Consultants in Logistics

What does the election mean for logistics?

The General Election is now behind us and managed to confound almost all the pundits and commentators, with a result that not many would have wagered on just a few weeks ago. 

So what does it all mean for logistics?

While slower than we would like, the economy is recovering and growth is continuing.  As our largest trading partner, the long awaited recovery in Europe has begun and will provide further support to business in the UK.  Although some of the growth has been driven by increased personal borrowing, confidence has returned across most sectors, resulting in increased investment.  Continued growth in China and the Far East – albeit at a somewhat slower rate – means that these countries will still represent major potential markets for British goods and services amongst a growing middle class.

Government spending is, however, likely to remain subdued to avoid increasing the deficit and the risk of having to significantly raise interest rates.

The primary impact of the UK economic recovery on the world of logistics has been to raise confidence in the future and, while the election has raised concerns, the real economy has remained largely unaffected. However, this good news is not without its downside. 

For example, the welcome increase in industrial property development is paired with a less welcome growth in land prices, driven by high demand and speculative development. This is particularly in evidence in more popular areas, with land prices in the South East being three times that of some locations in the North West. 

At the same time, road transport has increased but without any significant increase in road building.  The continued roll out of ‘managed motorways’ and ‘hard shoulder running’ has provided some increase in capacity but is not sufficient to avoid the increasing problems of road congestion.  HS2, if it does get built, may help some rail passengers but it is unlikely to make a significant contribution to reducing traffic congestion.  In the face of limited available investment and competing demands from other government departments, major new road development is unlikely for the foreseeable future and congestion is likely to continue to worsen, increasing the need for local warehouses or cross dock facilities.

How long fuel prices stay below previous peaks will depend on a number of factors particularly the situation in the Middle East.  Prices have already started to increase and the only question is at what point they will stabilise.  If they remain at current levels this will provide respite to hard pressed hauliers until such time as increasing demand enables them to raise prices.  Only a real optimist, however, would bank on fuel prices remaining low. Any prudent operator will continue to look for opportunities to reduce vehicle miles travelled, co-load with other operators, find back loads or continue to promote more economical driving.

Albeit not directly related to the party in Government, perhaps the biggest challenge to the logistics industry in the coming years is that of labour costs.  The lack of training during the recession is now coming home to roost as the industry faces an estimated shortage of 50 - 60,000 drivers (FTA). This will inevitably drive up labour costs as operators compete in a very restricted labour pool.  Although ways will be sought to fast track training, driving a 44 tonne perhaps worth £100k will cause operators to think twice about reducing the amount of experience required before taking the wheel.

A second key feature of the logistics labour market will be an increased focus on self employment and the use of agency labour.  In both cases, the primary driving force is HMRC’s mission to recover increased tax - this is inevitable, irrespective of which party is in power. 

Self employment has grown significantly in recent years as operators have replaced employed drivers with owner drivers, particularly for non HGV operations.  Concern regarding the perceived abuse of owner drivers came to the fore during parliamentary questioning following the City Link collapse but, given that many owner drivers actively favour the flexibility of being self-employed, this is likely to be a secondary consideration.  It is difficult to see how HMRC will make much of an inroad into this sector of the workforce without the government getting mired in changing legislation regarding the definition of self employment. 

The second area of attack by HMRC is the use of the Onshore Intermediaries Legislation aimed at self employed staff, routed through a third party and provided as agency staff to minimise tax and to avoid employment costs (pension, sick pay etc). This is something that is widely seen to be unfair and likely to be addressed during this next parliament.  Some action has already been taken to try and avoid the worst abuse but its impact has been limited. An attack on the use of agency staff, combined with restrictions on immigration, would have a significant impact on warehouse labour costs. However, to effect such restrictions would require either the UK leaving the EU or gaining the right to prevent the free movement of labour, both of which are considered unlikely.

The current challenges faced by logistics managers will continue, with threats and opportunities coming from competition or changes in technology, rather than from changes in Government policy.

So, in answer to the question posed in this article’s headline, the answer probably has to be ‘little change!’