Logistics needs government support for climate efforts
Elizabeth de Jong, Director of Policy at FTA, talks to The Logistics Point about its Logistics Report, what happened in 2019 and what the business organisation’s members expect to happen in the following decade. Despite the many challenges ahead the overall mood is optimistic. This interview was first published in The Logistics Point Magazine Feb/March 2020, before the current Covid-19 crisis.
What is the biggest conclusion from FTA’s 2019 Logistics Report?
There are two things I found very interesting from our exclusive research. The first relates to the fall in the UK’s global competitiveness. The UK was the 8th most competitive nation in the world out of 140 countries in 2018; however, in just one year it has lost two places. Looking deeper into this trend, we can see that the UK performs particularly poorly in road connectivity compared with other countries: the UK is 29th overall. We also rate quite low in rail, air and port efficiency.
The other significant area is the drop in the logistics industry’s profit margins. During the last couple of years, the industry has been operating on a profit margin of 4%; this level has now dropped to just 2% - a worrying trend. These profit margins do not allow for investment or an increase in any other costs, and put at risk the very industry which keeps our nation’s businesses trading, supplying raw materials, parts and services to industry.
Is Brexit the only reason behind the reduction in profit margins or are there others?
Brexit is a contributing factor, but fewer companies than you would expect planned early for Brexit – perhaps because their profit margins were already low, so they had no spare capital to invest. The uncertainties around Brexit led many businesses to postpone investment decisions which could have led to increased efficiencies.
There are several other elements that have made trading conditions challenging. The labour market is tight and there are concerns around wage inflation.
GDP growth has been declining and the retail environment has been ever-changing with differing patterns of customer consumption and demand to adapt to.
And in a climate of such uncertainty, it is understandable that many businesses look to maintain the status quo, before taking risks or investing in projects which divert attention from core business priorities.
How are changes in the High Street affecting the industry?
What is happening on the High Street is without doubt going to affect demand for logistics services. Over the past decade, consumer shopping patterns have changed – there has been a decline in footfall to physical stores, and an increase to about 20% in online retail activity.
For logistics businesses, Clean Air Zones are a concern; next year, we will see many of these schemes come into force in cities nationwide.
Commercial vehicle operators will have to pay a charge to enter certain cities, and some diesel HGVs will be completely banned from some areas.
Logistics companies will have to change not only their vehicles, but how they operate. It may become harder for logistics businesses to continue delivering to the High Street, especially with no consistency of approach between cities in terms of access and costs.
Can smaller and medium sized logistics companies compete with large organisations?
I can see a change in the makeup of our industry moving forwards especially when considering how the industry needs to evolve to meet environmental targets. Without government assistance, it is easier for larger companies to be the first in the market to adopt new technologies or to develop different types of HGVs;
smaller businesses often face more financial challenges when looking to adapt to new working practices.
If you operate a small fleet that is not compliant with clean air regulations, the new rules will produce proportionally higher costs than for larger fleets. Operators of large fleets have more flexibility on how and where they move around the country as a reaction to different clean air policies. We are working with government officials to help them understand how their future freight policies will impact the make-up as well as operational practices of the logistics sector.
Do you expect that the government will provide some form of help to the industry to deal with this?
FTA has been pressing government to provide businesses with assistance to enable them to access to affordable, environmentally friendly vehicles. The key challenge is how to reduce the time in which these new vehicles are developed so they are available to businesses as soon as possible at a price they can afford, and to ensure that the charging and fuelling networks for alternatively-powered vehicles are fit for purpose nationwide.
What are the positive signs in FTA’s report?
As an industry, we are positive and we want to deliver results. 77% of the respondents to FTA’s Logistics Report anticipate their business will grow in the next three years. We often talk about the difficulties the sector needs to overcome, but what we always find is that the industry is resilient, adaptable and optimistic.
What do you expect to see in 2020 in the field of logistics and transport and how can companies find stability?
The year ahead should bring much more clarity on the future direction of travel for our industry, especially around Brexit.
However, businesses within the logistics sector still need as much time as possible to understand and implement the arrangements after the Brexit transition period is complete in December 2020.
We have four key priorities at FTA: helping the UK secure the best transport deal possible; helping the trade between Great Britain and Northern Ireland remain as frictionless as possible; ensuring goods flow should there be No Deal at the end of the transition period; and helping the government to work on trade facilitation and new trade deals.
We also expect a number of announcements around investment into our infrastructure for the North of England, Midlands, ports, rail and our road network, which have been held-up due to the political focus on Brexit. FTA is also supporting the expansion of Heathrow Airport.
The quality of the UK’s infrastructure is very important in order to generate wider investment, economic growth and more international trade.
We also expect the announcement of the government’s multimodal Future of UK Freight Strategy and more detail on its decarbonisation plans. We hope that having this long-term plan will help the industry to understand what is expected and will give it time to adapt.
In the next decade vehicles will change, regulations will change, and technology will evolve to help us make the most of our transport infrastructure.
How do you assist companies who need help?
We provide our members with an abundance of information. We run events throughout the year and work with our members on the issues that affect their businesses most. We collect details of their experiences and convey their concerns to government. Our members look to us to gain an understanding of the political and trading landscape, including what might happen at the end of the transition period with the EU. We run regular training courses and have briefing sheets and webinars for businesses and individuals that need to know the latest developments. We also have a Member Advice Centre which provides compliance advice to our members.
Elizabeth de Jong is FTA’s Director of Policy.
An economist by background, Elizabeth has a strong track record of leading policy teams to deliver success. She has more than 20 years of experience at a senior level in the transport sector which includes consultancy, business analysis, programme management, policy development and policy delivery. She joined FTA in July 2017 from Rail Delivery Group where she was Director of Policy, and prior to that worked at the Department for Transport.