Life-and-death struggle in the transport business

You have gone through a hard period. What is the situation on the roads now?

Road freight transport has partly recovered from the dramatic downturn due to the coronavirus by mid-summer, although bus passenger transport continues to suffer dramatic losses.

Since February, virtually all buses have stopped working, and most have even been withdrawn from service.

Due to the collapse of international tourism, with no foreigners travelling into and Hungarians travelling out of the country, and the cessation of orders, bus companies are now using up their last reserves.

What can be done; what is the solution?

Without government support, these businesses, which often meet special needs, could go out of business.

They will not be working any more when tourism resumes, hopefully in the 2021 season. In my opinion, this will cause serious damage to the entire national economy, as coach transport of organized tourist groups, mainly from the Far East and America, is an essential part of this business, and if this service does not resume, it will mean a considerable loss for the budget.

You do not sound very optimistic.

Immediate support has to be given to passenger transport companies; this is inevitable.

Freight transport companies managed to get through the emergency period in the spring; they had to work really hard to ensure the functioning of the supply chain. However, with the uncertainties of the second wave of the epidemic and the EU mobility package announced at the end of August, there is no reason for optimism, indeed.

The mobility package stirred up the quiet waters. What do you think is the biggest problem with it?

The aim of this package is to regulate the operation of road passenger and freight transport companies throughout the EU, but it has been passed despite the fact that almost all Central and Eastern European member states have strongly criticized its content.

The regulations, which will come into force during the next year and a half, will put a serious administrative and financial burden on companies.

In addition, non-EU carriers will gain a competitive advantage, and they have already started expanding rather aggressively in the poorly controlled Hungarian market.

What are the most important changes?

For example, we must make sure that drivers have the opportunity to return home at least once every four weeks; or drivers must not spend the 45-hour regular weekly rest period in the cab of their trucks. This is a serious challenge for companies.

Why?

Because there aren’t nearly as many suitable car parks and accommodation facilities in the EU as would be needed.

What comes into effect later?

For example the requirement for vehicles to “return home” once in every 8 weeks; mandatory wages to be paid, which are determined for each country; or the obligation to install smart tachographs. Each of these rules causes further costs, while it is difficult to see their social implications. To us, the goal seems obvious.

The economic lobby of some EU member states has enforced these protectionist regulations disguised as social measures.

The real objective of these measures is to drive Hungarian and other Central and Eastern European carriers out of the EU market.

What can be done about it?

In our view, the mobility package, which will definitely be challenged before the European Court of Justice by several member states including Hungary, is a serious breach of EU law on the freedom of services, but some points go against the environmental strategy of the EU Green Paper, too. The case may have to be solved legally.

Have you conducted an impact study?

Of course. MKFE conducted a survey among member companies on the expected effects of the mobility package. This survey confirmed that the provisions of the package regarding the improvement of the social conditions, such as the return of drivers every 4 weeks, are not a problem, as drivers return home every 1 or 2 weeks in most companies anyway.

The issue of the 45-hour rest time is a problem, primarily because carriers say there is no sufficient infrastructure so that they could comply with this rule.

So, it is worrying if breach of this provision is going to be sanctioned by the EU.

Drivers can often be seen resting in their cabins. So, what's next?

Drivers prefer spending their rest time in their vehicles, which are equipped with all the amenities, because then they don’t have to worry about the freight. In addition, they do not waste valuable time travelling to their accommodation and back.

What do the numbers show in the survey?

Looking at the package as a whole, nearly two-thirds of respondents (57.4 percent) believe the regulation will only add further costs for them. The uncertainties surrounding the feasibility of the provisions are well illustrated by the fact that almost 30% are not yet in a position to assess the consequences. However, 46% of companies anticipate negative effects.

Moreover, over 14 percent of respondents do not rule out the possibility of going bankrupt because of the package.

How do they want to force carriers from outside the EU to comply with the mobility package?

This is not clear to us either. It is hard to imagine that these companies could be subject to wage rules or an obligation to install a tachograph.

The Russian Federation, for example, has already stated that not only will they not require the use of smart tachographs for Russian vehicles, but they have hinted that trucks equipped with such devices might not be allowed to enter into Russia.

At the same time, there is no integrated vehicle detection infrastructure in the EU, or a coordinated information exchange that could ensure effective enforcement of the rules.

This is not the case for vehicles and service providers from the EU, which are forced to comply with the rules, and bear the increasing costs as well.

What can the association do about it?

Our association is constantly drawing attention to the fact that driving up the price of road freight transport is harmful to the whole of the EU. While the new rules imposed on the sector would require an increase in freight rates, this will not be possible if third-country carriers that ignore the rules continue to bid based on their own cost levels.

What could be the short-term effects?

All of this could lead to the disappearance of haulier companies in the member states, while the providers which will replace them will actually employ their drivers under the exact conditions from which the initiators of the package want to protect drivers, in a rather hypocritical and ill-considered way.

It’s safe to say that, due to the mobility package, a life-and-death struggle will begin.

A fight between carriers from older and newer member states of the EU, and also between third country companies pouring into the EU market.

We will eventually lose this fight because most probably non-EU businesses will come out as the winners.

What is the market position of domestic carriers in this situation?

Hungarian carriers are being pushed out of the EU market: since 2014-2015, our market share has been declining in terms of both overall international performance and cross-trade, i.e. freight transport between other member states, currently 8th and 7th, respectively.

What is the reason why Hungarian hauliers are becoming less and less competitive on the international market?

In Hungary, fuel is expensive, tolls are high, insurance tariffs are exorbitant, plus the 27% VAT on transport is another serious competitive disadvantage.

In the case of competitors from outside the EU - Russian, Ukrainian, Belarusian companies -, the differences grow exponentially.

While today fuel can be bought for 150 forints per litre to fill up a vehicle in Russia and Belarus and then the vehicle can do 4-5 thousand kilometres, the price of one litre of diesel is at least twice as high in Hungarian petrol stations.

So, we have a considerable disadvantage over our competitors in fuel costs, which is one of the three main cost elements: fuel, tolls and wages, but if we also take into account foreign companies that cheat tolls, the picture is even more unfavourable.

Is the situation really that bad?

Statistical data from recent years also confirm the decline in the international market share of Hungarian enterprises.

By now, freight performance has decreased from its peak in 2015 to the levels in 2011.

And this happened despite the fact that the number of registered hauliers increased from 11,700 in 2014 to almost 13,000 by 2020, and the fleet also grew from 62,720 vehicles to 78,528.

What is the reason for this strange contradiction?

The answer is simple: Hungarian carriers can only meet the high quality expectations with continuous improvements and fleet expansion.

How has the volume of transported goods changed over the years?

While in 2004, when we joined the EU, the sector had an international performance of 9.3 billion tonne-kilometres per year, and by 2015 this had exceeded 27.2, by today it has fallen to 22.5 billion.

This is not caused by a decrease in the number of orders, but by the appearance of the many companies that breach the rules or work without authorization. With their aggressive pricing policy, these companies are forcing law-abiding businesses out of the market.

What about inspections? Couldn’t they help?

Despite the excellent performance of road traffic inspection teams working under the Ministry of Innovation and Technology, regulatory control is weak.

The current system is not suitable for inspections covering the whole market, either in terms of human resources or technical equipment.

That is why there is a lot of anticipation regarding the introduction of the preliminary registration system (BiReg) initiated by MKFE in the summer of 2018. The system was due to be launched by the ministry this spring, but because of the epidemic it was postponed and now the ministry is planning to introduce it on 20 October.

What do we have to know about this system?

It is an IT-based checking system that requires preliminary registration for carriers entering the country via an application. It checks registration data with the use of the existing infrastructure (Axle Weight Measurement gates, toll gates, VÉDA cameras), tracking the movement of vehicles to loading and unloading points as well as to the country border. The second phase of BiReg, to be activated by March 2021, will affect not only carriers but also clients and consignees.

Does this mean tightening the rules?

Yes. Loading and unloading sites will also be required to enter into the system the licence numbers of all freight shipment they handle.

This is the only way to ensure continuous and effective control for the sector.

With their unauthorized transport activities, fraudsters can cause billions of forints of damage to Hungarian transport companies and the Hungarian economy as a whole.

Apart from the above mentioned ones, what are your upcoming tasks?

The first step is to examine, in cooperation with the financial government, how the Hungarian wage structure can be made to comply with the EU mobility package. MKFE has initiated amendments to tax legislation, including the possibility of reducing or eliminating the VAT on transport activities. This is not unprecedented, as the VAT rate reduced to 5 percent in the construction industry serves a similar purpose.

Another important point is the introduction of reduced tolls for large users, which would help to increase the competitiveness of Hungarian enterprises.

It would primarily benefit domestic carriers, giving them a discount of 5, 8 or 13 percent, depending on the amount of toll paid by them.

You mentioned competitiveness, but we also talked about the pay. What about wages? Are drivers still leaving for abroad?

Fortunately, this process has stopped. The wage gap is not so big that it would encourage drivers to go abroad.

The average income in this occupation is close to 2,000 euros in Hungary, too, but this amount first has to be earned by the businesses.

At the same time, Bulgarian, Belarusian or Ukrainian drivers earn a half or a third of this amount, so it is understandable that those companies have a competitive advantage over us in this cost element as well.

Are there enough young people who choose this occupation?

This is a much bigger problem, which is not only typical in Hungary but the whole of the EU. Large numbers of workers who are still active today can retire in the next 5-10 years. It is a nice job but also very hard, and the costs of obtaining the appropriate driving licence have risen drastically: they are now close to one million forints. It is therefore important to ensure some kind of state funding, like the previous vocational courses (OKJ) or the state-subsidized driving courses, which will be abolished. It would also be important to include this occupation into full-time vocational training.

As I was preparing for this interview, I was astonished by articles and forums describing conflicts between carriers and shippers. Are these conflicts real?

It is basically an economic conflict of interest. It was the Association of Hungarian Logistics Service Centres (MLSZKSZ), representing prominent members of the client side, that in June this year called for the introduction of a so-called “minimum carrier service fee” in order to eliminate the underfunding of the sector.

Will it work?

Carriers would welcome this initiative, which is controversial, however, as it may be the clients themselves who accept the “high” fees charged by carriers.

If it’s a dance hall, then the clients are the men, the carriers are the ladies waiting to be invited to dance.

It is unfortunate that we keep losing out on orders, because clients invite foreigners “to dance”, almost always because of the lower price.

What can be done?

As long as Hungarian clients do not have the patriotic approach that is also advocated by the government, and clients are not prepared to pay higher freight rates, Hungarian carriers will struggle to survive. It will be easier to accept fair freight rates that ensure cost-effective operations if unauthorized carriers are eliminated from the market and further proposals are implemented, which can help to normalize the costs.

Let me ask you something that intrigues me. If you look at the Waberer’s premises in Budaörs from the motorway, you can see endless lines of abandoned Waberer’s trucks. Why is that so?

Indeed, a partial transfer of ownership took place a few days ago. The company is undergoing a major transformation regarding the operational concept, and this might be the reason for the shutdowns.

In view of all these problems, what is your vision for the future? Can cooperation with, for example, the railway, or shipping companies be more effective?

In the absence of sufficient infrastructure, neither rail nor ship transport is currently an alternative, although the government's efforts in this direction, such as the plan for a logistics centre in Záhony, are clear. These developments will certainly have a positive impact on the logistics sector, including road transport. It is a positive sign if well-performing sectors, construction for example, are also driving the industry that supplies to them. We can only hope that the orders will be won by the Hungarian carriers.