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UK logistics businesses are promisingly optimistic in light of current economic challenges, but a focus on cost-cutting and sticking to core business is restricting innovation, according to research from Barclays and Grant Thornton. The UK Logistics Confidence Index shows that although the majority of businesses are investing during the next six months, they continue to tackle the same on-going issues, leaving innovation to take a back seat. When asked what the biggest concern is facing logistics businesses, one third of respondents cited margin pressure as the greatest challenge, followed by fuel costs (20%). Surprisingly only 15% of respondents were concerned by eurozone uncertainty. Although faced with cost pressures, there is optimism in the industry. More than three quarters of businesses viewed current business conditions as somewhat difficult (65%) or very difficult (13%), with 48% foreseeing conditions to be the same during the next six months. However, a quarter of respondents see things improving this year, with 53% expecting an increase in profit within the next six months. Positivity is also seen in the number of businesses intending to make significant capital expenditure during the next six months, with 42% of businesses saying they were likely and 21% very likely to invest in CAPEX. Headcount is also set to increase, with 47% of businesses indicating they’ll be taking on more employees during the next six months. In terms of how logistics businesses intend to achieve their growth plans, 51% are focused on winning new contracts, with margin improvement (18%) and maintaining existing customers (17%) also a key focus. M&A activity is also being considered. Three out of 10 businesses (29%) are likely to make acquisitions during the next six months, with 9% stating they are currently looking at an acquisition target, while 20% are actively reviewing opportunities. These are encouraging signs given the current market, indicating that businesses are seeing opportunities particularly due to margin pressure. Philip Bird, director of corporate finance at Grant Thornton, 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 a limit to the number of costs that can be taken out of a business and the margins that can be cut, and only so many contracts that can be won. “The next 12 months will likely be a period of consolidation in the 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.” Other Business Money News
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