Reports:

The impact of congestion charging on specified economic sectors and workers

3: Economic Sector Research

3.2 Couriers and Express Delivery

3.2.1 Introduction

Research objectives

This section of the report provides a detailed list of direct and indirect effects of the charge to the various types of courier and express delivery companies: (e.g. by size, fleet structure, wholly owned / franchise). Factors include:

• Comparative experiences of operating both inside and outside the zone;
• Behavioural changes (already taken and those under consideration); and
• Structural changes (already taken and those under consideration).

Research method

Twenty managers were interviewed. Four managers were interviewed in face-to-face interviews, whilst 16 were interviewed over-the-phone.

3.2.2 Overall perceptions of congestion charging scheme

Overall levels of support for the congestion charge are divided amongst the couriers spoken to in the research. Approximately a quarter are in favour, with the same proportion against. Half of those expressing a view found both positives and negatives to the scheme.

Figure 3b: Couriers proportion of support

3.2.2 Industry structure

Discussions with Couriers and express delivery companies indicate that the industry breaks down into two broad categories. The main organisational difference between the two service types are to be found in the systems and processes employed to achieve fulfilment, i.e. delivery of the goods:

• Next Day services are a 'hub and spoke' system where goods are collected into a central sorting facility, possibly trans-shipped to another sorting facility, before being delivered to the receiver the following day; and
• Same Day services are collected and delivered by the same Courier.

There are, of course, variations to these models, but this is the general picture as described to our researchers.

3.2.3 Types of Courier organisation

This research focused on the Same Day service - express parcels delivery.

Two very different types of organisation; the specialist 'Courier companies' and 'Private Hire' operators offer 'Same Day' Courier services. The main functional differences between these very different types of service provider are the type of vehicle used and the operational control of the vehicles.

Private Hire / Courier

• Almost by definition the Private Hire / Courier vehicles are passenger cars and many can function as a van as they are people movers / estates / hatch backs; and
• Journeys are dedicated (in the same way as passenger journeys) and face all the problems of a four-wheeled vehicle in Central London. However, vehicles that are registered as Private Hire vehicles are exempt from the congestion charge (when 'working'), this is not the case with four wheeled vehicles operated by the specialist Courier companies, who have to pay the charge.

Specialist Courier companies

• Specialist Courier companies offering a 'Same Day' service in central London are mainly operated by motorbikes and cycles. Walking and Public Transport (PT) are only used for highly specialised or localised jobs, mainly in the 'City'; and
• Couriers are controlled by a 'despatcher' and unlike their Private Hire based counterparts the companies seek to optimise their efficiency by undertaking multiple collections during the course of a single 'journey'.

3.2.4 Employment practices and vehicle ownership

Almost without exception amongst the organisations surveyed, Couriers and Private Hire drivers are self-employed. The vehicles are almost invariably privately owned / leased, although some of the larger companies do appear to have subsidiaries / links to companies that lease vehicles to their drivers.

3.2.5 Trading environment

In addition to the general London economic climate described in Section 2, Courier and express parcels have been going through long-term structural decline. Figures of around a 10% decline per year have been quoted by a number of Courier companies. This decline is attributed to changes in business practice and the growth of IT and email in particular:

'(IT IS A) dinosaur business . people are communicating electronically.'

3.2.6 Perception of congestion before the congestion charging scheme

Congestion was seen to be 'a given' by almost all the Courier companies. Its effect was minimised by the use of motorbikes and cycles. However, not all jobs can be undertaken on two wheels and cars and vans were often delayed:

'Two-wheelers could avoid congestion in most instances. Van fleet and passenger car fleet were undoubtedly affected by congestion.'

This has an impact on both the Courier company in terms of revenue but also the driver - who is paid on the number of consignments he could deliver. For a majority of the Courier companies' congestion affected the business in terms of delivery efficiency to the clients. The congestion contributed to increasing journey times and thus delayed deliveries. Over the years the financial implications of congestion have been factored into the industries cost and pricing structures:

'Traffic was a joke.'

'Sometimes we were seriously affected on the customer service level because we missed delivery deadlines.'

'The slower the vehicles get around, the less jobs they can do and the less money we can make . but you get used to it and over the years it is factored into the pricing of Courier work.'

Whilst a few of the Courier companies reported that congestion levels had not been affected by the introduction of the congestion charge; all of the companies felt that something needed to be done about congestion, as it was perceived that reducing congestion would improve delivery efficiency.

Views were divided on the congestion charging scheme. Most of those participating were 'in favour' or 'not sure' about the scheme.

Those companies 'in favour' of the scheme accepted the additional cost for an improved service to their clients and for improved business opportunities:

'(THERE ARE) pros and cons with everything . we accepted we had to pay.'

'In the absence of a better idea, congestion charging seems to be a chance of a solution.'

'Any system which cleaned (THE ENVIRONMENT) almost sounds like the final solution . something had to be done.'

'Far less traffic.'

'It's a good thing to try these things, but I think it is slightly wrongly set-up.'

'If this alternative somehow heads off the pedestrianisation of Central London, then I think that it is a very good thing.'

'Trying to make a difference to something rather than just accepting we have lots of traffic.'

It was noticeable that many of the smaller companies were unsure of the scheme mainly due to the uncertainty of the effects the scheme would have on their business:

'They said congestion charge would help improve transport but it hasn't.'

'Worried about staff not being willing to work if they had to pay the congestion charge.'

However, as the following quotations illustrate, amongst the smaller companies there was cynicism over the authorities 'real objectives':

'I didn't know what effect it would have on local traffic . if it would clear the streets, it would be fantastic, but it hasn't'.

'I personally believe the Government knew that anyway, it was just a way of making more money.'

'Just another form of tax . would have no impact on traffic in London.'

3.2.7 Perceptions of congestion charging (post introduction)

The research indicates that, in general, Couriers are finding it far easier to make their journeys and a number are reporting that they are doing so faster than before. However, it would appear that this is not a universal experience, there are a number of interviews where the company have claimed that journey times are unchanged.

It should be noted that the structure of the industry, which is sub-contract in nature, makes it difficult for companies to measure efficiency gains. With regard to financial benefits from the scheme (flowing from greater efficiency), we could find little evidence that greater efficiency has flowed through to profitability or even lower prices.

Views were divided on the reasons for there being no obvious financial impact, but a number of possible contributory factors were suggested (the Iraq war and economic slowdown):

'Vehicles are moving quicker, but we haven't seen an increase in profits.'

'Unfortunately, the whole war thing has cancelled out the business at the moment . the economy has a little slump, the war comes along, and it is hard to say business has improved.'

'We know the traffic flow has improved and yet our revenue figures don't show the speed with which they are getting around.'

'It's hard to balance between whether we would be doing more work with the war going on with or without congestion charging. It's quite a difficult one to measure.'

'When you have more clients than ever and you are doing less work you know there is a problem.'

3.2.8 Impact of the congestion charge outside the zone

A few members of this group made brief reference to some displacement of traffic onto the 'ring road' but apart from this did not comment on disruption to traffic outside the congestion charging zone.

3.2.9 Positive impact of the congestion charge

Benefits of the scheme have flowed in a number of areas:

• Vehicles moving around quicker;
• Deadlines are now more achievable; and
• Anticipated efficiency gains.

Vehicles moving around quicker
Most of the interviews indicate that both two wheel and four wheeled vehicles are moving around quicker than before:

'With less traffic in Central London, vehicles move around quicker. Each vehicle increases jobs per day.'

'Delivery time has improved - 50% up on speed.'

Those Courier companies whose vehicles were moving around quicker often had between 60% and 90% of their business clients based within the zone:

'All our clients are based in Central London, but, of their work, something like 80% stays in Central London, certainly within the North Circular.'

'Within the zone, its probably 65-70% and the rest is going somewhere out of London.'

'90% of drop off's are in the zone.'

'60% is in Central London.'

'50-60% of our work is within the zone.'

'Each rider more productive and can move around quicker. The extra productivity will cancel out the charge.'

It is important to note that the percentage of clients within the zone may be one of the reasons why certain Courier companies have noticed reduced journey times. A number of Courier companies reported minimal or no difference in the delivery times before and after the scheme was introduced:

'It hasn't made a great deal of difference.'

'It has had no effect.'

Other companies are reporting a difference when the scheme was first introduced, however they are now claiming that the benefits are reducing as traffic returns to the central area:

'Great at first, but now it's not working.'

'The start was good, but now it is back to how it was.'

One Courier company reported that the consequential shift of traffic outside the zone had counterbalanced any efficiency gains inside the area:

'The way they have almost concertinaed the traffic outside the zone . has dramatically increased our journey times. (BEFORE) we could service eight jobs out of one account in an hour . (NOW) by comparison only do four jobs out of that account within an hour.'

This is not, however, a widespread view.

Deadlines are now more achievable
Delivery vehicles moving around quicker were invariably linked to deadlines being achieved. Couriers have become more confident in estimating delivery times to clients and the reduced traffic has meant tight deadlines can now be achieved:

'The freer flow of traffic in Central London enables us to meet more deadlines now than we were capable of doing before.'

'Less traffic on the roads, which has helped our operational factors.'

Anticipated efficiency gains
A number of companies felt that external factors, particularly the War in Iraq and the general economy, may have affected the efficiency gains discussed above. When asked to indicate an approximate percentage increase in the number of jobs, figures were generally quoted between 10-15%:

'Gut feel, 10-15% increase in job numbers, but does not mean automatic revenue.'

'Car jobs are up by 10%. Hard to judge whether some of that work is from congestion charging.'

Other 'operational' gains were also quoted. These include reduced fuel consumption and general wear and tear:

'Drivers see economic benefits . they pay their own fuel but don't waste it by sitting in traffic . stop / start driving is more damaging to the vehicles and fuel consumption ... smooth driving is a better way to treat the vehicles.'

'Speed of delivery, although previously mentioned as hard to measure, but we save fuel and reduce sitting in traffic jams.'

Other benefits are less tangible:

'Drivers jobs are less stressful, but in figures terms it hasn't improved at the moment.'

And the charge has led to changes in some driver's hours:

'There are staff (WHO) prefer to work days and staff (WHO) prefer to work nights. The night workers opt for this generally because of the traffic conditions. Since the charge has been introduced, quite a lot of night workers have changed to the day shift purely because it is now less stressful. They can get around that 10- 15 % quicker during the daytime and are happy to work in those conditions.'

Overall the larger operators were the most positive about the congestion charge. This was due to two main sets of factors:

• Companies and London in general will benefit from improved business opportunities; and
• Clients will benefit from an improved service.

Although the additional cost (in the form of a surcharge on deliveries) had been an issue with some clients, all now appear to have accepted the principle that the cost has to be passed on:

'We increased our prices, and everyone agreed it is a good idea you charge them more . (CLIENTS) respect the fact you have to make a living.'

It is important to note here that most of the companies in favour of the scheme are either very large Courier companies or Private Hire / Courier companies who did not rely purely on specialist Courier business for their revenues:

'Good that a London Mayor has decided to do something to try to improve the situation. At least he has put his head on the block to go for it.'

'Good for London as a tourist attraction because people come here and the traffic was a joke . I'm sure it puts people off.'

'General improvement to people's standard of living by having reduced traffic pollution will benefit all of us.'

'I do think it is a good idea which needed to be done and, without looking at the economy, you have to say it has made a difference and I would say it is working.'

3.2.10 Negative impact of the congestion charge

The negative impacts of the scheme can be categorised under the following headings:

• Financial impact;
• Recruitment;
• Increasing costs to the client;
• The general administration and policy of the congestion charge; and
• Additional tax.

Note: in analysing the data it was noticeable that many of the companies who claim to be have been affected negatively by the scheme refused to comment on the benefits of the scheme:

'There is not a single positive to the scheme.'

Financial impact
Whilst most Private Hire /Courier companies are not reporting any major down turn in volumes of business, some smaller Courier companies are reporting a decline this year and at least part of this is being attributed to the congestion charge:

'Has brought the turnover down . 15% drop.'

'I have lost three clients worth £100K pa . I am £150K down.'

'We are financially weaker - our business is 28% down.'

Whilst two wheel vehicles are exempt from the charge, vans and cars are not, and neither are those employees driving into the zone to come to work:

'Costs us £120 a month . £1,500 a year.'

'It is costing us money because we reimburse the drivers.'

'I don't think it will have that much effect . obviously we can't increase company profits by raising our prices now because our raise has been forced by the charge.'

Recruitment
Recruiting quality staff in smaller companies is frequently cited as a difficult issue. And whilst many companies did not consider the charge an issue for most staff, for those where drivers were required to bring their own car / van into the congestion charge area it was an important factor:

'You have a two-fold effect there which immediately makes things tougher.it is a nightmare to get staff.'

'We are reimbursing the drivers . cannot afford to lose drivers . good drivers are hard to find.'

'If we don't pay the charge, the drivers won't come in.'

Increasing costs to the client
Almost all those interviewed agreed that passing the cost onto the client was a negative factor but an inevitable consequence of the scheme. It was commented that it was, however, essential in order to keep the businesses operating. Analysis of the interviews however indicates that there was a marked difference between companies adding a surcharge to cover costs, and those who are clearly benefiting financially from the surcharge:

'We have to justify, convince, cajole and argue with some clients over the validity of the surcharge.'

'We have had to pass a proportion of the cost to our clients.'

'We are doing it because the Government is charging extra . it doesn't seem fair.'

'Customers, although understanding, are still a little perturbed about the whole thing because it means additional costs to them.'

'Our costs are up specifically because of the congestion charge . clients seem to have accepted this without too much problem.'

'It only applies to vans, and van work is relatively small percentage of the work we do. If it was for all our vehicles, we would have more trouble with it . but then all our rivals would have to put their prices up as well.'

'For van (IT IS AN INCREASE OF) about 10-15% - so quite a bit really . for very short jobs might be as much as 20%.'

It is important to note that all these comments relate to the direct cost of the charge.

It would appear that these companies are not looking at the wider picture and passing on any efficiency benefits. This could be due to:

• The economic downturn has reduced demand;
• The companies are looking for ways to increase margins; and
• The sub-contract business model is unable to adapt to a changed cost structure.

The general administration and policy of the congestion charge
The general administration in registering for the scheme and the information required from companies met with widespread disquiet. Although many stated that the administration was relatively straightforward once the scheme had been set-up, a number of companies reported the administration was an inconvenience and a waste of resources:

'The initial set-up administration is time consuming.'

'They give us absolutely forest loads of paperwork every time you make a single change . (SHOWS 20 PAGES OF PAPERWORK) . we change vehicles often because it's a large fleet.'

'(ENVIRONMENTALLY) we are trying to reduce congestion to save the environment and we're here chopping down a forest just to let us know what vehicles we have or haven't changed.'

Other companies felt that the congestion charge scheme required further explanation and more marketing:

'Mis-information on behalf of TfL . many clients did not understand the concept of the charge. I have many letters . examples of ignorance . mid and senior management people in business who did not understand the charge and argued about why they should pay the surcharge.'

The perception of an additional 'tax'
The congestion charge was perceived by many businesses as a tax on certain industries, but not all. The following quotes illustrate the cynicism towards the authorities 'real objectives':

'It is selective, it penalises the companies who are not exempt.'

'It is fundamentally a tax. It started with parking (BUT IT IS) nothing to do with parking restrictions and everything to do with revenue - this is on the same principle. It doesn't do any of the things it is supposed to do.'

'It's essentially an inflationary tax on the end client because they end up having to pay more.'

'We should be exempt the same as Taxis and buses.'

'Buses & Taxis are exempt . commercial companies are picking up the tab.'

3.2.11 Couriers and Express Delivery: Summary

Views regarding the congestion charge are divided, with half of those interviewed seeing both advantages and disadvantages to the scheme with the remainder evenly divided in favour or against the scheme.

The Courier and Express Parcels industry in London is in long-term structural decline as business increasingly utilises electronic media to transmit documents. This trend is particularly marked in the Financial Services industry with an estimate of about a 10% decline per annum has been given by one major service provider. However, this figure relates to large international corporate clients using the latest technology, smaller companies are likely to be less advanced and therefore more dependent on the rapid movement of documents by courier.

The industry is partially exempt from the congestion charge and therefore it might be expected that the scheme would be welcomed. In part this is true, however the industry is 'sub contract' in nature', highly fragmented, and large sections of it have relatively limited formal management / information systems.

This lack of 'hard data' on efficiency gains has led to a relatively low awareness of key issues by a number of the smaller operators.

The industry divides into a number of categories:

• Large Courier Companies that are bike based that are relatively sophisticated in their systems and work mainly in the city for major institutions;
• Small Courier Companies, bike based working for second tier corporate clients; and
• Private Hire Companies. These are relatively small and may operate under a number of trading names. Car based, they work mainly for smaller and non-financial companies across London.

Key findings may be summarised under the following headings:

• Operating benefits and efficiencies;
• Customer management; and
• Operating costs.

Operating benefits and efficiencies
Most companies agreed that congestion was an issue in Central London and something needed to be done. However, in the main, the Courier specific side of the industry uses two-wheeled transport, these vehicles could avoid the worst of the congestion. The main benefits therefore mostly relate to:

• The relatively small number of vans and cars operated by the Courier companies; and
• Private Hire vehicles operating as Couriers.

Reduced congestion has however had some benefits to the bike based companies / drivers and there is widespread recognition that:

• Journeys are now quicker (for both four wheeled and to a lesser extent, two wheeled vehicles); and
• Journeys are more predictable, thus allowing companies to commit to tighter deadlines.

However, whilst journeys are quicker, the downturn in the London economy described in Section 2, particularly in financial services, has not led to drivers being able to undertake more jobs, merely increased non productive time between assignments.

In considering these findings either:

• An upturn in the economy will increase demand and allow the benefits of the congestion charge to come into play, reducing journey times and therefore costs. This should allow either surcharges to be dropped or prices to fall; or
• Continued poor trading conditions will force the industry to reduce capacity.



Customer management
Company's responses to the passing on of the congestion charge to clients vary significantly:

No charge to client;

Charge for assignments utilising a non exempt vehicle; and

Charge for all assignments starting / finishing in the zone.

Which approach a company has adopted depends on the nature of the customer base and the structure of the vehicles fleet used. Where a case could be made, costs appear to have been accepted by the clients.

Operating costs
Given the subcontract nature of the industry, the congestion charge is notionally the responsibility of the driver / vehicle owner. However as a number of companies pointed out 'good drivers are hard to find'. Companies are therefore paying the charges, where necessary, and recharging the client where possible.

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