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Decarbonising logistics – how, why and when

In this Q&A, John Fawcett, CEO, Close Brothers Asset Finance division, and Andrew New, Head of National Accounts & ESG, speak in detail about the move towards decarbonising logistics.

The answers are taken from an interview given to Roadway magazine as part of a wider feature about funding.

New vehicles can be expensive - how will firms cover their repayments?

As finance providers, it is important we work closely with the manufacturers that are bringing commercial AFVs (alternatively fuelled vehicles) to the market to understand the new technology and how it is going to allow customers to continue to operate, while adapting to a cleaner operating model. Total Cost of Ownership, i.e. offsetting the significant reduction in running costs against the increased asset price, will clearly have an impact and help absorb some of the increased costs.

However, to provide the operators with options that are affordable to them, as well as protecting their income margins, funders and OEMs (original equipment manufacturers) will closely collaborate to devise enhanced RVs (residual values), potentially with a blend of manufacturer support and structured solutions.

What we mean by this is that in order to reduce monthly payments so that they are affordable for customers, lenders and manufacturers will look to work closely together to have the confidence to set higher residual values on structured finance agreements, that in turn produce lower payments.

Is the market waiting until the price of EVs (electric vehicles) falls?

While there is hesitancy, it is more about which technology will become the dominant player in the various fields across the AFV market. Electric appears to be taking the lead in the LCV and Taxi sector, yet alternatives such as hydrogen applications are starting to emerge in the HGV space, as well as CNG (compressed natural gas) offerings.

The purchaser will drive the evolution, and the best technology is not always guaranteed to be the most commonly adopted. The funding market is still very much in ‘observation’ phase, and at Close Brothers Asset Finance we are spending time with all the manufacturers, both mature and new entrants, building our own views and opinions, which in turn is enabling us to support our customer base as they begin the change cycle to AFVs.

Are residual values an issue?

Undoubtably. Residual values on AFVs are much harder to set because we have a limited knowledge of what the second life market looks like, which is why it’s essential to build our own knowledge base so we can predict how we see the market evolving in the future. Some of the early entrants into the AFV space in both cars and commercial vehicles are now beginning to enter the second life cycle, and this helps us to try and better understand the future and potential, and then build into our structures accordingly.

What’s your view about the haulage market at the moment?

At Close Brothers Asset Finance we have consistently supported the haulage market over the last 35 years, irrespective of the wider economic environment, as evidenced following the 08/09 crash, growing our lending to the haulage sector significantly.

Our specialist Transport Division employs over 220 people across the United Kingdom and our focused approach has allowed us to stay supportive of the whole sector through good times and bad.

Given the wholesale move towards AFV, the entire market will be going on this transitional journey together, and we are working closely with customers and manufacturers to build our knowledge base and continue to support the sector. Of course, the higher cost of acquisition will present some challenges in lending, but by countering this with knowledge and expertise, we are confident we will still be here supporting the haulage sector in another 35 years.

Are you tempted to become more selective?

Close Brothers Asset Finance prides itself on having a wide variety of customers across the credit spectrum. As a business we have constantly evolved and see the advent of new technology as an exciting opportunity to broaden our expertise, which will in turn allow us to continue to grow our customer base.   

How is the asset finance secured?

Dynamic and flexible lenders will always look for solutions, including additional security, if it is a way of creating a structure that works best for both the customer and the lender. Our first preference is always to secure against the asset itself – however, we do have the ability to create bespoke solutions if we feel it helps the customer, and have been doing so for many years.  

As a lender, what are we doing to be become more sustainable?

We take our responsibility towards the environment seriously, and as a group we are supportive of the goals of the Paris Agreement to achieve net zero by 2050 and are targeting becoming operationally net zero through our Scope 1 and 2 carbon emissions by 2030.

We have already lowered these emissions by 23% over the last financial year, an achievement which builds upon several consecutive years of reductions.

We also recognise the importance of addressing the threat of climate change.