Automotive

The challenges facing UK Transport and Logistics Companies in 2021

The UK has a well-developed transport and logistics sector which is dynamic and has grown steadily as the popularity of home delivery and E-Commerce has increased.  The sector however is facing very many challenges at the current time, which it is finding problematic to manage.

Background

Most transport and logistics companies are Small or Medium sized enterprises (SME’s) and are typically family owned and based around a single location or operate a national or regional network of some form.

Traditionally companies in this sector recruited within a five-mile (8km) radius of their depot locations.

The UK Economy

Over the last 20 years or so the UK economy has moves towards higher wages, and higher productivity it also has very low inflation which has meant that employment has grown nationally, and unemployment levels are now very low.

This environment is a challenge for transport businesses as their traditional pool of labour close to their depots is now much reduced.

For a long time, Transport and Logistics businesses have therefore depended on the availability of imported labour from the EU.

Brexit

Now in the run up to, and post Brexit (the departure of the UK from the EU), the supply of drivers and workers from the EU available to take up lower paid work has ended, which has left the industry with a real and serious shortage of workers.

To drive a large lorry or truck in the UK you need what is known as a Heavy Goods Vehicle (HGV) licence and there are far less UK HGV driver holders available than there are jobs that require them.

As of September 2021, there is shortfall of 100,000 drivers, this means there is a real challenge to recruit or find suitable workers.

Covid

The pandemic has caused problems for the Transport and Logistics sectors as with all other areas of the economy, workers and drivers have been off work ill, or made to self-isolate due to the sickness of family members.  All of this has further compounded the difficulty of having drivers available to work.

Cost pressures

Aside from the issues with the availability of workers there have been several changes to the UK economy over recent years.   The UK Government has been increasing the National Minimum Wage or National Living Wage, this has meant that wages have risen which have to be passed on to customers.

The UK now has two pension systems, the state pension which is funded out of national insurance ( a UK payroll tax) and a private pension system known as auto-enrolment which is compulsory for Employers and employees to join, the % contributions to which have risen gradually to 8% currently, split 5% for employees and 3% for employers.

To promote youth employment the UK Government has introduced a levy on all larger companies to fund a national apprentice scheme.

This again is another cost pressure on companies, though the levy can be claimed and used internally if suitable training is undertaken.

These changes have been welcomed nationally as it is part of the Governments policy of moving the economy towards higher wages and higher skills, and these changes are however far from complete.

To give retiring works a pension equivalent to 66% of their previous income, known as a replacement income, contributions need to rise to be around 14-16% of total earnings, compared to their current 8% of a band of earnings.

The national living wage has been announced to increase so it represents 66% of median earnings, which represents around £10.50 per hour, so more increases will be phased in over the next 2 years so that target can be achieved.

Whilst the industry is aware of these changes it is currently having a very challenging time passing these costs along to its customers as often markets are very competitive and larger companies benefit from economies of scale or have access to investor funds.

As a result of all these challenges many companies have ceased trading or been sold, and many more deals are in the pipeline according to the trade press.

Coping with the pressures

Having an experienced senior management team is a crucial part of being able to adapt to all these pressures and forming a plan and strategy to make the most of opportunities that these changes are bringing is key.

E-commerce continues to grow steadily and there is a move away from high street shopping to home delivery of goods which means the overall market will grow.

A key part of the senior team is the Finance Director (FD) or Chief Financial Officer (CFO) having the right person in this role is important as they can monitor costs and report on how effectively costs are being passed on.  Forecasting and working closely with banks and external investors is part and parcel of this (excuse the pun) and given the pressures in the industry has been really key to the success and survival in some cases of certain operators.

Finding the right FD or CFO is not easy, as the candidate needs to have the right background combining entrepreneurial flare with industry knowledge and if the company concerned is debt or equity funded then suitable connections and experience working with either or both bankers and private equity houses to raise and support ongoing funding requirements.

Working with a specialist FD and CFO recruitment boutique therefore makes perfect sense if you are looking for a senior financial professional with experience as an FD within the Transport and Logistics sector.

Conclusion

The UK Transport and logistics sectors is undergoing a period of unprecedented change and challenge, whilst at the same time the UK itself is moving towards a different economic model with the intention of eliminating in work poverty and moving skills upwards.

Costs have risen dramatically and will continue to do so both in the short and long terms.

The role of the Finance Director or Chief Financial officers within these businesses is therefore more important than ever, as is the need to get the best possible candidate, with the ideal combination of industry experience and fund-raising expertise plus the ability to keep a close eye on costs.

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