Crippling fuelhardiness
September 1st 2009 UKWA national chairman,Derrick Potter, says government apathy to the plight of the logistics industry will come back and bite it – when the entire electorate feels the effects of myopic policy making
The outlook for the third party logistics (3PL) sector is, like so many areas of business and industry, uncertain.
We have already seen the economy decline far faster than many of us can comprehend, and there seems little doubt that in the months ahead conditions in our marketplace will continue to be tougher than many operators have experienced for a long time and, in many cases, ever before.
“It is vital that everyone maintains a positive approach to the current difficulties, and remains poised to react when opportunities present themselves. Even in times of recession, there will be scope for companies to grow and third party operators that have a diverse client base and good cash flow should be well placed to pick up new business.
“In my view it seems likely that, as margins come under greater pressure, the services offered by the 3PL sector will be even more attractive to own account operators, who will increasingly come to see that transport and warehousing – if not fully optimized – represent a very high fixed cost. By offering flexibility and the chance to reduce assets, logistics services providers can bring real bottom-line savings to a business and many companies who have historically been reluctant to outsource may well be tempted to do so.
“However, it is difficult to be upbeat when the present Government continues to do little or nothing to help the logistics industry ride out the current storm. In fact, the Government’s failure to reduce the high cost of fuel in Britain could lead many companies to relocate their major UK-based warehouses and distribution centre hubs to mainland Europe with many hundreds of jobs lost as a result.
“Fuel represents around 36 per cent of an operator’s costs and the UK Treasury imposes the highest level of fuel duty throughout whole of Europe – around 25 per cent more than any other state.
“But the logistics industry isn’t just about lorries. Modern third party logistics (3PL) contracts comprise a range of services – including distribution, storage, packaging etc –rolled into one. So, if - as has been demonstrated - a lorry refueled in northern Europe pays over £10,000 a year less than a similar vehicle doing the same mileage that fills up in the UK, it is easy to see why a 3PL might be persuaded to relocate its distribution hubs to mainland Europe.
“With around 2.3 million people employed in a wide variety of roles within the UK logistics industry, if the Government doesn’t do more to bring UK fuel prices closer into line with the rest of Europe, it won’ t be just the HGV drivers that suffer.”
“UK firms are further handicapped by the fact that, in comparison with many European hauliers, our wage bills are high. An Eastern European lorry driver can be up to 20 per cent cheaper to employ than his British counterpart and, regardless of the guidelines laid down in the Working Time Directive, he will work longer hours to earn it.
“With margins already tight in the UK 3PL sector and faced with high fuel bills and higher employment costs, it is becoming increasingly difficult for UK-based operations to compete with their European rivals. I fear more and more blue chip British manufacturers and retailers will choose to outsource their logistics operations to established western European transport firms. As a knock on effect of this more UK logistics firms will find themselves swallowed by the bigger European operators. I’m not sure that it’s a good thing for our country or our economy to have so many logistics firms not in British ownership.”
Derrick Potter is National Chairman of the UKWA and the Founder and Executive Chairman of The Potter Group.
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