The UKWA Blog

Monday 16 January 2012

While predicting what 2012 has in store for the UK 3PL sector is far from straightforward, it is important that the industry does not allow itself to be overwhelmed by the almost daily utterances of despondency emanating from our politicians and economist

I remember vividly the announcement that London had won the bid to hold the 2012 Olympic Games.  It took place at 12.30pm on the 6th July 2005.  It was the day UKWA held its annual luncheon and awards, and we were just about to take our seats for lunch. 

The news was received with a sense of excitement and achievement by most of us, and despite the economic backdrop, our preparations seem to have progressed as planned, and on time. 

I have never held a negative thought about the UK hosting the games.  I remain convinced that the short term shot in the arm that the Games will bring to the domestic economy will be timely and significant. I am also sure that the Games will provide a lasting and productive legacy.  Let’s hope it also brings a bag full of medals for Great Britian’s athletes.

Predicting what is going to happen in the third party logistics sector in the months ahead  is rather more problematic than forecasting the numbers of medals that Team GB  is going to win in the summer, and very much more important.

During the last three years we have seen a small net growth in UKWA membership numbers, but a slightly higher churn rate.  That means we have recruited more, and we have lost a little less. Our losses are largely out of our control, with the majority caused by companies ceasing business or merging with others.

That recruitment and retention record might indicate that the 3PL sector is swimming blithely through the rough waters of the economy and more empirical evidence gathered from  UKWA  member companies would support that view. 

One manufacturing company that supplies products to the warehousing industry reports that 2011 was its best year ever.  Another has recently taken on more staff enabling them to manufacture seven days a week, and is in the process of putting on a night shift to cope with the demand for its storage products. 

Anecdotal evidence gathered from 3PLs suggests that, for the overwhelming majority of companies, 2011 was a year which either reached or exceeded their expectations. 

There is a also a school of thought that contends a sustained period of economic hardship could have positive implications for the third party logistics and storage industry – particularly those companies who stay positive and entrepreneurial in their outlook.

When companies come under pressure to cut costs, the argument goes, the services offered by the 3PL sector become even more attractive.

If the economy declines as forecast, companies that have operated their own storage facilities or distribution operations will come to see warehousing and transport as a very high fixed cost.

By offering flexibility and the chance to reduce assets  those 3PLs that have optimized their own businesses, will be able to put forward an even more compelling business argument for outsourcing

As a result, companies that have historically been reluctant to outsource may well be tempted to do so, as the real bottom line benefits of switching to a 3PL become ever more obvious.

That said,  I think it is true to say that collectively, the membership of UKWA is cautious, and I have no desire to offer a ‘hostage to fortune.’ The fragility of the global economy in general, and the specific political and economic threats to Europe provide a daily reminder of the seriousness of the current situation. But, I just wonder whether we are being too cautious when there is clear evidence of success. 

Good news stories provide a ‘feel good’ factor, and confidence can be a very powerful tool. Let those of us that operate in the ‘real economy’ not allow ourselves to be overwhelmed by the almost daily utternaces of despondency emanating from our political leaders and the various economic soothsayers that advise them.

After all, history shows, that their forecasts have been hopelessly innaccurate in the past.

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Thursday 17 November 2011

Welcome to the new UKWA Blog 2

The fate of many 3PL operators may be out of their control as wider economic factors combine to determine which industry sectors and geographic markets perform best in the months ahead, says Roger Williams, chief executive officer of UKWA

The spirit of optimism with which much of the business community entered 2011 is in danger of evaporating as the full extent of the European debt crisis begins to become known.

An estimated three million UK jobs depend on our trade with the European Union and the uncertainty that these people - and the businesses that employ them – now face thanks to the apparent incompetence of those responsible for allowing their national economies to drift towards the rocks, will impact on all areas of industry and commerce.

Clearly, the logistics sector will not escape the effect of any future economic turbulence and, with many commentators predicting that the Euro crisis will make the collapse of Lehman Brothers and its aftermath pale into insignificance, the present outlook is certainly not likely to induce a spirit of optimism.

But, arguably, it’s during times like these – when the economy is full of unknowns – that 3PLs can really prove their worth to pressurised customers.

Certainly, during the post-2007/8 gloom - when many manufacturers and retailers overhauled their logistics operations in an effort to cut costs and achieve greater efficiencies - the result was an increase in outsourcing .

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Thursday 13 October 2011

UKWA board member Derrick Potter believes that the sector has not received the credit it deserves for the manner in which it has embraced environmental issues.

The logistics industry has made great strides to become greener in recent years, and there are many examples of  energy efficiency best practice within the warehousing industry, ” he says.

My own company, for example, continues to invest in modern equipment and systems to raise productivity, control rising costs – and, equally importantly, to lower our corporate Carbon Footprint.

At our Northern Distribution Centre in Selby we recently replaced the old sodium and metal halide lighting with a more energy efficient system incorporating integral daylight saving and movement sensors. The system is expected to cut energy costs by more than half, while providing more effective lighting across all working areas.

And we are by no means alone -  many businesses have realised that the benefits of environmental and energy efficiency projects are not only a nice ‘green’ marketing story but can result in real bottom line benefits.

There are a number of grants as well as tax incentives available to ease investment in energy saving products. The new Carbon Trust Energy Efficiency Financing Scheme, for instance, is a way for all businesses  to receive financial help towards implementing projects and I would urge all UKWA member companies to explore how it might benefit them.”

However, the implementation of the CRC Energy Efficiency Scheme for larger companies is a significant and new expense for the industry. What started life as a tax neutral scheme has changed and what’s more, increasing numbers of businesses will qualify for the tax over coming years.

Indeed when it comes to the sector’s tax burden, successive governments have failed to grasp the vital role that the logistics industry plays in the national economy.

Both the Labour and Conservative-Liberal coalition Governments’ failure to reduce the high cost of fuel in Britain has lead many companies to relocate their major UK-based warehouses and distribution centre hubs to mainland Europe with many hundreds of jobs lost as a result.

 Fuel represents a large percentage of an operator’s costs and the UK Treasury imposes the highest level of fuel duty throughout whole of Europe – significantly  more than any other state.

But the logistics industry isn’t just about lorries. Modern third party logistics contracts comprise a range of services – including distribution, storage, packaging etc –rolled into one. So, if - as has been demonstrated - a lorry refuelled in northern Europe pays over £10,000 a year less than a similar vehicle doing the same mileage that fills up in the UK, it is easy to see why a 3PL might be persuaded to relocate its distribution hubs to mainland Europe.

With around 2.3 million people employed in a wide variety of roles within the UK logistics industry, if the Government doesn’t do more to bring UK fuel prices closer into line with the rest of Europe, it won’ t be just the HGV drivers that suffer.

The industry can claw back some of the commercial advantage lost to the high price of fuel by developing the skills of its workforce and urges companies operating in the logistics industry to increase their investment in training. In fact, he contends such investment is essential if the sector is to avoid a skills shortage in the future.

 I believe most employers understand the importance of developing the skills of their workforce but, generally, supply chain companies have been slow to invest and, as result, the Sector Skills Council for our industry – Skills for Logistics – faces a funding challenge.

With an ageing workforce and a perception among those currently in education that logistics does not offer an attractive career path, the sector may well find itself facing a skills shortage in the near future. It is therefore vitally important that we begin to attract young people and bring a greater diversity of skills into the sector.

One of UKWA’s key objectives over the coming years will be to encourage members to engage with Skills for Logistics to develop logistics related apprenticeship schemes that will attract Government funding.

The overwhelming majority of companies in our sector work to the highest standards – UKWA members must demonstrate that they work to recognised industry standards before joining the Association – and it will be one of UKWA’s goals to work on the development of industry-wide standards that are adopted by the sector and demanded by users of 3PL services.

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Friday 18 September 2009

EPR one year on

It is over a year since changes to the Empty Property Rate (EPR) rules resulted in empty warehouses becoming liable for the same rates as occupied buildings.

When the new rating scheme was introduced (on April 1, 2008)  UKWA, expressed considerable concern about the impact that the legislation would have on the logistics and third-party storage industries.

It would appear that these fears were well-justified. The Government’s move to scrap rate relief on empty industrial property has led many landlords to demolish perfectly sound warehouse property as a way of avoiding paying the substantial amounts of tax that unoccupied facilities now incur. Indeed, a recent report by property consultants Lambert Smith Hampton, found that owners of properties tended to wait for 12 to 18 months once a property had become vacant before making the decision to demolish it, which indicates that the speed of demolition of warehouse buildings is likely to increase in the near future.

Furthermore, the cost of EPR is proving a major deterrent to speculative warehouse construction.

By encouraging the early demolition otherwise useful warehouse buildings and discouraging new speculative development the imposition of EPR

means that when this recession ends there will inevitably be a shortage of warehouse accommodation and rents will rise significantly – thereby creating inflation. 

The imposition of EPR on warehousing and other properties could not have come at a more difficult time, demand for warehousing was falling in the spring of 2008, since when the credit crunch has developed into the severest recession since the War.

The Government’s intention when it changed the rules relating to EPR was to increase the availability of property and to reduce rents or the cost of occupation. However, it is clear that Ministers have not thought this policy through and in the long term its consequences will be precisely the reverse of what they sought to achieve.”

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Wednesday 16 September 2009

No Government Help

The present Government continues to do little or nothing to help the logistics industry ride out the current storm. In fact, the Government’s failure to reduce the high cost of fuel in Britain could lead many companies to relocate their major UK-based warehouses and distribution centre hubs to mainland Europe with many hundreds of jobs lost as a result.

Fuel represents around 36 per cent of an operator’s costs and the UK Treasury imposes the highest level of fuel duty throughout whole of Europe – around 25 per cent more than any other state.

But the logistics industry isn’t just about lorries. Modern third party logistics (3PL) contracts comprise a range of services – including distribution, storage, packaging etc –rolled into one. So, if - as has been demonstrated - a lorry refueled in northern Europe pays over £10,000 a year less than a similar vehicle doing the same mileage that fills up in the UK, it is easy to see why a 3PL might be persuaded to relocate its distribution hubs to mainland Europe.

With around 2.3 million people employed in a wide variety of roles within the UK logistics industry, if the Government doesn’t do more to bring UK fuel prices closer into line with the rest of Europe, it won’ t be just the HGV drivers that suffer.”

UK firms are further handicapped by the fact that, in comparison with many European hauliers, our wage bills are high. An Eastern European lorry driver can be up to 20 per cent cheaper to employ than his British counterpart  and, regardless of the guidelines laid down in the Working Time Directive, he will work longer hours to earn it.

With margins already tight in the UK 3PL sector and faced with high fuel bills and higher employment costs, it is becoming increasingly difficult for UK-based operations to compete with their European rivals. I fear more and more blue chip British manufacturers and retailers will choose to outsource their logistics operations to established western European transport firms. As a knock on effect of this more UK logistics firms will find themselves swallowed by the bigger European operators. I’m not sure that it’s a good thing for our country or our economy to have so many logistics firms not in British ownership.”

Derrick Potter the Founder and Executive Chairman of Potter Logistics Group

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Thursday 10 September 2009

Use the Experts

Because most companies have a major percentage of their costs tied up in their supply chains, supply chain management - once seen as something of an add-on with no real bearing on a business’s ultimate success - has been elevated to a key board-level discipline. And in the current economic climate, an optimised supply chain is now considered vital for any business hoping to avoid the jaws of a nasty recession.

The approach to supply chain optimisation has traditionally focused on one piece of the puzzle at a time. These can include sourcing goods and services strategically to strike a balance between lowest material and transportation costs; maintaining the right mix and location of factories and warehouses to serve customer markets; and, using traditional logistics techniques to maximize distribution efficiency.

However, since the 1980s there has a been a sharp upturn in the number of companies that choose to outsource logistics and supply chain management functions to 3PLs.

Typically, 3PLs specialise in integrated warehousing and transportation services that can be scaled and customised to a customer’s needs. The kind of service offered will be based on a client company’s own unique market conditions and the demands and delivery service requirements for the goods that company produces and sells.

In today’s price sensitive market, the need to drive cost out of the supply chain is often cited as a major reason for using third party logistics service providers. However, perhaps a better reason for engaging outside experts is the in-depth knowledge, flexibility and added value that a specialist contractor can provide. In short, as well as helping companies to achieve significant cost savings, a good 3PL will enable a business to enjoy shorter order cycles, better customer service and improved all-round business efficiency.

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