Intense competition in UK logistics sector creating 'unsustainably low rates'

29 May 2015

Competition in the UK logistics sector is intensifying, keeping pressure on margins, according to the latest UK Logistics Confidence Index.

The survey said providers had reported more than half of all new business (53 per cent) won over the past six months had come from new customers switching from other providers.

More than 100 managing directors and finance directors at logistics companies were surveyed as part of the bi-annual report, commissioned by Barclays and Moore Stephens. Intense competition in the industry is sustaining what many providers see as unsustainably low rates, respondents said.

Customers renewing existing contracts accounted for 10 per cent less new business than when the last survey was conducted in the second half of 2014 and over-capacity in the market and price challenges from larger multi-national providers are increasing pressure on the bottom line.

Major retailers and manufacturers are also increasingly likely to shop around rather than renewing contracts automatically, increasing demand for lower pricing.

Yet despite this overall confidence within the sector remains high, the report said, with more than three-quarters of operators planning capital investments over the next year.

Thirty seven per cent of providers believed business conditions were more favourable, an increase of 25 per cent compared to the beginning of 2012. Almost eight out 10 respondents expected the outlook to improve or stay the same and 55 per cent are expecting to increase headcount. And 81 per cent of businesses are expecting to increase turnover in the coming year, with two-thirds of operators expecting to increase profitability.

The number of providers planning to make an acquisition in coming months had risen from 24 per cent at the end of 2014 to 32 per cent, mainly driven by the intention to enhance or diversify their offering, or to add scale to their businesses. Philip Bird, senior director of Moore Stephens Corporate Finance, cited the recent acquisition of TNT by FedEx as evidence of this.

However nearly half of businesses see attracting and retaining skilled staff - especially drivers - as their most pressing problem over the next six months and operators bemoan the fact logistics is often perceived as an old-fashioned industry with unsociable working conditions and few career opportunities.

There is also little external funding to train drivers and companies often have to fund the training themselves, losing the investment if the driver is lured to a competitor, the report said.

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