The fall into administration of major UK haulier Youngs, citing “insurmountable working capital difficulties” and a “troubling” situation facing the whole sector, has once again brought into sharp focus the challenges faced by this critical link in the supply chain.
There are several factors beyond the logistics industry’s control. On the plus side, supply chain experts are very excited about the potential of Artificial Intelligence (AI) to improve returns for businesses involved in the transporting, ordering, stocking and selling of goods. At the same time, the world road transport organisation, the IRU, warns Europe’s driver shortage could top two million by 2026. In the next three years, 30% of drivers will retire, but the rate of replacement apparently needs to be seven times higher.
The effect of a disrupted supply chain on businesses, large and small, is dramatic – even without Brexit, Ukraine and global economic woes. So far in the 21st century, Globalisation has returned the carrying of goods and people to the spotlight in business. Possibly seen as ‘old economy’ sectors by those focused on areas such as technology and media, transport and logistics are vital to building and growing trade and tourism between countries, as well as for managing supplies for even small, domestic enterprises. At its most basic level, huge growth in consumer e-commerce has fuelled exponential growth in home deliveries beyond the capabilities of any national postal carrier. It is no surprise that research shows clear links between a strong and financially secure transport sector and long term economic growth.
There are, however, perennial challenges. Even stripping out the hike in fuel prices for transport companies, the industry is navigating a maze of issues including environmental considerations, accessibility, safety and security. As the largest producers of carbon dioxide emissions, companies in this area are faced with the high costs of updating fleets of vehicles in order to embrace the sustainable, ‘clean’ energy that customers, regulators and other stakeholders now demand. Major operators report 12-month waiting lists for new assets, alongside a 25% hike against pre-Covid prices.
Further pressures include the ability to grow margins on long established trunking routes, higher staff costs as a result of pensions reform and seemingly permanent shortage of qualified drivers. The scope for further road charging, in addition to teething problems in moving between a post-Brexit UK and continental Europe, limit any optimism in the foreseeable future.
Faced with Iimited room for manoeuvre when pricing competition appears, it is imperative that businesses in transport and logistics are structured to operate as efficiently internally as the service they promise their customers. The checklist might include: balance sheet optimisation through asset finance and leasing; funding warehousing and new hubs; ownership structures and succession planning; due diligence for acquisitions; planning for merger integration; debt restructuring; and business planning for loan applications.
It’s a complex sector with many moving parts, whether a business operates a Transit van fleet, owns an airline or is a freight forwarder; an international corporation or a family owned and managed company. Leadership teams can ill afford to ignore options that might secure longevity. This applies wherever an enterprise is operating in its life cycle: early stage with low revenue; mature and at a strategic crossroads; preparing to be a consolidator in a fragmented industry; or over-extended and in need of turnaround.
UK logistics operators expect their market to remain very challenging in Q1 2024, usually the quietest quarter by volumes, and through Q2.
If you are a transport and logistics business in need of help reviewing options for long term survival, please don’t hesitate to get in touch for a free initial consultation.
This article is written by Jo Milner, Managing Director at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.