Driver shortages cause decrease in confidence in logistics

•    Biggest fall in confidence since 2015 with over half (60.8%) of respondents saying business conditions have become more difficult in last 12 months
•    Over half of respondents (51%) felt that driver and skills shortages was the biggest issue facing their business
•    However, the Index remains positive and above 50, suggesting that there is still a degree of optimism among operators. More than half of companies still say they expect to increase profits in the year ahead despite concerns of rising costs and greater pressures on margins

Along with Barclays Corporate Banking (Barclays), we have today revealed the findings of our annual Logistics Confidence Index. The study, which was carried out amongst 102 of the top companies in the sector with a combined company revenue of over £18bn, revealed the biggest fall in confidence since 2015, with over half (60.8%) saying conditions have become more difficult in the past year.

Philip Bird, Partner, said: “The overall sentiment of this year’s survey is that of uncertainty. In the 2017 index, companies were optimistic for M&A activity and improving overall business conditions. But with the potentially serious impact of poor Brexit negotiations and poor performance across the retail sector in the last year, many companies seem much less optimistic about the prospect of a positive 2019.”

Of primary concern to logistics companies is the potential shortages of skilled drivers. Whether enforced or the result of voluntary cost cutting, around one in five (18.8%) of logistics operators in the survey say they expect to decrease headcount in the next 12 months. This potential vacuum of EU and aging drivers leaving the workforce resulted in over half of respondents (51%) judging that driver and skills shortages was the biggest issue facing their business.

According to CBI figures, 14% of LGV drivers in the UK – around 43,000 people – are EU nationals . Coupled with an ageing workforce of HGV drivers – the CBI estimates that 60% are 45 or older – this long-standing challenge for the sector is clearly being exacerbated by the current political uncertainty.

Richard Smith, Head of Transport & Logistics at Barclays Corporate Banking, said: “It’s disheartening to see that lack of drivers remains the industry’s top concern, as it has done for some years. The reality is that there is simply not enough new talent coming into the sector early enough to counter an ageing workforce. One of the main challenges in attracting recruits has been the perception that the industry lacks significant career opportunities, particularly for the younger worker. The shortage of drivers needs immediate attention and focus if the logistics sector is to continue to thrive and it’s encouraging to see that businesses are already looking to invest in tech to improve fleet management systems.”

To combat their aging driver population a fifth (22.3%) of companies are improving efforts to engage with younger workers and introducing apprenticeship schemes. According to the latest National Travel Survey statistics, published in July 2018, the share of 17-20 year olds in England with a full driving licence in 2017 dropped to 30% from 44% 20 years ago. Making driver and warehouse roles more attractive to younger workers and demonstrating potential long-term careers is a major challenge companies face. The falling driver numbers is an issue that is likely to require decisive and coordinated action to dispel fears in the sector.

Often regarded as a bellwether for activity in the wider economy, the logistics sector is notably and perhaps unsurprisingly concerned about Brexit. However, our research with Barclays shows that two thirds of respondent companies said they have taken no formal measures in post-Brexit planning limiting their response to internal or informal discussions or action to address potential challenges as we edge closer to the UK’s departure, despite almost half (48.9%) of respondents more pessimistic about the outlook for the industry than they were in 2016.

Philip Bird continued: “More than half of logistics operators polled said current business conditions are tougher now than they have been in the past 12 months. The challenges of supporting a struggling retail sector, political uncertainty and falling driver numbers have driven this drop in overall confidence in the logistics sector. Despite a brief uptick in 2017 that could be put down to the optimism of a successful Brexit, this optimism has since been dashed. The momentum of M&A activity that has gained pace through 2018 is likely to slow down with just a third of companies looking to make acquisitions in the next year. Operators spoke of tightening margins and increased competitiveness as clients look to find savings through switching suppliers. ”

Smaller companies were increasingly feeling the pressure as 59% believed that business conditions were more difficult than 12 months ago. The challenges to compete with larger suppliers who are better able to provide more complete services is weighing on smaller companies, with a fifth (22%) expecting turnover to decrease in the next year.

Richard Smith, added: “The logistics industry continues to remain highly competitive with well over a half of respondents saying that their main source of new business over the past year has come from customers switching providers. Under such pressure, news that three-quarters of operators are planning significant capital expenditure over the next 12 months is welcome given the knock in confidence the industry is reporting and highlights the need for investment in more technology. The growing influence of value-added services shows the industry is looking to win new business above and beyond their traditional offering, which brings with it the opportunity of improved margins and growth”
This competition was fierce with 58.3% putting clients switching provider as their primary source of new business. The leading belief is that value-added services was the biggest driver in new contract wins, indicating that customers were becoming more comfortable with the pricing levels and instead searched for add on services.

In fact, upgrading the technology in supply chain systems was believed to have the most potential impact with almost a quarter (24.5%) expecting it to influence the next three years. Half of the companies engaging in e-commerce were looking to improve their technology infrastructure with big data analytics, blockchain and cloud services being of most interest following system upgrades.

Respondents see the consumer goods and retail sectors as the most attractive, hinting at the importance of higher-margin specialist services, such as pick-and-pack and returns management for e-commerce, to drive growth. The emphasis on retail logistics, and food in particular, may also indicate more defensive strategies focused on relatively recession-proof sectors given the current economic uncertainty.

While companies seem to point to a tough year ahead, there is a spirit of adaptability and tenacity to make the most of the business climate in the coming year. Brexit is likely to bring reduced competition from EU companies and the potential benefits of technology could suggest there are still possibilities to win new business and improve revenue.

Click here to download a copy of the report, or for further information contact Philip Bird.

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