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Rise in new business steadies logistics industry

• Confidence amongst logistics operators has risen slightly post-referendum, increasing from a four year low in H1 2016
• Operational concerns persist, with the sector citing driver shortages, price pressure, and the impact of Brexit on trade
• However, the logistics industry received a boost in H2 with a sharp increase in new business from current customers
• Three-quarters expecting significant capital expenditure in next six months

Confidence amongst UK’s logistics businesses has risen slightly following the historic low point reached in H1 2016, reports the latest UK Logistics Confidence Index from Barclays and Moore Stephens.

Moving from 51.8 to 53.0*, the boost stems in part from a sharp increase in new business generated by the expansion of existing customers. Just over a quarter (26%) of new business in the last six months came from current customers expanding – a jump of almost 10 percentage points from the previous half, and the highest figure in the biannual Index since 2013. This has helped to partially mitigate a previous trend of intense competition over market share as the only route to growth.

Whilst confidence remains significantly lower than the all-time high point two years ago, when it stood at 71.4, the slight upturn is an encouraging sign and matched by three quarters (74%) reporting plans to invest significantly over the next six months. This trend towards investment comes as the sector prepares for the challenges and opportunities ahead as the uncertain impact of Brexit draws closer.

Rob Riddleston, Head of Transport and Logistics at Barclays, said:  “The logistics sector is a key component of the supply chain that this country and the UK economy relies on and so it is reassuring that the sector continues to invest. We see businesses across the country looking to hire more and invest in the technologies that raise the levels of efficiency and productivity. Whilst the sector is concerned about the implications of Brexit, there’s also clear recognition of the importance of entering a period of uncertainty from a position of strength and that such investment could create new opportunities as the detail of Brexit emerges.

“A firms’ ability and willingness to invest more ahead of the market can provide operators with an edge that can help to differentiate them from competitors and move the pendulum towards the benefits of service and value, something that will be critical to the future of the industry.”

Boost in new business steadies confidence, but Brexit remains a worry

Downward price pressure also remains an issue for the sector, cited by 41% as an important issue, as is warehousing space. This is compounded by uncertainty over the impact of Brexit, with volume of future trade, labour availability, customs clearances, trade deals and currency risk cited as key issues. Respondents argue that risk is concentrated in certain logistics sub-sectors, with suppliers to the automotive sector seen as significantly more vulnerable than groceries.

Fears over driver shortages intensify

The research shows that a number of longstanding concerns persist. The struggle to recruit drivers and skilled workers in the logistics sector is intensifying, with 35% of respondents rating this issue as a primary concern, up by almost a fifth on H1 2016. This is a reflection of both long term challenges in attracting British workers, and new concerns that drivers from the EU will not be available following the UK’s withdrawal.

This follows a recent warning by the Parliamentary Transport Select Committee that current thinking is not sufficiently targeted or wide-reaching to deliver drivers fast enough to address a looming shortage, deal with future growth or cope with the ageing profile of drivers likely to retire in the next ten years. Haulage associations estimate a current shortfall of 45,000–60,000 drivers with another 40,000 due to leave the industry by 2017.

However, the Index indicates that the sector is well aware of the issue with nearly half (44%) of respondents planning to increase headcount over the next six months, a key challenge will be whether driver supply can meet demand.

Sector invests to gain competitive advantage

Despite some uncertainty, 75% expect significant capital expenditure over the next 6 months, with two-thirds arguing that investment in technology is especially important, particularly to provide greater operational visibility. The focus seems to be on using transport technology rather than in storage and warehousing with logistics firms looking to invest in telematics and transport planning management software.

Philip Bird, Partner at Moore Stephens, said: “It is encouraging to see the logistics sector in a slightly more confident mood than at the time of our last survey. This is reflected in a number of areas such as outlook on turnover, headcount and capital expenditure. However this optimism is cautious as the sector faces a number of long-term issues that are affecting it, such as pressure on margins, skills shortages and uncertainty about the future of the UK and global economies. It is going to be interesting to see how the sector faces up to these issues in the coming months but there is no doubt, as our survey highlights, that the increased use of technology is seen by many operators as a way of addressing some of these issues.”
Notes to editors

About the Barclays UK Logistics Confidence Index

The Barclays UK Logistics Confidence Index is based on a twice yearly survey undertaken by specialist sector research agency Analytiqa for Barclays and Moore Stephens. Respondents to the H2 2016 survey represent over one hundred senior decision-makers (CEOs, CFOs, managing directors and finance directors), across the UK logistics sector. The H2 2016 report marks the ninth edition of the Index.

*In the calculation of the index, a reading of over 50.0 indicates an improvement, or expectation of future growth, while anything below 50.0 suggests a decline.

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