Logistics firms 'unable to absorb surging costs'

13 May 2022

Almost three-quarters (71%) of logistics firms are reporting an increase in shipping costs that “many businesses will not be able to absorb”.

A survey by Logistics UK found “surging costs” year-on-year, driven by high fuel prices and supply chain pressures. Two-fifths (40%) of respondents said transportation costs had risen by 25% or more.

A spokesperson for Logistics UK told Supply Management these costs would have to be passed on to customers, adding the increase “relates to the cost to transport goods, whether that is the cost faced by an operator or a buyer of logistics”.

“The oil price increased significantly in quarter one 2022 and this, together with supply chain disruption, has increased logistics rates for all modes and warehousing,” they said.

“Margins are typically very low in the logistics industry and for road freight in particular. Many businesses will not be able to absorb these increased costs.”

Simultaneously, 35% of logistics companies reported a decrease in orders, with 12% saying orders had fallen by at least a quarter. Combined with the low margins in the sector, “significant increases in input prices will impact the supply chain at all stages”.

Sarah Watkins, deputy director of policy information at Logistics UK, said the rising cost of transporting goods was in part due to fuel price increases. “The sheer numbers of logistics companies reporting increases in both freight rates and the costs to move goods suggests rising prices are deeply embedded and are unlikely to subside in the coming weeks,” she said.

“The sector is particularly reliant on diesel, the cost of which is likely to remain elevated even as the cost of other fuels subside.”

Bulk diesel prices have risen by 35.7% in 2022’s first quarter year-on-year. These prices makes up almost a third of the cost of transporting goods.

Watkins commented: “Activity in the logistics sector is a reliable leading indicator for the broader economy and the survey reveals worrying signs. More than a third of our respondents say orders are declining, likely as a result of both rising freight costs and as consumers cut back amid a broader cost of living squeeze.”

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