Logistics sector insolvencies jump by a fifth in a year

The number of insolvencies among UK delivery and logistics companies has jumped by 20% in the last year, with 221 companies going out of business in 2014 compared to 184 in 2013.

The boom in e-commerce is creating a gulf between the ‘haves’ and the ‘have-nots’ in the sector, with an increase in smaller companies going under, as they struggle to meet rising consumer expectations of e-commerce deliveries.

Many smaller logistics companies have been unable to make sufficient investment in their IT platforms and operations to keep up with their larger peers, making their business models questionable in the age of e-commerce. Many are not able to offer the flexibility required in today’s e-fulfilment market – whether it’s time slot or delivery location margins for standard one to three day delivery companies are being squeezed as a result of intense competition in this segment.

Nevertheless, ecommerce does bring new opportunities as well – such as greater scope for companies to be able to offer a ‘reverse logistics’ solution to their clients repacking items for resale, or ‘break and fix’ where faulty goods are repaired and returned for resale by the delivery company.

Jeremy Willmont, Head of Restructuring and Insolvency says: “The accelerated growth of e-commerce has boosted the fortunes of some logistics companies but left others struggling to keep up. Big logistics companies are, on the whole, more confident than they have been for years but smaller, weaker players are being forced out at a faster pace

“The traditional courier and haulier model is now under threat. The consistently high levels of investment necessary are beyond the means of most small companies.

“There has been a generational shift in purchasing patterns. A lot of younger consumers now expect to have eight to ten items delivered per order and send several back, and they do not expect to pay extra for that service. And of course, all of this must happen within much smaller time windows than in the past.

“This is enormously challenging for any delivery company, but virtually impossible for the small players. The expense of installing and upgrading integrated IT systems within each depot and each van can be prohibitive. With margins being squeezed out of the supply chain, larger companies are using their scale to outcompete their smaller rivals.

“The squeeze that the delivery sector is facing raises some real questions over how sustainable the current logistics model is – consumers have come to expect free delivery, but that simply may not be feasible in the long term.”

Not all delivery businesses benefitting from tumbling fuel prices

The lower oil price and subsequent drop in fuel prices could have been expected to provide a boost to the sector. However, many delivery contracts are on an open-book basis, whereby any savings generated by a drop in fuel prices are passed onto the customer through reduced delivery costs.

There has been excess capacity in the sector since 2008, with a large number of small players entering the market and undercutting existing rivals. This has proved unsustainable, as the increasing rate of insolvencies in the sector shows.

Philip Bird, Logistics specialist, says: “While most of us have been delighted to see fuel prices falling, for delivery businesses it has been mostly irrelevant. The retailers have had the ‘whip-hand’ due to excess capacity in the sector, and have been able to negotiate contracts that place more of the risk on the side of the delivery providers.

“A key issue facing logistics companies is the  shortage of drivers. At some point this could squeeze margins if growth in pay accelerates.”

Insolvencies in the logistics and retail sector rising year on year since 2010

Jeremy Willmont