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State of the nation

12 December 2012

Key personnel from some leading UKWA members give their views on some of the challenges facing the logistics industry

Key personnel from some leading UKWA members give their views on some of the challenges facing the logistics industry

Rising fuel prices, Government policy and the struggle for better margins are among the points that vex logistics professionals in this spot survey of UKWA members.

What is the biggest challenge facing the third party logistics industry in 2011?

Steve Gaugler (SG): “In my opinion the biggest challenge ahead will be maintaining services to customers with ever decreasing margins.We have struggled to get increases in rates over the last three and a half years. If you increase rates to cover the rise in Insurance, NI, etc, this forces customers to cross-quote which means they could find another company offering more competitive rates - particularly if that company has spare capacity due to a downturn in business. This could lead to an inferior service being given as the new logistics company may not fully understand the customer's needs and the actual day-today requirements needed to run their business.”

Iain Speak (IS): “Pressure will be felt across the industry with the rising cost of fuel, and general inflation, coupled with pressure from clients looking to reduce their supply chain costs to remain competitive in very challenging market conditions.

“Our sound financial footing means we are well placed to face the challenges that may lie ahead, unlike a number of operators who, having survived the recession, may now face an uphill battle to remain profitable.”

Mark Hansard (MH): “We're all in a very difficult time and things are probably going to remain so for at least another 18 months in my opinion.

“It's particularly important to control what you can control, manage your costs and cash-flows and ensure customer satisfaction is a 'given'. Having a positive 'can-do' attitude will also help preserve sanity and reputation.What we must do as an industry is to stay focused on the real business objectives delivering a high quality, value for money service, retaining clients' business and thinking outside of the box. You can't do what you've always done and expect change.
“I believe it is the continuing element of uncertainty surrounding the overall global economy and our government's reaction to it. The state of our markets both at home and overseas will dictate the level of business opportunity. If the overseas and private markets do not grow at a greater rate than the contraction of government based business, then we will be in for a continued very hard time. Inflation is a key concern.”

Richard Davies (RD): “The world recession has affected the UK logistics industry hard. The knock-on effect of bad debt and the fact that most operators were operating within tight margins has seen a considerable number of established logistic providers fall into administration. This, with the addition of general requirement for capacity falling has made organic growth near impossible. Supply and demand drives price, with this surplus capacity average sale rates are falling and operating costs are rising. I believe the biggest challenge within the logistics industry will be maintaining and developing sales whilst maintaining a fair sales margin.”

Joanne Dolan (JD): “Business rates. The 2008 re-evaluation was set against rental prices which no longer exist. It is common to find properties available to rent at a net figure of zero plus non domestic rates. This is a lunacy which must stop. Business rates is a tax on jobs and is holding back the logistics industry.”

Do you think the Government understands the role that the logistics industry plays in the economy?

SG: “I don't think the Government fully understands our role - if it did costs would be reduced (i.e. fuel, road tax, commercial rates etc) which would help many reputable logistics companies to operate on a fair playing field. If costs stay as they are this will force struggling logistics companies to cut corners on trained staff, maintenance programs, driving hours etc.”

IS: “The strategic importance of the logistics industry to the whole economy is seriously undervalued. The pre-Christmas weather conditions and previous driver fuel strikes have underlined how crucial the industry actually is in terms of getting essential items down the line to the consumer. The country would quickly grind to a halt without it.

“The industry is worth some £15 billion to the UK economy and yet there is a distinct disconnect between the public perception of what it does and the indispensable role it plays. “Furthermore, the collection of fuel duty alone makes a significant contribution to the treasury's stretched resources.”

MH: “This is highly debatable as one doesn't really know what goes on behind closed doors. However, whether they do or don't isn't the real question.We have huge deficit issues to resolve and the government seems committed, almost obsessed, with addressing this almost to the exclusion of anything else. The escalating cost of fuel must be addressed (surely as cost rises duty can be scaled down?), not just for our industry but also for the average family. I would like to see Mr Cameron take some action here and this would benefit us all.

“They need to also start thinking outside of the box and take some risks to help stimulate the economy and cheer us all up!” RD: “I have no doubt that the Government understands the role of the logistics industry, it wasn't long ago when we were all seeing the hauliers 'slow drive' protest about rising fuel prices. Although this failed to discourage the fuel increase it certainly made people aware of the important role the supply chain industry plays in the infrastructure of the Country.”

JD: “No. They do not understand the effect that the fluctuation in prices of fuel, consumerables and other items has directly on our clients' factory gate prices.”

What single thing could the Coalition Government do to improve operating conditions in the UK logistics sector?

IS: “The sophistication and importance of the logistics industry is yet to be recognised - we are operating leading edge IT systems, adhering to heavy regulations, reaching environmental targets, and possibly the most important, constantly improving operations that reduce costs to the end user.

“The government needs to help change the current perception and highlight the importance of the industry in the interests of the general economy. Once perceptions change, a lot of other issues, such as mounting cost pressures and impending skills shortages, could be addressed far more effectively.”

MH: “As mentioned already, the fuel issue is not going to go away and cannot be forever ignored. The cost of fuel seems to affect everything. I also wonder retrospectively if the adverse weather conditions are going to be handled when we all get snowed in again. It really is embarrassing for UK plc that we never plan for this. How much damage was done to the economy and when are we going to learn? Fail to plan, plan to fail.”

RD: “I believe introducing a cap on fuel duty for commercial vehicles would benefit not only the logistics industry but the UK economy. UK hauliers operating with tight margins have no alternative but to pass on the fuel increases via a fuel escalator charge. Currently in excess of 75% of food and consumable goods are transported via road. So this duty affects all UK households.”

JD: “I'd like to see the abolition of employment law for small companies with less than 50 employees. The claims culture underpinned by 'No win/No fee' solicitors has created an environment of 'no hope' claims irrespective of the circumstances surrounding them. This must stop.”

Do you believe road pricing would be acceptable to the industry?

SG: “If road pricing is just to be an added cost I feel this would force struggling logistic companies to cut more corners. If it replaced road tax and reduced fuel tax if may work. But in my opinion the key is to improve and reduce the cost of public transport which will remove a lot of cars out of the system.”

IS: “It's difficult to see the real benefit in road pricing other than it being a further revenue generator for the government. There currently isn't a viable alternative to moving freight by road but possibly if larger vehicles were allowed on primary routes there would be reduced congestion, reduced carbon emissions and, ultimately, fewer associated costs.

“If investment were made in practical schemes, such as out of town consolidation centres, it may be a step in the right direction but would this just be another tax that wouldn't then be allocated back to the country's infrastructure?”

MH: “In isolation I am not convinced. This is not only an economic/environmental issue but also a cultural one. Being a tight fisted Yorkshireman I usually divert the satnav onto a B road and wonder how many others think the same. If we had a huge land mass and a well thought-out and balanced plan then yes this could work. This has to be considered with adjusted fuel duty rates and vehicle road taxation. I think the answer lies in having a plan to include sorting our public transport alternatives and being selective with priority issues. Is it really viable to charge £160 for a standard return from Leeds to London on the train?

“The whole process of using public transport seems designed to make it as difficult as possible for the user. The volume of foreign trucks on the UK road is also rising and they are not contributing to UK plc, they can't get a free ride.

“I think we need to appoint a Priorities Minister to focus on what matters such as drivers without insurance for example and energy companies fleecing the public and obscene parking charges. I'm not sure that road pricing should be such a priority.”

RD: “In contradiction to my previous answer I do believe introducing toll roads would be good for the economy.My main reasoning for this is the huge volume of non UK based vehicle operating on UK roads. None of these vehicles registered outside the UK pay any 'road funds license' to help maintain and develop the roadways infrastructure.

“The introduction of tolls would force all vehicles to pay their fair contribution to the system. Presently our major counterparts on the continent all charge a toll on their motorway network.

Germany has recently introduced the 'Maut' which is an additional charge for non- German vehicles using their road infrastructure. It is about time we followed suit.”

JD: “No I do not. This is because of the amount of unnecessary management time and administration that road pricing creates.

The LEZ/London Congestion Zone has caused nothing but trouble and pointless cost to this company. During its existence we have experienced a return of congestion levels equal if not higher than before the London Congestion Zone was introduced; which surely confirms that it is a tax on trade and nothing else.”

Do you believe that the logistics industry faces a skills shortage and, if so, what impact might the shortage have on the industry during 2011?

IS: “Due to an ageing workforce and the perception of the logistics industry as an 'unattractive' career move to those currently in education, the industry may well face a skills shortage. It is important that we begin to attract young people and bring a diversity of skills into the sector.

“We are looking to do this through logistics apprenticeships and by ensuring our recruitment and staff development processes support and professionally progress all employees. Organisations that truly invest in, and care for, their people will attract talent for the future and consequently may outperform other businesses in their sector.”

MH: “I believe that we are developing a medium term shortage in various skill areas. For example, driver shortages were common a few years ago, but seem to have disappeared. I believe this is due to a lower number of drivers being required currently. However, when eventually the economy picks up we will have an acute shortage, as I believe we will for trained managers, and skilled staff in a number of areas. However as I expect the economy to remain sluggish at best throughout 2011, I do not expect this to generate much impact in 2011.”

RD: “Unlike our European neighbours the term 'logistics' seems to be an unknown phrase for the UK schooling generation. Although business has been made sexier with TV programmes such as the Apprentice and Dragons Den, logistics is rarely portrayed as an industry but more of a supporting service. I would imagine that this is why many people in the logistics industry find themselves in their current role - having started off in a different industry. That said, the logistics industry does operate within a certain framework and many skills can be converted from different industries.

“Shipping and transport managers' duties are gradually being absorbed into 'non logistics' roles, meaning some skills will be forgotten and lost. However, due to the recent recession I doubt we will experience a skills shortage during 2011.”

JD: “No I don't. There are many government schemes in place such as NVQs which cover many different jobs within the industry. I think more could be done to encourage graduates into the industry especially as there has never been so many. I feel fresh ideas combined with a wealth of experience will help create the new generation in logistics.

“In addition to this companies such as us are finding it more advantageous to employ younger people and pair them with an older more experienced member of staff. This allows them to gain more hands on experience and benefit from practical knowledge gained by years of being in the industry.”

Do you expect demand for your company's services to increase during 2011?

SG: “In my opinion I think that if we start to come out of this recession we will see an increase in stock and movements with our existing customer base and hopefully an increase in new customers as they increase stock and now find themselves looking for a logistics service.”

IS: “The logistics sector is consolidating at the top tier, the acquisition of TDG by Norbert Dentressangle for example. The availability of credit combined with tough conditions has thwarted expansion plans for smaller and medium sized companies. In 2010 we made a number of acquisitions of such companies, which strengthens our position, enhances our service portfolio and, in partnership with our customers, provides a platform for future growth.

“We will continue to provide a level of customer care traditionally associated with smaller companies and use our growing scale and industry leading expertise to compete with the larger players in the market.”

MH: “It already is thankfully.We expect to achieve significant growth albeit from a small base as we are only just completing our first fiscal year of operations. Our real focus is on delivering flexible warehousing solutions and, given the economic climate, we are fortunate to have relatively low operating costs and an absolute commitment to delivering what we promise on service. As clients appear to be favouring lower fixed costs and shorter terms with operational flexibility, we are quite well placed.We also have a great team of people who are accessible and friendly which always helps.”

RD: “Having developed a stronger foundation during the past 24 months supported with a new range of collaborating services I would expect an increase in demands for services.We are reinforcing this with a strong, focused marketing campaign. Obviously however aggressive we are in sales we cannot create demand. I hope our optimistic approach pays dividends.”

JD: “Yes.We have had a steady, loyal customer base over the last 12 years and have consistently added to this through our successful sales and marketing campaigns. Our steady growth has also been a direct result of our award winning levels of customer service, and dedicated team of staff. Nothing is ever too much trouble and our staff are always going over and above for our customers, which in turn makes us stand out from the crowd. This combined has led to us opening a new facility and adding an additional vehicle to our fleet.We expect this growth to continue and are very much looking forward to another successful year in business.”