Van delivery businesses operate on very slender margins

van delivery serviceCourier and other delivery services that operate using vans do not need one of the three main types of operators’ licences required in the UK if their vehicles have either a gross plated weight (the maximum weight that the vehicle can have at any one time) below 3,500 kilograms (kg) or have an unladen weight of less than 1,525 kg (where there is no plated weight).

Generally, one of three business models applies to these types of companies. They are either companies that have their own vans, or they are one-man van companies or two-man van companies.

In terms of labour the two-man per van model, which specialises in loading and delivering such things as furniture and white goods, is the most costly to run.

But in all three cases the full costs of operating the business are going up significantly because of fuel price inflation, exchange rate fluctuations and the incredibly competitive market in which it operates. And the cost of vans and parts is likely to rise since the recent change to exchange rates.

Can van delivery businesses become more efficient?

Efficient fleet management is key. We came across a case of a company operating its own vehicles that had agreed to a delivery deadline for the goods from their factory.

However, one item was not ready so the factory manager decided to send out all those goods that were ready then have the van deliver the missing item the next day. This doubled the transportation costs and as a result crystallised a loss on the order. The factory manager had simply treated the van as a convenience and not a cost to be managed. There were many alternative options but all too often convenience is chosen without regard to cost or efficiency.

Another problem faced by some delivery companies is that they are operating under a franchise model using self-employed drivers. The recent ruling against Uber is likely to significantly add to these companies’ costs because they will have to comply with employment laws and the pay minimum wage unless an appeal overturns the verdict.

A third issue is the cost of warehousing where delivery companies are receiving goods into warehouses for onward delivery or storage and calling off. This model introduces the additional burden of tracking goods and having an efficient system in place to manage both storage, retrieval and delivery. While this provides scope for adding value and charging a premium, it requires investment and training which are all too often ignored and lead to the business failing.

One area that seems to justify a margin is handling valuable or specialist goods such as art or glassware. While it can take time to build a reputation, the relationship with customers can change from simply being all about cost to developing a partnership.

Manufacturers however are often wise to outsource deliveries which will allow them to focus investment and training on their factory.  But like the first example, duplicated journeys are expensive so deliveries need to be managed.

As to the van delivery companies, the competition in the market is fierce and it is likely that there will be considerable insolvencies as costs rise. Survival and profits are all about systems and volume, or specialism.

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