Cost cuts and mergers drive change in West logistics sector, survey shows

July 11, 2012

Innovation is taking a back seat among West logistics firms as they focus on cost cutting and sticking to their core business, a new survey reveals.

However, they are feeling generally optimistic and most plan to invest over the next six months. Also further consolidation is likely in the sector as stronger businesses take advantage of market conditions and snap up weaker firms.

These themes emerge from the UK Logistics Confidence Index conducted by accountants Grant Thornton and Barclays.

When asked about the biggest issue facing them over the next half year, a third cite pressure on margins and a fifth fuel costs. Just 15% said they were concerned by eurozone uncertainty.

Grant Thornton’s regional corporate finance director Mark Naughton said: “The logistics industry has always been an early indicator of the state of the wider economy.

“This sensitivity makes it wiser to the ways that it can thrive in the lean years. There is, however, only so far that costs can be taken out of a business, and margins cut, and only so many contracts that can be won.

“The next 12 months will likely be a period of consolidation in this sector, creating more companies of scale who are able to invest in innovation and diversification, as 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.”

Although faced with cost pressures, there is optimism in the industry, the survey shows. More than three-quarters of the firms view current business conditions as “somewhat difficult” (65%) or “very difficult” (13%), with 48% expecting conditions to be the same over the next six months. However, a quarter see things improving this year, with just over half – 53% – expecting an increase in profits over the next six months.

One positive theme is the number of businesses intending to make significant capital expenditure – 42% say they are “likely” and 21% “very likely” to invest. Headcount is also set to increase, with 47% of businesses planning to take on more employees over the next six months.

Some 51% are focused on winning new contracts to drive growth, with margin improvement (18%) and maintaining existing customers (17%) also factors.

Three out 10 businesses (29%) are likely to make acquisitions over the next six months with nine per cent stating they are looking at an acquisition target and 20% actively reviewing opportunities.

Barclays head of transport and logistics Rob Riddleston said: “The continuing economic climate is providing the logistics industry with challenges and while some recognise the need to innovate, day-to-day pressures make this difficult to achieve.

“However, it is pleasing to see that there is an air of optimism in the industry with logistics businesses seeing a brighter future over the next six months. It is those who add value and innovate, who will prosper.”


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