UK logistics providers lose confidence in H2 2012
Confidence amongst UK Logistics providers has fallen by five percent in the second half of 2012, with many expecting a worsening outlook, according to the latest UK Logistics Confidence Index by Barclays and Grant Thornton.
The H2 2012 Index score of 52.5 is down by five percent from the first half of 2012, showing a decline in confidence as consumer demand, margin pressure and fuel costs continue to be major areas of concern.
Those surveyed predicted a continued challenging outlook, where a majority of 42 percent stated that they do not foresee business conditions changing over the next six months. A further 41 per cent expect conditions to be somewhat more difficult or much more difficult – a 58 per cent increase compared to the first half year.
Optimism for 2013
Despite the challenges, the Index survey results display an overall optimistic view of 2013; with the majority expecting an increase in profits (52 percent), headcount (37 percent) and CAPEX spend (57 percent) over the next six months.
In order to achieve future growth plans, almost half of those surveyed (49 percent) will focus on winning new contracts and maintaining their existing client base (48 percent), followed by cost control (39 percent). A major element in achieving these goals will need to be a focus on real value-added opportunities in the long-term, such as innovative and differentiated services.
Innovation is a key differentiator in the industryand many logistics providers are starting to put this high on their agendas. Over half (55 percent) will be implementing new innovative supply chain solutions over the next six months with a further 19 percent actively reviewing options. The two main areas of focus identified will be investment in IT (28 percent) followed by collaborative solutions (24 percent).
The majority of respondents believe there is still efficiency to be achieved through greater collaboration, however it is a lack of understanding by their customers that is restricting real progress in this area. Two thirds (66 percent) of respondents believe manufacturers and retailers only understand to a limited extent the benefits of supply chain collaboration, whilst 23 percent state they don’t fully understand at all.
Rob Riddleston, Head of Transport and Logistics at Barclays said; “Logistics businesses have often been viewed as “commodity” type providers by their customers, and therefore the development and offering of new services across the entire supply chain will help to change this perception. Greater opportunities in collaboration exist, but the challenge is getting the much needed buy-in and change amongst all customers.”
Areas of Concern
Contract terms are also an area of concern for logistics providers. Over half (62 percent) believe commercial terms on contracts in the last six months for new business won, lost or tendered are somewhat less favourable or much less favourable when compared to previous, existing or similar contracts. This therefore adds further pressure to logistics providers’ margins.
Further to collaboration and innovation, many view greater consolidation in the industry is needed. Of those surveyed, 27 per cent are either likely to make or will be making acquisitions over the next six months, whilst 13 per cent are either actively reviewing or will make disposals.
Philip Bird, Director, Corporate Finance at Grant Thornton said; “We anticipate further mergers and acquisitions activity in the logistics sector in the short-term driven by several factors - the need to achieve scale, geographic expansion and further service offerings in order to be able to offer end-to-end solutions for customers."
*The Barclays and Grant Thornton UK Logistics Confidence Index for H2 2012 is 52.5. The Barclays and Grant Thornton UK Logistics Confidence Index for H1 2012 was 57.2.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector