This article has been submitted by Barclays
Often considered a bellwether of economic activity, the UK companies that transport goods to the nation’s customers say they are more optimistic about their future than this time last year[ii]. The potential for value added services, greater collaboration through M&A and the new opportunities presented by technology, were all reasons for operators to feel optimistic.
To mark the tenth edition of the UK Logistics Confidence Index 2017 from Barclays Corporate Banking and Moore Stephens, respondents were asked to compare the current state of the sector with five years ago, when we first launched the survey, and almost half said that it is in better shape now than it was then[iii]. However the survey also shows that almost half (45%) of the companies that dispatch and deliver goods across the UK feel that business conditions have become more difficult in the last year[iv], and specific concerns around Brexit show a less cheerful picture.
Less than one in ten (7%) logistics operators say they feel more positive about Brexit than they did last year, with six in ten (61%) saying they expect it to have a negative impact on their businesses. However, many logistics operators have yet to take any action, with just 2% saying they have engaged professional advisers and 23% taking no action at all[v]. Furthermore, the Index suggests that the reason why operators aren’t taking action is because they are waiting for further clarity on the deal[vi]. This explains why there is little evidence of operators changing their warehouse footprint, for example, considering Ireland as a possible route to the EU.
Rob Riddleston, Head of Transport and Logistics at Barclays Corporate Banking, said:
“The confidence reported in this year’s Index is really encouraging and demonstrates the resilience of the sector. Despite a tough environment, firms are getting on with it. However, as the path ahead becomes clearer, this business as usual approach will need to flex. The battle to retain customers looks set to become more aggressive, as operators work to differentiate themselves through investment in new technologies and the value added services that win customer loyalty, while the appetite to acquire, even in the next 12 months, is telling. Both could become significant threats for those businesses who do not face the changing operational landscape head-on, and so miss out on taking advantage of its opportunities.”
Getting the balance right: customer retention vs acquisition
Interestingly, a fiercely competitive environment hasn’t dampened the sector’s expansion spirit, with four in ten logistics operators saying they are likely to make an acquisition over the next 12 months[vii]. This marks a 15% increase in the number of businesses who said they had takeover plans last year, and is the highest level since the survey began in 2012. As it becomes more difficult for operators to obtain new contracts, mergers and acquisitions create an opportunity to gain new business.
Expanding service offerings is the main reason why M&A activity has been more popular in the past 12 months. Not only do new partnerships provide new expertise and services, but also wider geographical opportunities. For overseas buyers, the de-valuation of the sterling has also made UK acquisitions more appealing. Cheaper funding thanks to interest from private equity investors and appetite from smaller firms to sell also means that this trend is likely to continue.
Philip Bird, Partner at Moore Stephens, said:
“There is no doubt that consolidation in the sector has accelerated over the last 12 months and our survey results clearly suggest that this trend will continue. Whilst a large part of historic consolidation has been defensive, aimed at protecting or gaining market share in a very competitive environment, we expect that future consolidation will be driven by the need to access new technologies, faster growing verticals, such as e-fulfilment and by the need to access new geographies as a result of Brexit. Mergers and acquisitions expectations also reflects a level of confidence amongst operators, and this is particularly encouraging to see in light of an environment of continued economic and political uncertainty.”
Data is the key weapon in the battle for customer retention
With the new business pipeline more difficult to maintain, the Index shows providers are also investing in customer retention strategies. Over a quarter of logistics providers (27%) attribute value added services as the main driver in contract wins, with 69% investing in innovative supply chain solutions. Additionally, almost half (47%) of the companies surveyed say they are already investing in data-driven supply chains and a quarter (23%) will implement ‘Big Data’ solutions in the next 12 months. All will contribute to more efficient operations, as will cloud services which are the most popular new technology for future investment, with 27% of operators saying they will implement cloud-enabled solutions over the next 12 months.
Bolstered by the Department of Transport’s commitment to invest £8.1million in self-driving truck trials, technology is also helping logistics companies to deliver staffing efficiencies. One in ten (10%) logistics operators say they are investigating the use of driverless trucks.
[ii] In 2017 overall confidence rose slightly, increasing to 56.7 from 53.0 in H2 2016.
[iii] In comparing 2017 to 2012, 46% of respondents said that ‘across the sector’ logistics was in a better position. 30% said it was unchanged and 24% said it was in a worse position.
[iv] 45% of respondents say that business conditions over the last 12 months have become more difficult, 9% saying they have been much more difficult.
[v] Respondents were asked what actions their company had taken in a response to Brexit. 23% of respondents said they had taken no action so far, 19% of respondents said that they had informal discussions with customers / trade organisations, 6% said they had informal discussions with cross-border operators, 2% said they had engaged with professional advisors.
[vi] Qualitative evidence suggested that logistics operators were waiting for further clarity with regard to Brexit before taking action. For example “Brexit’s lack of clarity is causing uncertainty in the markets we operate in resulting in delayed investment…”
[vii] 40% of the logistics companies surveyed say they are likely to make an acquisition over the next 12 months, an increase of 15% on last year and the highest proportion since the survey started. Half of larger companies expect to make acquisitions, compared to 32% of smaller companies.