Invest-ability daily 21/09/21: Is a new winter of discontent on the way?

The HGV driver shortage is starting to have a huge impact on public services, which could spell trouble for investors.

Today is bin day in my village, and luckily my rubbish will be collected. I say luckily, because it seems that in certain parts of the country that will not be the case. Nappies are said to be piling up on the streets of London, while armies of fattened foxes take over the seaside towns of Devon and the rats sharpen their incisors everywhere. 

OK, we might not be facing this James Herbert-esque scenario of vengeful wildlife just yet, but something is definitely going on that investors need to be keeping tabs on. We have heard lots about the brewing supply chain crisis that is seeing some empty shelves in supermarkets, partly because we import so much of what we consume and because a lack of lorry drivers means goods simply can’t be moved around.

The grocery industry is responding by raising the pay for truckers – reports suggest salaries of £80,000 a year in some parts of the industry. But those drivers have got to come from somewhere and it seems that the higher wages on offer for HGV drivers is luring them away from other areas of the economy – including the unsung heroes that drive around collecting our waste every week and now have the opportunity to double their pay in a way that cash-strapped local authorities often can not offer.

Many local authorities do not, of course, run their own bin collections and recycling facilities, instead outsourcing such services to private companies like Serco, Veolia, and Biffa, the UK’s second largest waste management company. Biffa reported very positively on trading only a couple of weeks ago and has seen its shares soar this year – the adage ‘where there’s muck there’s brass’ in action. But it did mention the fact that it is indeed struggling with the national shortage of HGV drivers and was “working hard to mitigate the impact on services”.

Surely “working hard” must mean raising wages to attract staff, and that higher costs could impact profits across the industry and beyond. I am not yet sure if the market is pricing in this potential squeeze, not just on Biffa but on many other companies that employ many low-wage workers and which could suffer from a sustained bout of wage inflation. Maybe in the case of outsourcers profit-hungry investors are hopeful that we will instead see a further degradation in public services, which to my simple mind has been the only way that outsourcers can make money out of services that the public sector had previously struggled to maintain.

This is not the only example of the country’s infrastructure buckling under the weight of not just the current crisis but years of underinvestment brought about by the shift of much of it from public to private ownership. Earlier this month, a shortage of sewage treatment chemicals – another apparent consequence of the HGV crunch – prompted the government to issue a waiver that could see some untreated sewage discharged into rivers and seas this winter. Horrible though that sounds it didn’t get quite as much attention as the burgeoning crisis in the energy industry, which has forced the energy secretary, Kwasi Kwarteng, to issue reassurance the lights will stay on this winter. Seems like we need more of Biffa’s waste-to-energy facilities as soon as possible – a potential bull case given the huge volumes of waste the nation produces more reliably than the wind blows.

Either way, the threat of a new winter of discontent must partly be blamed on the long-term consequences of the state’s dependence on the market to provide essential services – and that what has been good for shareholders may not be so good for the wider nation. Phil and I are going to be chatting in more detail about supply chains on our Quality Shares Podcast later this week, as well as the recent surge in energy prices which could see a number of smaller suppliers face collapse – slightly worrying as my energy account is with one of them and very much in credit. In the meantime, I’m turning the heating off.

Enjoying this article?   

Join our list for more quality insight and analysis. No spam, unsubscribe any time.

%d bloggers like this: