CommercialFleet

Strain of losses became ‘too great’ for City Link, says EY

IT problems, poor fleet management and a narrow customer base, have been blamed for the collapse of City Link.

Administrators from Ernst and Young (EY) are now trying to realise the best possible price for the courier’s assets.

However, its fleet of 1,700 vehicles (including 1,300 vans) was leased, and EY says that it is now working to return it to providers. City Link also relied on an estimated 1,000 self-employed and agency drivers, some of whom leased vehicles via the company from Lex Autolease, which is now dealing with their early termination.

A Lex Autolease spokesman said: “As the principle supplier of leased vans to Citylink, we are working closely with the administrators to ensure that appropriate solutions are sought including the return of the Lex Autolease owned lease vehicles.

“We appreciate that this is a very challenging time for Citylink employees and will also be contacting the small minority of impacted owner drivers, who have a contractual agreement with Citylink and are operating Lex Autolease vans to provide future options for the vehicles that they operate as part of their agreement with CityLink.”  

City Link’s owner, Better Capital, had insisted that expert fleet management would play a key role in plans to turn around the ailing delivery firm, after it bought the company from Rentokil Initial for £1 in April, 2013.

However, Better Capital never got to grips with the IT problems that had plagued City Link following its merger with another courier firm, Target Express, in 2007.

That, coupled with a customer base that was reliant on too few customers, and a business model that couldn’t react to changing market dynamics, proved costly.

It had not delivered a profit in more than five years and despite Better Capital ploughing millions of pounds into the business it wasn’t enough to stop the rot.

Hunter Kelly, joint administrator to City Link, said the business had incurred substantial losses over several years.

“These losses reflect a combination of intense competition in the sector, changing customer and parcel recipient preferences, and difficulties for the company in reducing its cost base,” he said.  

“The strain of these losses became too great and all but used up Better Capital’s £40m investment, which was made in 2013 and intended to help to turn around the company.”

Hopes had been raised of an eleventh hour rescue deal, but administrator EY said in a statement that the unnamed consortium “offered no money up front and significantly undervalued the assets to be acquired”.

EY put alternative terms to the consortium, which it said “would be acceptable and common in these situations”.

It added: “The consortium, despite attempts to make them reconsider, declined to amend their original offer.”

Patrick Gallagher, CEO of rival delivery business CitySprint, highlighted how City Link’s narrow customer base, which included Amazon, played a part in its downfall.

He told Fleet News: “The company had some well-known names amongst its client list, but they were few and far between and when Amazon created Amazon Logistics, City Link lost a large slice of its revenue.

“Problems with its customer base were also confounded by an operating platform which was not fit for purpose. Its acquisition of Target Express had left it with two costly, incompatible platforms, which were draining resources. Other couriers were busy enhancing their service, but City Link was always playing catch-up.” 

US-headquartered Amazon now uses 13 delivery hubs and two sorting centres in Hemel Hempstead and Manchester, with packages delivered by 45 local and regional courier specialists under its Logistics brand.

Royal Mail recently blamed a 21% fall in its operating profits, from £353m to £279m, in part on competition from Amazon’s van network. UK Mail also reported a drop in group pre-tax profits for the six months to October, to £4.9m.

Royal Mail said Amazon’s decision to deliver its own packages could cut revenue growth in the parcels market – estimated at 4% – by half over the next two years.

The rise of ‘click and collect’, which allows retailers to deliver more efficiently, will also challenge the business plans of those remaining delivery firms.

However, a number of City Link’s former competitors have stepped in to try and help some of the 2,356 staff made redundant find alternative employment.

Gallagher said: “What I think is really dreadful is the way City Link employees found out about the company’s collapse. They didn’t deserve that and we at CitySprint will do whatever we can to find some of them jobs within our company.”

APC Overnight has also held a recruitment day for former City Link staff at its national sorting centre in Cannock.

 



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