Saturday, 14 January 2012

Macro Level Trends – London's LEZ – Providing Economic Imperative from a Public Good

The beginning of the new year saw the Mayor of London's office introduce a new city-wide policy heavily discouraging the use of older, larger and more polluting vehicles within the city limits – now known as the LEZ (Low Emissions Zone). Delivered by Transport for London, the initiative is part of the Air Quality Strategy, seeking to cleanse the general breathable low level atmosphere, and so continue to avoid any potential build-up of low-level smog seen in other metro areas worldwide, such as Los Angeles or Beijing.

To quote official statements...“implementing the measures in the Mayor's strategy is expected to reduce PM10 emissions (tiny airborne particles generated principally by road transport) in central London by about a third by 2015, compared to 2008 levels. These new measures will play a significant role in the delivery of these targets”.

Since 3rd January those diesel vehicles 10 years old or more and rated at (at & above) 3.5 tons will face a heavy (£100 per day charge) for entering the LEZ. The policy aimed directly at those vans, trucks, mini-buses and coaches that do not comply to Euro3 or Euro 4 emissions standards. Furthermore, vehicles presently affected by the LEZ – lorries, buses & coaches - must now meet stricter emissions standards, set at the Euro IV standard for particulate matter; otherwise facing a £200 daily charge or risking a £1,000 fine.

There has been criticism that the policy unfairly disadvantages the small tradesman at a time of fiscal fragility for most businesses, websites such as 'HonestJohn' says that...“Obviously, this will have a major effect on small tradesmen using older vans, small lorries and pick-ups. Effectively anyone wanting any kind of job done on their house, flat or commercial premises within the LEZ will have to subsidise the purchase of newer vehicles by the tradesmen they call in”.

Yet, from the unbiased sidelines, this looks to be a knee-jerk reaction to the scheme, voices raised in an understandable yet overtly automatic manner. Of course some trades people use older vehicles, especially those who operate as one man bands or small companies, but of these investment-auto-motives suspects that only a small percentage run vehicles rated at 3.5 tons or greater. Look at the streets of London and the majority of small trades people use vans classified as LCVs- ie under the weight limit prescribed – in the form of the plethora of 'white vans' available from Ford, Vauxhall, Renault, PSA, FIAT, VW, Mercedes, Nissan, Toyota and Hyundai. These the long preferred choice of carpenters, plumbers, electricians and decorators given their easier manouvrability in town and the importance of lower fuel and running costs.

Undeniably, there will be business hit, the likes of scaffolding companies and roofing companies particularly given the hefty weights of steel poles and clay tiles that must be carried on what are usually flat-bed large trucks. Yet many of those companies are not the 'victimised' small trader, but typically because of sector consolidation, larger enterprises that should be better able to afford the CapEx costs of small fleet vehicle replacement; this especially the case given the government's push for initial economic re-generation spending in the construction industry.

Instead many of the vehicles in question appear to be owned or leased by major multinationals such as UPS, DHL etc in the delivery and logistics arena, companies which ordinarily 'write-down' CapEx devaluation from new on a 3, 5, or 7 year time-frame, or run by government agencies spanning Police, Ambulance, Fire, NHS and Social Services which have a natural imperative for policy driven renewal, either through 'farmed-out' fleet contracting (as has been the case with the Fire Brigade) or through self-managed fleets which can re-distribute older vehicles elsewhere in the country; such efforts assisted by the imperative of part-privatisation of the service, such as the Royal Mail.

Transport for London estimates that 94 per cent of the vehicles that will be affected already meet the new standards. This may or may not be an over-optimistic figure, leaving only 6% exposed, but view London's streets and it seems a rarity to see a 3.5 ton vehicle over 10 years old in the hands of the 'victimised' small trader.

Instead, conversely to the reactive rhetoric, it is believed that many of the central London (and broad city-bound) vehicles that are affected are seemingly owned by either major corporations, and medium sized companies able to undertake vehicle renewal if necessary, or by state entities which must accord to policy.

However, there are those who run such vehicles at the notional margins of the visible spectrum who are affected and will find the matter of vehicle renewal a more onerous prospect. 70,000 vehicles are run by smaller business catering for people moving, primarily schools, organisations and charities These special cases have been given a longer period in which to renew or decide not to replace their vehicles.

[NB Suggestions by TfL that such vehicles can be modified, whilst technically feasible to offer extended life-time use, are practically unaffordable given the costs of exhaust filtration and re-circulation systems) relative to vehicle value].

Even so, recognising the scheme's unintended consequences at the margins, those 'regionally exported' 70,000 vehicles, plus the seemingly small number that exist in private commercial hands, will critically allow for the improved broad supply of vehicles across the UK. That additional supply when set against what is likely to be a present static demand level for 3.5 ton vehicles will have the automatic market effect of actually lowering the price of these vans, trucks and mini-buses. That in turn allows single traders and small firms the ability to replace their own older vehicles (15-20 years old) with younger 10, 11, 12, 13, 14 year old 'ex-London' vehicles. So 'man a van' operators and low-priced van rental firms operating ageing stock can benefit with replacement vehicles that churn-out lower emissions and have greater fuel efficiency capabilities for lower cost per mile running.

Relative to London itself, the LEV scheme obviously promotes fiscal energisation by necessitating new 'demand pull', which in effect spans London and the wider UK economy.

This across:

- New Public & Private Vehicle Demand in London
- Vehicle Development & Coach-Fitting Demand from Regional Auto-Sector Suppliers

In the public realm, the new London Bus (NB4L) - although partly criticised by investment-auto-motives in its execution – saw welcome investment funds spent in its conception, development and build both on the Mainland with research establishments such as MIRA, aswell as importantly in County Antrim (Northern Ireland) where the winning contractors 'Wrightbus' are situated.

[NB Wrightbus are a family-owned and managed company that operates very much in the Mittelstand manner as recently advocated by Sir Anthony Bamford of JCB (similarly family run)]

Within that NB4L scheme a fleet of 300 hybrid buses will be operational by the end of 2012. Although the standard diesel only bus, set to enter service in February, is reported to emit under half the CO2 and NOx gases of previous generation diesel buses. Thus whilst the aesthetics may not be as wholly desired to truly replace the iconic Routemaster, the technological leap forward in using clean diesel and hybrid technology must be applauded. Furthermore, a zero-polluting hydrogen bus route is expected to operate through central London, though realistically more in the manner of a Mayoral flagship technology demonstrator than prospective scale-able transport solution.

The immediate beneficiaries of the LEV policy are of course those Medium-sized Commercial Vehicles (MCV) Dealers that offer both new and used (typically 3, 4, 5 year old) trucks, vans and mini-buses. The major corporate operators – often with buoyant cash reserves – can replace their fleet as necessary with all new vehicles typically ordered from the crop of major European producers. They in turn can benefit from the de-valuing Euro to negotiate good pricing on such purchases, the UK MCV dealers themselves having to balance margins per vehicle versus the improved volumes generated by the demand wave. Those intra-London government agencies and borough councils - if critically leveraging a combined 'cooperative buying' ability – will be able to gain sliding scale product discounts depending upon order numbers.

In short at 'the front end' of the process, it appears a 'win-win' for purchasers and dealers.

The benefits also appear down-stream, amongst the many UK based specialist coach-builders and body-fitters, those firms contracted to modify and 'fit-out' standard panel vans and cab-chassis variants (ie orders without rear body section; cab only). This then, the 'Phase 2' aspect of much MCV procurement, whence the base vehicle itself must be adapted to be fit for purpose, those tasks ranging from private utility company vans (ie electricity supply, water supply, telecoms supply) to the likes of Ambulances, Social Service passenger vehicles, TfL services such as 'Dial-A'Ride' for the elderly, infirm and non-abled, through to operators such as The AA, The RAC and GreenFlag breakdown & recovery companies;plus whole host of others.

This historically is a lucrative business for such vehicle body-builders, modifiers and fitters, a sub-sector typically very much aligned to economic cycles and fundamentals, but now seen as assisted by London's new 'Public Good' policy

Yet given the high labour content of this work, such companies are traditionally located well away from London in the lower-cost periphery of the country, areas which have suffered with the necessary withdrawal of state-based or government funded job creation schemes and have typically higher than national average unemployment levels.

Thus this seemingly London-centric policy, in reality has far wider positive economic ripples benefiting outlying areas.

[NB In order to assist the de-pollution of the urban centres and suburban street, it would serve well to have a rethink regards the use of road humps otherwise known as 'sleeping policemen'. Their widespread use whilst seeming to slow traffic may actually be causing greater pollutional harm with the fact that drivers are required to 'pull-away' from near stop after each hump, causing 'engine strain' when typically in second gear and so greater emissions.

investment-auto-motives suggests that a cobble-like Belgian Pavé be introduced instead to help slow traffic speeds, especially in conservation areas and roads of historic importance where such a surface would have previously been the case (ie where housing is of Georgian, Regency and Victorian age). The suggestion that such a pavé could be laid in a grid of cambered 'trays' so aiding removal when utility companies remove the road surface for underground pipe and cable work.

Larger SUV / 4x4s can obviously 'over-ride' the pavé, but this is already the case with present and intended road-humps. However, since such vehicles facing are increasingly socially disliked in British cities, their presence will gradually diminish, leaving conventional cars and small SUVs to better respect slow-area roads].