the next couple of weeks we can expect self-isolation to remain an issue for a while yet.
This seems like a perfect storm of issues and it is hard to see how they realistically can be addressed in the short term. The move to online shopping is here to stay so the demand driving delivery volumes is unlikely to slow; it may in fact increase. This could well cause issues further down the track with service level compliance and customer service issues. Will you as a business be able to deliver on time if your transport company cannot guarantee their service? Will retailers have to start charging more for delivery, with a worse service?
Simple economics dictates that restricted supply, with increasing demand will inevitably lead to price increases, both wages and the prices paid for transport and delivery services. This Christmas could be extremely challenging as there is the potential for a very real supply chain squeeze in many sectors as these issues are played out against the high seasonal customer and consumer demand. It could well be a case of buy (or stock up) early or be disappointed. Smaller businesses may also be at a higher risk as the bigger players will exercise their influence over the sector and demand service levels are met.
Longer term there will need to be combined industry and government policies and actions to address the driver shortage. We wouldn’t bet on driverless trucks bailing us out anytime soon, but increased pay and conditions will help. The industry needs an image make-over to increase its attractiveness to younger workers and reverse the demographic (and gender) challenge the sector currently faces. Issues such as driver testing and insurance for younger drivers can only be addressed by Government and Industry working together but these measures alone will not bridge the gap in numbers.
Sign on payments of up to £10,000 which are now reportedly being offered by the larger players may bring drivers in but will it retain them longer term? A more nuanced immigration policy surely has to recognise sectors with specific shortages – that is how it works in the oft referred to Australian system. Maybe the transport café of the future is more Starbucks than greasy spoon but buckle up, this could a rough ride for quite some time.
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