Member Article

Logistics businesses confident by lacking innovation

UK logistics businesses are optimistic, but a focus on cost cutting and sticking to core business is restricting innovation in the sector, research suggests.

The UK Logistics Confidence Index, from Barclays and Grant Thornton, includes a survey of key decision makers from the UK Logistics industry.

Although the majority of businesses plan to invest over the next six months, they continue to tackle the same on-going issues, neglecting innovation.

One third of respondents cite margin pressure as their biggest concern over the next six months, followed by fuel costs at 20%.

Rob Riddleston, head of transport and logistics at Barclays said: “The continuing economic climate is providing the logistics industry with challenges and whilst some recognise the need to innovate, the day-to-day pressures make this difficult to achieve.

“However, it is pleasing to see that there is an air of optimism in the industry with logistics businesses seeing a brighter future over the next six months.

“Whilst a vital element of the supply chain, many of their customers see the industry as a commodity and it’s the successful who add value and innovate who will prosper.”

Despite cost pressures, the industry remains optimistic, and even as over three quarters of businesses surveyed view conditions as somewhat difficult, a quarter see things improving this year with 53% expecting an increase in profit over the next six months.

42% of businesses surveyed say they are likely to make significant capital expenditure (CAPEX) over the next six months, and 47% of businesses suggest they will be taking on more employees over the next six months.

In terms of growth plans, 51% of firms are focused on winning new contracts, with margin improvement (18%) and maintaining existing customers (17%), also a key focus.

Merger and acquisition activity is also being considered, as three out of 10 businesses are likely to make acquisitions over the next six months, with 9% stating they are currently looking at an acquisition target.

Ian Marwood, partner in Corporate Finance at Grant Thornton in Yorkshire and the North East, said: “The logistics industry has always been an early indicator of the state of the wider economy. This sensitivity makes it wiser to the ways that it can thrive in the lean years.

“There is, however, only so far that costs can be taken out of a business, margins can be cut and only so many contracts that can be won.

“The next 12 months will likely be a period of consolidation in the sector, creating more companies of scale who are able to invest in innovation and diversification, as continuing to do more of the same is simply not an option.

“We also believe that the really successful companies will be operating on an “asset light” basis and co-ordinating the provision of services across the supply chain.”

This was posted in Bdaily's Members' News section by Tom Keighley .