Tough trading conditions and escalating fuel prices claimed the scalps of Macfarlane Transport and Innovate Holdings – and analysts warn that there will be plenty more casualties in the future.
However, while no buyer could be found to save even part of Macfarlane's stricken business operation, administrators have managed to save more than 1,500 of the 2,000 jobs at Innovate Holdings, following sales to Stobart Group and Harry Yearsley. Accountancy network BDO Stoy Hayward is optimistic that "final-stage negotiations" will lead to further purchases of the Innovate empire.
Customers and suppliers of the two companies say they were not surprised by what has happened, but concern is mounting about the knock-on effects of losing these big clients.
Second chance for Macfarlane
For the 300 staff at Leeds-based Macfarlane, the closure of the general haulage company was a bitter pill to swallow. After the company was placed into administration two years ago, Stephen Cooke was seen as a knight in shining armour when he rode into town and bought the company for £430,000 to create Macfarlane Transport Holdings. Cooke told the trade press shortly after his purchase that in order to avoid further pitfalls it was important not to assume that volume was always a good thing and that "management information needs to be of the highest quality".
But the company's demise has angered some subcontractors, who feel they have no chance of being paid. One, general haulier Paul Arthurton, says he lost £700 the first time Macfarlane was in financial difficulties. This time he's owed £1,200 but he doesn't think he will get his money back. "No way, I won't even bother," he says. "I won't get it. It's an absolute joke."
Macfarlane Transport Holdings' last set of accounts, to December 2007, showed that the £20m company had increased turnover by £2.4m and turned a £364,000 loss in 2006 into a £225,000 pre-tax profit. But this still represented a profit margin of just 1%.
Its business review was upbeat and mentioned a substantial new contract in the magazine distribution sector, as well as long-term contract renewals with its two largest customers. It described strong competition and increasing fuel prices as concerns, but added that a "large proportion of our major customer accounts" had fuel matrix mechanisms in place.
Reasons for downfall
However, it is these two factors that the administrators blame on the company's demise. Joint administrator Richard Fleming explains that "lower volumes from contracted customers due to wider malaise, and increased competition due to lower volumes generally finished off the business. He adds: "Hauliers feel the pain quickly when consumer demand falters and this is what happened here."
Transport Intelligence chief analyst Thomas Cullen is blunt in his judgement of the sector: "Road hauliers are getting a caning." He explains: "Their business model doesn't work very well. There's too much competition; they can't pass on fuel costs or they can't pass it on fast enough.
"There are too many road hauliers out there in too weak a position and there's competition from cabotage. Entry barriers are low and competition is fierce. There will be a lot more casualties in this area."
Macfarlane's Mercedes dealer, Northside Truck and Van, is owed £20,000 by the company, but MD Tim Ward says its biggest worry is how it will replace the work. "We knew it had cash flow difficulties," he says. "It's dreadful at the end of the day 300 people have lost their jobs, that's who I feel for. It's not the end of the world, but what's going to be the knock-on effect on our mechanics and our workshops?"
A spokeswoman for Stobart Group confirms it did look at Macfarlane to see if there was anything worth buying, but she says: "We decided it wasn't the right fit for us operationally or financially."
Jobs saved at Innovate
This wasn't the case with Innovate Holdings. The sale of the business by its administrator BDO Stoy Hayward reflects the gulf between general road haulage and specialist logistics businesses in the UK. Within days of its administration Stobart Group bought its chilled and ambient business, saving more than 1,000 jobs, and Harry Yearsley purchased its frozen unit to the relief of a further 550 employees.
The sole owner of Innovate, Icelandic shipping giant Eimskip, says the assumptions it made when it bought Innovate "significantly changed" and that it blames "lower than expected capacity utilisation of warehouse and transportation network assets lease and financial costs and losses in recent months" for weakening the company's financial position.
Eimskip's board decided against investing any more into the company in June and decided instead to look for potential buyers.
BDO won't comment on the financial health of Innovate Holdings and its individual businesses, or why exactly it had to be placed into administration. However, a spokeswoman tells CM: "We are speaking to interested parties therefore people wouldn't be speaking to us if they thought it wasn't worth buying."
She adds: "We are continuing to trade the businesses and are in the final stages of negotiations with interested parties to secure other parts of the group."
Over-investment
Cullen says he is unaware of Innovate's specific circumstances, but he explains that a characteristic of the sector in which the company operated is heavy investment in infrastructure in expectation of a large client. "Companies over-invest and can't cover those costs, particularly when you bump into rising fuel costs. In contract logistics it's all about the contract – passing on the fuel costs."
A spokesman for Innovate's Volvo dealer, Crossroads Truck and Bus, claims the writing was on the wall after Innovate's managing director Pete Osborne left the company at the beginning of this year and then Eimskip started making announcements about the groups' financial performance. "Innovate had a really good, strong balance sheet," he adds. "It was only as it expanded that it came to lose its way a little.
"We had some bad debt, but as we were its main supplier it was making sure we were getting paid fairly well to the end. We are now picking our way through things and keeping it running. It's business as usual and we will try to keep those vehicles employed on that contract."
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