East Anglia: Region’s logistics sector upbeat despite challenges
EAST Anglia’s logistics companies are promisingly optimistic despite the current economic challenges, but a focus on cost cutting and core business is restricting innovation, according to a new report.
A newly-launched UK Logistics Confidence Index, produced by banking group Barclays and financial and business advisory firm Grant Thornton, includes a survey of key decision makers from the region’s logistics industry.
It shows that although the majority of businesses plan to invest over the next six months (63%), they continue to tackle the same on-going issues, leaving innovation to take a back seat.
The biggest concern facing logistics businesses over the next six months is margin pressure, cited by one third of respondents, followed by fuel costs (20%). Surprisingly, only 15% of respondents were concerned by eurozone uncertainty.
Ian Carr, a haulage and logistics specialis at Grant Thornton East Anglia, said: “The haulage and logistics sector is a key contributor to East Anglia’s GDP and provides essential support for the regional economy. Haulage is also a barometer for the economy as a whole as the more activity there is, the more goods need to be transported.
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“The ports of Felixstowe and others locally are reliant on the Chinese economy and its slow down will bring greater pressure on the sector where margins are already thin. Overlay the European situation and the challenges are obvious but the fact that confidence still prevails shows the resilience of the industry and indicates a brighter picture for the future.”
Despite tough trading conditions – more than three quarters (78%) of those surveyed stated conditions were “very difficult” or “somewhat difficult” – more than half of respondents (53%) expect an increase in profits over the next six months while 47% expect to take on more employees.
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There are also positive signs in terms of businesses intending to make significant capital expenditure over the next six months, with just under half (42%) of those surveyed said they were “likely” to invest, while 21% said they were “very likely” to expend capital.
In terms of how logistics businesses intend to achieve their growth plans over the next six months, 51% are focused on winning new contracts, with margin improvement (18%) and maintaining existing customers (17%) also areas of key focus.
Merger and acquisition activity is also being considered, with nearly a third of businesses (29%) likely to make acquisitions over the next six months, with 9% stating they are currently looking at an acquisition target and 20% actively reviewing opportunities.
Matthew Peek, corporate director for East Anglia at Barclays, said: “Whilst some of the region’s logistics companies recognise the need to innovate to survive, the day-to-day pressures make this difficult to achieve. However, it is pleasing to see an air of optimism in the industry.
“Whilst the sector is a vital element of the supply chain, many customers view it as a commodity, so it’s the firms which can add value and innovate that will prosper.”
This sentiment is echoed by Paul Dawson, managing director of Suffolk based haulage company Deben Transport Ltd, which has continued to thrive despite the difficult economic climate.
Mr Dawson said: “Since the recession set in late 2008, we have doubled in both size and turnover. This has been achieved through acquisition and diversification. We have also invested �7 million in new plant and equipment and will continue to look at opportunities to develop and, where suitable, invest.”
Ian Carr of Grant Thornton added: “Local hauliers need to make sure they are efficient in their cost structure, vehicle scheduling and driver performance. Fuel is the other major cost and smart buying at the right time can help keep costs to a minimum in a volatile market. Much of this is likely to have already been done as most businesses are still here to tell the tale.
““The next 12 months will be a period of consolidation in the sector, creating more companies of scale which are able to invest in innovation and diversification. 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.”
The inaugural Barclays and Grant Thornton UK Logistics Confidence Index for the first half of 2012 is 57.2. The aim is to repeat the survey for the second half of the year, and regularly thereafter.