Logistics businesses in the United Kingdom are promisingly optimistic in light of current economic challenges but a focus on cost cutting and sticking to core business is restricting innovation according to research from Barclays and Grant Thornton.
The newly launched U.K. Logistics Confidence Index, which includes a survey of key decision makers from the U.K. logistics industry, shows that although the majority of businesses are investing over the next six months, they continue to tackle the same on-going issues leaving innovation to take a back seat.
When asked what the biggest concern is facing logistics businesses over the next six months, one third of respondents cite margin pressure as the greatest challenge on their business followed by fuel costs (20%). Surprisingly only 15% of respondents are concerned by eurozone uncertainty.
“The continuing economic climate is providing the logistics industry with challenges and whilst some recognize the need to innovate, the day-to-day pressures make this difficult to achieve,” said Rob Riddleston, head of transport and logistics at Barclays. “However, it is pleasing to see that there is an air of optimism in the industry with logistics businesses seeing a brighter future over the next six months. Whilst a vital element of the supply chain, many of their customers see the industry as a commodity and it’s the successful who add value and innovate who will prosper.”
Although faced with cost pressures, there is optimism in the industry. Over three quarters of businesses surveyed view current business conditions as somewhat difficult (65%) or very difficult (13%), with 48% foreseeing conditions to be the same over the next six months. However a quarter of respondents see things improving this year, with 53% expecting an increase in profit over the next six months.
Positivity is also seen in the number of businesses intending to make significant capital expenditure (CAPEX) over the next six months, with 42% of businesses surveyed “likely” and 21% “very likely” to invest in CAPEX. Headcount is also set to increase, with 47% of businesses indicating they’ll be taking on more employees over the next six months.
In terms of how logistics businesses intend to achieve their growth plans over the next six months, 51% are focused on winning new contracts, with margin improvement (18%) and maintaining existing customers (17%) also a key focus.
Merger and acquisition activity is also being considered. Three out 10 businesses (29%) are likely to make acquisitions over the next six months with 9% stating they are currently looking at an acquisition target, whilst 20% are actively reviewing opportunities. These are encouraging signs given the current market, indicating that businesses are seeing opportunities particularly due to margin pressure.
“The logistics industry has always been an early indicator of the state of the wider economy,” said Philip Bird, director of corporate finance at Grant Thornton. “This sensitivity makes it wiser to the ways that it can thrive in the lean years. There is, however, only so far that costs can be taken out of a business, margins can be cut and only so many contracts that can be won.
“The next 12 months will likely be a period of consolidation in the sector, creating more companies of scale who are able to invest in innovation and diversification, as continuing to do more of the same is simply not an option. We also believe that the really successful companies will be operating on an "asset light" basis and co-ordinating the provision of services across the supply chain.”