Shipping & Logistics: UK business expectations survey

In a new annual series, we compare perceptions of UK-based shipping and logistics businesses about the future environment and growth expectations. In general, the logistics sector is more optimistic, but both face challenges from rising costs.

Confidence levels in the shipping and logistics sectors have been following a similar path in 2016. Drawing on previous surveys we know that confidence levels in both sectors fell in the first half of 2016, before rebounding somewhat in the second half of the year.

Business conditions

Survey respondents in the shipping and logistics sectors have similar views about current business conditions. More respondents think that business conditions are about the same as they were six months ago, although substantial proportions (38.1% and 37.1% of shipping and logistics respondents respectively) think they have become somewhat more difficult.

Looking ahead, there is some difference of opinion between the two sectors. 42.5% of shipping respondents think that business conditions over the next six months will be the same, while 35.7% expect them to become more difficult. In the logistics sector, more businesses think conditions will become somewhat more difficult (48.6%), with 38.0% expecting no change.     

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Turnover and profit

When it comes to turnover and profit growth expectations, logistics businesses are more optimistic than shipping companies.

Well over half (59.0%) of logistics respondents expect turnover to increase by more than 2% over the next 12 months, compared to a third (33.4%) of shipping respondents. In addition, more shipping respondents than logistics respondents expect turnover to decrease by more than 2% over the next 12 months (30.9% of shipping, 21.9% of logistics).

Turning to future profitability, 44.8% of logistics respondents expect profit to increase by more than 2% over the next 12 months, compared to only 23.7% of shipping respondents. Logistics respondents are also less likely than shipping companies to expect profits to fall by more than 2% (22.9% and 38.0% respectively).

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Capital expenditure and headcount 

Optimism in the logistics sector is reflected in survey respondents’ plans for capital investment and headcount growth.
 
Compared to shipping businesses, logistics companies are twice as likely to be making major capital expenditure in the near future. Almost three-quarters (74.3%) of logistics respondents are likely or very likely to make significant capital expenditure over the next six months, compared to 35.7% of shipping companies. The limited capital investment in ships is reflected in the financial difficulties being experienced by the world’s shipyards. In the UK logistics sector, however, expenditure on warehousing is needed to address the lack of good quality space currently available.

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In terms of headcount, 42.8% of logistics respondents expect employee numbers to increase by more than 2% over the next six months, while 41% expect no or only marginal change (by +/-2%). Their outlook is very different to that of shipping companies, the majority (71.4%) of which expect to keep their headcount steady or make only a marginal change. Only 19% of shipping companies anticipate headcount growth by more than 2% over the next six months.

Interpreting the numbers

The fact that the shipping sector is experiencing difficult times comes through strongly. Shipping companies have been experiencing challenging business conditions for some time – with overcapacity an ongoing issue – and they don’t, in general, expect things to improve in the short term. Shipping is also a global industry, so UK-based businesses will be affected by the weakness of the global economy as a whole. Such factors are reflected in their more muted turnover, profit, investment and headcount expectations.

Greater optimism amongst logistics businesses reflects the greater diversity of sectors served and some strong sources of demand. For example, e-fulfilment is an expanding logistics market, while demand for new technology is also fuelling logistics activity. The UK economy has also appeared relatively robust, even in the first months after the Brexit vote and despite initial fears about the potential damage that could be caused by uncertainty over the details of the UK’s departure from the European Union. There is, perhaps, a realisation that developments will be gradual and there are unlikely to be major, immediate economic shocks.  

The falling pound is one obvious exception, but one that brings both benefits and difficulties, depending on business structures. The low pound has driven up fuel costs, however, with an impact on both shipping and logistics sectors. Although the larger logistics companies will be able to pass on costs due to the cost escalation clauses they have in place, smaller operators will be exposed. The impact of such cost increases is reflected in the fact that both shipping and logistics businesses surveyed have higher expectations for turnover growth than for profit increases.    

Cost pressures in the logistics sector are also being heightened by skills shortages, particularly in relation to vehicle drivers, but also across the sector. Logistics businesses were surveyed when just gearing up for the busy pre-Christmas season. High demand for additional staff during this period could increase costs further. Looking further ahead, businesses will be watching Brexit negotiations carefully: could restrictions on immigration create an even greater imbalance in labour supply and demand?   

The talent pool available to both shipping and logistics businesses could be increased by encouraging more women into these sectors. Our latest shipping survey asked respondents what barriers they perceived to women playing a greater role in the shipping industry. The top three were as follows: workplace attitude or corporate culture, travel implications in day-to-day roles, and lack of career progression. A year ago we asked the same question of logistics businesses, finding the top three barriers to be the image of the industry, few flexible working opportunities, and lack of female role models. A perceived lack of career progression came fourth. Both shipping and logistics sectors should take note: efforts to improve culture and image, find more flexible ways of working and develop clear career paths could help to attract more female workers and bring a valuable boost to the talent pool.

The forward-looking periods covered by this survey are not long enough to take account of the impact of the new accounting requirements for leases, due to come in force in 2019. The financial statements of companies leasing ships and vehicles on relatively short leases will be particularly affected. Reported earnings and cash flow will feel the impact, even if actual spend doesn’t change. Affected businesses need to be taking action now to prepare for the change, in particular engaging with their banks and other financiers.

For more information, please contact us here.

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