2023: Logistics UK chief predicts the industry will largely weather the coming storm

“The evidence is that there’s a large element of the logistics industry that is pretty recession proof,” he said.

Many parts of the logistics sector, he argued, service areas that are not discretionary spend, such as food retailing. “People may spend less,” he said, “but it’s not likely to drop off a cliff. In fact, recent retailer data for the Christmas period was encouraging.”

As far as the parcel sector is concerned, while people may buy less online, he believes that it has enjoyed such a period of rapid expansion over the last three years, that it has become embedded as a significant retail channel.

“You’ve got to believe that will continue,” he said, “although it may not continue at the same pace.”

CONSTRUCTION WILL BE A KEY ECONOMIC BAROMETER

Another big question, Wells said, is the future direction of interest rates, and the impact that will have on the housing market.

“Will construction happen at the same pace?” he asked, “That’s difficult to see if interest rates remain high. I think it does depend on how effective the Bank of England’s hiking of the base rate is in lessening demand and slowing inflation.”

If this is achieved, Wells sees interest rates being subsequently lowered and confidence returning to the construction industry.

NAVIGATING THE POST-PANDEMIC ECONOMY

In September 2022, the head of the World Health Organization, Dr Tedos Adhanom Ghebreyesus, said that while the COVID-19 pandemic was not quite over, the end was in sight. Now we have entered 2023, does Wells believe that business activity in logistics has returned to pre-pandemic levels and that we are now entering a ‘business as usual’ phase?

“I certainly think businesses are continuing to operate without reference to the pandemic,” he said, “Is it the same as before the pandemic? No, because I think home working and hybrid working have become much more accepted and prevalent as a means of operating.”

The balance of evidence also suggests that revenue levels are not quite the same as they were before the pandemic.

“We’re in a period of high inflation and economic slowdown,” Wells said, “People have been putting their prices up because of inflation, so revenue numbers are boosted, but activity levels are, I suspect, somewhat stagnant if not in reverse.”

Investment decisions are being deferred and the focus is once again back on costs, particularly payroll costs.

“It’s not just striking public sector workers,” he said, “People in every industry are feeling the pinch from the fuel crisis and food inflation.”

LOGISTICS LARGELY CUSHIONED FROM OIL PRICE SPIKE

When Russia invaded Ukraine last February, it led to energy prices soaring in 2022. How does Wells think that impacted on members’ already low margins?

“I don’t think the impact on diesel prices has been quite as severe as people thought it would be for many operators,” he said, “because they are able to reflect that in their pricing if they have a fuel price escalator contract.”

Energy price inflation, he said, ultimately gets passed onto the consumer. It is the smaller operators, sub-contractors and those that do spot work, that are really feeling the pinch of higher fuel prices.

SKILLS SHORTAGES PERSIST

In the autumn of 2021, the logistics sector was facing an acute skills shortage, exacerbated by the effects of Brexit and the pandemic. Does Wells think the problem has eased?

“The crisis of 18 months ago was really to do with drivers. I think that crisis has eased,” he said, “Certainly my phone is not ringing with people saying: ‘David you’ve got to do something about the shortage of drivers.’”

The problem has shifted from a shortage of drivers to a shortage of technicians and mechanics. This is partly due to those technicians with C+E driving entitlement switching to driving, where they could earn more money.

“That has exacerbated the skills shortage in the technician industry, amongst the OEMs [Original Equipment Manufacturers], in-house and third-party workshops. So there is definitely a shortage of technicians, which needs to be addressed.”

CHANGING PERCEPTIONS OF THE INDUSTRY AND RECRUITING THE WORFORCE OF TOMORROW

At the Multimodal show last June, Logistics UK and the Chartered Institute of Logistics and Transport (CILT) staged its industry launch of Generation Logistics, an industry-led campaign backed by government. In its first six months the campaign reached an estimated 50 million people. Does Wells think this marks a turning point in the long-term skills issues facing the sector?

“I think it’s too early to say. My view is that the campaign was always about changing perceptions of the industry, which is a long-term challenge,” he said, “That won’t happen in the six months that it’s been running. It will have helped, but we need to keep going with it as an industry and recognise that this is a long-term campaign. We need to change people’s idea of what the industry is and disconnect them from the notion that it’s just about truck driving.”

A LABOUR MARKET IN FLUX

Although the UK is currently facing its tightest labour market in years, some commentators have predicted it will loosen if and when the country tips into recession.

While Wells agrees that a recession certainly will ease the demand for labour, he thinks other changes in the workforce are just as significant. These include a rising number of the over 50s dropping out of the workforce by taking early retirement and the trend for young people to dip in and out of different careers.

“Fundamentally, what you’ve got to see is that we’ve got an ageing demographic and a reducing workforce to pay for both their healthcare and social care needs,” he said, “I regret that the debate about why the NHS is in such difficulty is never really had. The demographics of the nation were always going to bring this crisis on.”

Many commentators have cited Brexit as a major cause of the difficult labour conditions, but Wells disagrees.

“The level of net migration is higher now than it was before Brexit,” he argued, “We’ve just changed where we get the people from. They don’t come from mainland Europe anymore.”

According to the latest ONS figures, net migration of non-EU nationals was estimated at 504,000 in the year ending June 2022, compared with negative 51,000 net migration of EU nationals.

DECARBONISATION DILEMMAS

Decarbonisation continued to climb the logistics industry’s agenda in 2022. With the deadline for phasing out new petrol and diesel vans just seven years away, how prepared does Wells think logistics businesses are to transition to zero-carbon forms of transport?

The first question is: will the vehicles be available? “I think the answer to that is yes they will,” he said, “And certainly in the van market I think it will be electric.”

The more pressing question, he argued, is whether the local infrastructure will be ready, will operators have enough charging points? On this point Wells is less optimistic: “I just don’t think we’re going to be ready. We could be, but we need action now.”

Many operators do not own their premises, they lease them. And, Wells maintains, new premises are going up without electric vehicle charging infrastructure being installed.

“The argument is: whose responsibility is it?” he said, “Landlords own the place, operators use it, the operators are under a lease, the landlord is not under any obligation to put in new equipment. So there’s a massive commercial infrastructure challenge there.”

Wells is concerned that there is also a bigger issue regarding how the government thinks this infrastructure is going to be put in place.

“I worry that it’s going to come down to people putting in the infrastructure where they think they can make money,” he said, “It’s what they call cherry picking.”

As a piece of nationwide infrastructure, what the problem needs, Wells argues, is government intervention and the creation of a national standard.

As well as being an issue for private operators, there are implications for the public sector too, including the NHS, blood transfusion service, ambulances, local councils and refuse collections.

“They’ve got all the same problems,” he said, “The vehicles will be available but how do they charge them up in a timely way? I think that’s a big issue for ambulances, for example, where they sweat that asset really hard. Can you afford that vehicle to be off the road for four or five hours? Probably not.”

LONDON CALLING

Logistics UK opened an office in Westminster at the end of 2022, its first base in the capital for almost 50 years. What was the reason behind wanting a permanent office in Central London?

“It gives us a base for our policy and public affairs teams,” he said, “Our team has spent a lot of time meeting ministers and civil servants in coffee shops, which is not the most professional way of doing it,” he said, “We wanted somewhere that projected us as a top business group, and we wanted somewhere that was lively and vibrant and well positioned to reach all the ministries. It does that, but we also wanted to keep the cost down, so it’s modest, it deploys hot desking, it’s a modern way of working.”

SIGNIFICANT MILESTONES

Logistics UK welcomed its 20,000^th member in October last year. What does passing this milestone say about the trade body’s growing reach and influence?

“I think firstly it shows that members are happy with the level of service and representation and advice that they get from us,” he said, “Our retention rate remains in the high 90s, so that’s very satisfying.”

In terms of membership level, it also places Logistics UK firmly amongst the top business groups in the country.

“On a personal level, it’s quite satisfying because that’s what I committed to deliver for the Board when I pitched for the job,” Wells said, “It’s a pretty pleasing result.”

2022 also saw Logistics UK crowned Trade Association of the Year at the Memcom Excellence Awards. What did winning this award mean to Wells as the business group’s Chief Executive?

“When you pitch for this job you say you want to make it better, and this is what you’re going to do,” he said, “It’s just very pleasing to get external recognition for that. It has been eight years of change. It’s testament to that change, that it was worth it and that we’ve been focussing on the right things.”

LOOKING AHEAD

What does Wells think the key challenges for the logistics sector will be in 2023 and how can Logistics UK help its members overcome these?

A key challenge he identifies is getting ready for decarbonisation: “Thinking that through, having a plan, getting the necessary agreement with your landlord. Find the finance to fund whatever you need to do – new vehicles, new technology, new infrastructure.”

For example, if you are thinking of taking a new warehouse, how suitable will it be for future proofing for decarbonisation?

Skills will also continue to play a big role, he believes, particularly in terms of the shortage of technicians, and the new skillsets they will need for servicing zero carbon technology, whether that is for electric or hydrogen vehicles.

“We need to be training our technicians, thinking about training the ones we’ve got but we need to attract more into this industry,” he said, “I think the battle for talent in every part of the industry whether it’s in HR, marketing, scheduling or IT, is ongoing.”

*www.logistics.org.uk/about-us

Published On: 19/01/2023 16:00:00

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