Driver shortages and the impact on our investments

UK businesses have one main wish on this year’s Christmas list: for there to be enough lorry drivers to transport goods to customers across the country.

It may seem a modest request, but the severe shortage of HGV drivers is already causing widespread concern with the festive period still three months away. Leading retailers and business groups have been highlighting the issue for months – and are now demanding the government takes urgent action to help remedy the problem.

Demand for changes

According to Helen Dickinson, chief executive of the British Retail Consortium, there’s currently a shortfall of 90,000 HGV drivers in the UK.

“Disruption has been limited so far, but in the run up to Christmas the situation could get worse,” she warned. “Customers may see reduced choice and increased prices for their favourite products and presents.”

She is demanding the Government rapidly increase the number of HGV driving tests, provide temporary visas for EU drivers, and make changes to how HGV driver training can be funded.

Problem is taking its toll

Richard Walker, managing director of supermarket chain Iceland, said the business was short of 100 drivers who would be helping to serve the 1,000 stores from six big distribution depots.

“We’ve reduced the frequency of our scheduled deliveries to stores by 15% but are still having to cancel 250 store deliveries a week,” he said. He insisted the government should recognise HGV drivers as skilled workers for immigration purposes, instead of failing to appreciate the work they do for us.

“These heroes worked ceaselessly and hard criss-crossing the country to ensure that we were supplied and fed through successive lockdowns,” he said.

Impact on investments

According to Richard Hallett, manager of the Marlborough Multi-Cap Growth fund, which is on the Chelsea Selection, the shortage of lorry drivers is being exacerbated by surging demand, border delays and disrupted sea freight.

“The end result is that companies can find themselves struggling to get the stock they need and paying more for what is available,” he told us. “That can lead to companies over-ordering as they try to build up their stock, which can have an impact on working capital, causing difficulties.”

Richard believes “best in breed” companies are well placed to deal with these challenges because they tend to have pricing power and can afford to pay more to delivery drivers.

He cites Victoria, a manufacturer and supplier of carpets and tiles, as a prime example.

“It’s significantly increased pay to lorry drivers,” he says. “As a result, it’s not experiencing any problems with supply. Victoria has been able to pass on this cost to its customers.”

Conversely, he points out that supermarkets – which he doesn’t hold in the fund – are high-volume, low-margin businesses that aren’t in a position to increase pay levels. “As a result, many of the supermarkets still have a major shortfall in drivers and are facing serious supply chain issues,” he added.

Chris St John, who has managed the AXA Framlington UK Mid Cap fund since its launch a decade ago, and Chelsea Selection fund AXA Framlington UK Select Opportunities since January 2019, has also touched on the issue of supply constraints.

In his most recent fund manager commentary, he told how the UK consumer sector proved resilient as retail sales were up 10.4% in the second quarter compared with the equivalent period in 2019.

“Despite the encouraging data, the UK economy grew by a weaker-than-forecast 0.8% in May,” he said, pointing out that GDP expanded by 3.6% in the three months to the end of May. He said this figure was lower than expected due to “supply bottlenecks and the ‘pingdemic’ phenomenon” that impacted economic growth and added to inflationary pressures.

J Sainsbury is one of the companies to have highlighted issues in a trading statement issued to the London Stock Exchange in July. It said general merchandise sales were ahead of expectations “despite global supply challenges” that are “likely to continue” for the remainder of the year.

The stock is the largest holding in the Schroder Recovery fund, currently accounting for 3.8% of the portfolio *. The fund, which is managed by Kevin Murphy and Nick Kirrage, and is also on the Chelsea Selection, aims to provide capital growth in excess of the FTSE All Share Index over a three-five year period. It invests in companies that have suffered a severe business or price setback, but the managers still believe the longer-term prospects are attractive.

*Source: fund factsheet, 31 July 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and commentators and do not constitute financial advice.


Published on 14/09/2021