Major British parcels delivery company City Link is planning to take on hundreds of additionalfull-time drivers to reduce high sub-contractor costs and help steer it back into profit.
The company failed to achieve its savings targets in the July – September third quarter andparent company Rentokil Initial plc has now scaled back its full-year outlook for the subsidiaryfrom “return to profitability” to “break-even”.
In Q3, City Link revenue dropped 5.1% to £80.8 million. Parcel volumes were down 1.8% whilerevenue per consignment weakened by 3.3%. “The market remains extremely competitive with pricecutting continuing across the industry,” Rentokil stated in its Q3 trading update.
The Q3 operating loss of £1.3 million was unchanged from last year and behind expectations. “Delays in delivering savings arising from an over-reliance on the use of sub-contractors haveresulted in a significant savings shortfall. As a result, the business is expected to perform nobetter than break even for the full year, with volumes in October remaining below the prior year,”Rentokil added. “We believe the UK parcels market will remain competitive into 2011 but weanticipate major cost savings next year.”
Over the first nine months of 2010, City Link’s revenues were 1.7% lower at £247.9 million,while the operating loss of £6.0m was a 27.7% improvement on 2009.
Looking ahead, Rentokil Initial CEO Alan Brown told British media that City Link would hire “hundreds” more drivers next year to cut down on expensive sub-contractors. About half of City Link’s 2,500 drivers are sub-contractors whose costs are about 35% higher than own employees, hedisclosed. The U-turn follows heavy job-cutting at the company over the last couple of years toreduce fixed operating costs.
Outlining the latest measures in the ongoing restructuring of City Link, Rentokil said that amajor structural change programme was implemented in Q3. The hub and trunking operations wererestructured to provide a single unified platform, enabling the business to offer more flexiblecollection times for customers, drive handling and trunking efficiencies and underpin excellentservice levels.
The company closed and sold its Wednesbury hub and opened two new regional hubs in Warringtonand Peterborough. Three depots were closed and a combined depot for post operations opened in Q3 toreduce total depot numbers to 75. The previously partially-wheeled cage operation was fullyconverted to pallet cages, enabling greater parcel numbers to be carried in fewer trunkingvehicles. It also successfully completed the conversion of its trunking fleet from hard sided tocurtain sided vehicles.
Alongside these changes City Link also unified its IT platform in the quarter. It introduced ‘sign on screen’ and GPRS technology for parcel deliveries, enabling instant intraday view ofdelivery status across the network. Parallel testing is underway on route optimisation to drivefurther efficiencies and give customers estimated delivery times. This technology, together with anew pricing and billing system (also in parallel testing), will be rolled out to customers in Q12011, the company said.
The security of parcels in transit has been significantly enhanced with the piloting of cameratechnology in delivery vans. The installation of cameras to the front, inside and rear of the vanallows live streaming of on-road parcel operations and has significantly reduced incidences ofparcel loss, theft and road traffic accidents. The business also introduced automatic tracking ofits trunking trailer operations, further strengthened its centralised network security controlcentre and introduced industry-leading on-line fraud detection systems. In addition field sales andcustomer account management has been restructured and a new CRM system introduced.
