Logistics providers confident of higher profits

Andrew Pring
6 November 2014

Almost three-quarters of logistics operators are planning significant capital expenditure over the coming months.

Just over three-quarters (76 per cent) expect their turnover to rise in the next year with 61 per cent anticipating an increase in profits.

The sector’s optimism is revealed in the UK Logistics Confidence Index, commissioned by Barclays and Moore Stephens, which has risen by almost 36 per cent since its lowest point in late 2012 despite a slight dip in confidence in the latest survey compared to the second half of 2013.

Over half of the senior decision makers who responded to the survey (53 per cent) think business conditions are better now than six months ago with almost half (48 per cent) expecting business conditions to improve further over the next six months.

New business in the sector is coming from customers switching from other service providers (45 per cent), existing customers expanding contracts (31 per cent) and renewing contracts at almost 19 per cent. Of the three-quarters of respondents in the survey expecting an increase in turnover over the next 12 months, over a quarter (26 per cent) are forecasting a rise of 5 per cent to 10 per cent, with 17 per cent expecting 10 per cent or more. Almost a fifth of operators (16 per cent) are forecasting an increase in profits of 5 per cent to 10 per cent while 12 per cent anticipate a rise of 10 per cent plus.

However, the sector still faces challenges, particularly margin pressure and a lack of skilled/trained employees.

Rob Riddleston, head of transport and logistics at Barclays, commented: “Pressure on margins is still a major challenge for operators as customers continue to expect more value for their money. With nearly half of new business coming from customers switching service providers, operators are clearly still under pressure to meet new service demands created in part by the rapid growth of e-commerce, among other trends. 

“Encouragingly, three-quarters of operators are planning significant capital expenditure, with 43 per cent saying that such investment is very likely. This compares to just under a quarter (24 per cent) who are currently assessing acquisition opportunities, indicating that operators are more focused on investing in their fleets, infrastructure and technology to drive efficiencies and competitiveness rather than through the route of acquisitions.”

Philip Bird, senior director of Moore Stephens Corporate Finance, added: “Logistics operators in the e-commerce space need to have a unique and differentiated service offering to be successful or they remain under threat form the likes of Amazon who have been trialling their own ‘last mile’ delivery service in the US.”

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