KBC Logistics

BOUNCING BACK: Asset Alliance Group believes operators are gaining confidence as the economy returns

“This is no different as we look to support customers in their recovery from the pandemic and return to normal trading patterns, including replacement cycles for their fleets. We look at the underlying business and the people behind it as well as the latest results, so we will find a way to enable customers to continue to renew or expand their fleet when they need to.”

Busy times

In Essex, just outside the Greater London boundary, KBC Logistics says it was assisted by its lenders with CBILS, but transport director Dave Ashford says it is a strong business; it remained busy throughout the pandemic and so, financially, it has been lucky.

However, the Purfleet company was still forced to spend money in 2020 replacing its Euro-5 fleet. “It would be nice to be able to keep the trucks as long as possible, but the London mayor has put paid to that idea,” says Ashford.

“Being based on the edge of the Direct Vision Standard [DVS] and the Ultra Low Emission Zone has resulted in the need to replace about 70 trucks that would otherwise have done the job. We purchased using HP; 33 trucks in February, 20 in January and 21 in October to dispose of all our Euro-5s by March 2021. It was an expensive few months. To be fair, most were due to be changed, but London forced our hand. We had quite a few decent older trucks that would have been worth keeping on the fleet, but we could not take the risk of them being planned within the zone by mistake, or a driver using the North Circular instead of the M25 in an unsuitable vehicle.

“It seems like everything is being stacked up against operators at this difficult time. There must be a lot of operators who threw in the towel.”

Limited impact

Paul Wright, sales director of Asset Alliance Group, says the government-backed funding schemes and payment holidays were vital “in a significant number of cases to assist hauliers through the difficult times brought about by Covid”.

Wright acknowledges that they were intended to provide the support hauliers needed to navigate reduced trading and demand, but he also points out that as the recovery progresses and a level of normality returns, CBILS and bounce-back loans will need to be repaid and payment holidays will come to an end.

“So financially, there will be a limited impact,” he says. “That said, fleets continue to age and replacement and renewal of assets will always be required, so there should not be much of a material link between the funding support packages and any significant downturn in fleet replacement programmes.”

He adds: “Our customers have needed to rethink renewal and investment strategies during the Covidimpacted period and have had to adjust accordingly. Many had previously run on their fleets due to the uncertainty of Brexit, but with the negative economics of retaining ageing assets, we saw many customers extending their fleets initially.

“This is largely changing as confidence increases and the economy returns, with many customers planning to renew or already renewing their fleet with us.”

And he goes on: “With the introduction of new legislation, particularly DVS, coming into force this year, we have engaged and consulted with customers well in advance to ensure they retain a compliant fleet.

“For some, a preference was opting for the flexibility of a short extension, but as operators are gaining confidence as the domestic economy returns and with manufacturer lead times at a level we have not experienced for many years, our customers are now looking to secure renewals of their fleets with us.” ■

SUPER-DUPER OR LESS THAN IMPRESSIVE?

Chancellor Rishi Sunak’s Budget announcement of a “superdeduction” initiative to boost investment in plant and machinery was part of a raft of ideas to haul the country out of the Covid-19 doldrums.

But his aim with the capital allowance deduction is also to address long-standing productivity growth issues, which Tim Wright, MD of warehouse management firm Invar Systems, describes as “less than stellar” even before the financial crash 13 years ago.

The scheme allows firms to claim 130% of their expenditure on approved plant and machinery against their tax liability – investments that would normally qualify for only an 18% allowance.

According to Wright, just about any equipment installed in a warehouse or DC is covered. Building alterations and electrical system upgrades are included.

Wright says: “Rishi Sunak’s super-deduction capital allowance offers the logistics sector a golden opportunity to invest in performance-enhancing automation, giving fulfilment operations the boost to productivity needed to cope with the surge in e-commerce orders.” But not everyone is convinced by the scheme’s effectiveness.

The Finance & Leasing Association (FLA) and the BVRLA are urging the government to address what it called a “serious missed opportunity to boost investment”.

In letters to ministers, the trade associations explain that some businesses can ill afford to make large capital expenditures.

FLA director general Stephen Haddrill says: “The idea that businesses expand and become more productive by buying plant and machinery outright is outdated. Leasing and hire make far more sense. It preserves cash in the business and can avoid having expensive equipment that stands idle.”

Gerry Keaney, chief executive of the BVRLA, says that, given that the government understands the role of vehicle leasing in delivering decarbonisation goals, omitting leased vehicles from the super deduction is “all the more disappointing”.

Keaney adds: “This is a huge oversight, and an example of where the government has failed to align its fiscal and environmental policies. With clean air zones popping up around the UK, this is the perfect time to incentivise the uptake of low- and zero-emission vehicles, and leasing enables businesses to keep their cash to help get them through the recovery period.”