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Thursday, 01 October 2015 22:13

Logistics Sector Overview 2015

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The UK Transport and Logistics Sector


A range of critical economic activities are encompassed by the term Transport & Logistics. The world-wide export and import of manufactured goods, the storage, handling and distribution of every product that is sold or purchased through to the collection and delivery of mail and parcels to the home. Without efficient logistics, a local economy will not succeed.


In the UK, Transport & Logistics activities employ 2.2 million people, representing 8 per cent of the UK’s workforce. The sector has some 200,000 companies operating, with an approximate Gross Value Added (GVA) in the UK economy of just under £100bn. This means that the sector represents 10 per cent of the total UK economy (ONS, 2013)

In common with other UK sectors, this activity is shared by large, often overseas owned, national and international business working alongside (and sometimes in partnership with) very many regionally and locally owned small and medium-sized enterprises (SMEs). Thus 80 per cent of enterprises employ fewer than 10 employees and only one per cent employs more than 100.

The breadth of this economic activity and the various modes of transport involved are demonstrated by the activities which comprise the Transport & Logistics sector in the Office for National Statistics Standard Industrial Classification (SIC):


•SIC 46 Wholesale trade, except of motor vehicles and motorcycles
•SIC 49.20 Freight transport by rail
•SIC 49.41 Freight transport by road
•SIC 49.42 Removals services
•SIC 50.20 Sea and coastal freight water transport
•SIC 50.40 Freight transport by Inland waterway
•SIC 51.21 Freight transport by air
•SIC 52.10 Warehousing and storage
•SIC 52.22 Services incidental to water transport
•SIC 52.24 Cargo handling
•SIC 52.29 Other transportation support services
•SIC 53.10 Postal activities (Royal Mail)
•SIC 53.20 Other postal and courier activities

This definition also indicates the range of interactions that the sector has with the manufacturing and retail sectors and directly with consumers. It is therefore sometimes regarded as a sector with little control of its own economic fortunes, at the mercy of fluctuations in manufacturing activity or consumer demand. However the Department of Business, Innovation and Skills’ Industrial Strategy in 2012 was clear that investment by the state in transport infrastructure and by individual businesses in transport and logistics equipment and processes can stimulate economic activity (BIS, 2012). This ability to support growth in other sectors extends to export activity, where the creation and implementation of logistics systems to deliver goods around the world in a timely manner and in good condition is crucial.

The impact the sector has in creating and providing employment in the UK can be underestimated. UK Commission for Employment and Skills recently reported (UKCES 2014) that in 2012, nearly 1.5 million individuals were directly employed by companies whose SIC code is within the logistics sector in 2012 (Winters et al. 2014). They then observed that many individuals working in manufacturing, retail or construction business are undertaking transport and logistics roles such as driving, storage or supply chain planning.

With this wider perspective, the number of individuals working in transport & logistics is 2.2 million individuals, some 8 per cent of the UK workforce. This also demonstrates that the demand for Transport & Logistics skills extends across the economy.
The Transport & Logistics sector has a number of distinct business models. The simplest common form is generally referred to ‘hire and reward’ or sometimes ‘second party logistics or ‘2PL’. This involves a Transport & Logistics business providing a one-off transport and/or storage service to a manufacturer or retailer, collecting and delivering specified goods and moving them to a specified location for an agreed price. Single purchases of Courier services are included in this definition.

Where a longer term contract for such services is placed with a transport & logistics company, this is generally called third party logistics or ‘3PL’. This is essentially the outsourcing of the transport and logistics function. Typically this involves the transport & logistics company being integrated into the client business, assisting in the planning and scheduling of goods movements, sometimes basing their staff within the client business and having dedicated vehicles liveried in the client company colours. The majority of retail transport & logistics services are provided by 3PL companies operating warehouses and vehicles on behalf of retailers, typically within contracts of 3- 5 years duration. This provides powerful incentives to the 3PL to reduce costs and improve service during the contract. The nature of contacts varies but many involve a high level of information and risk sharing, enabling rapid response to evolving or new customer requirements or to external factors such as the cost of fuel. When contracts change from one 3PL provider to another, the staff often transfer to the new provider under TUPE rules.

The planning and supply chain management skills needed to provide these services have led to the development of fourth party logistics providers or ‘4PLs’. These businesses have no transport assets or warehouse capacity. They have an overview about the whole logistics market to choose the ideal 3Pl for their client’s logistic activities. The ability to offer these services and the quality of their services has risen with the development of IT systems
The majority of freight in the UK is transported by road. Department for Transport statistics (Transport Statistics Great Britain 2011) report; 72% by road, 7% by rail, 16% by inland water and inshore shipping and 4% by pipeline. The motorway network and trunk roads carry 72% of the nation’s road freight with 80% of all the miles covered by articulated vehicles in the UK being on the motorway and trunk road network.

Transport & Logistics activities take place throughout the UK, transport businesses and storage facilities being located in every town and city and in rural areas, serving business and domestic customers. Since the 1960’s the concentration of road transport on the motorway network and the faster journey times the motorways permitted resulted in certain locations emerging as ‘distribution hubs’. Typically these are locations on motorway intersections between major conurbations where extensive facilities can be built so that products can be stored or sorted for delivery to manufacturing, retail or domestic customers. Other favoured locations relate to airports where high value goods are moved in and out of the country, sea ports, where bulk goods such as minerals or goods such as cars are imported and rail terminals where large consignments are long distances in the UK or Europe. Such ‘strategic sites’ have become increasingly important in the spatial plans of national and local government and access to such these transport and logistics services is a key part of the decision making process for manufacturers seeking to expand or create new facilities.

The UK is the most ‘online’ retail environment

The UK Transport & Logistics sector is being transformed by the rapid adoption of online shopping by consumers and the need to provide delivery and collection services to support online purchasing. The FTA report that “Britain has the highest rate of online shopping in Europe. In 2013, 72 per cent of British adults shopped online, up from 53 per cent in 2008. PwC predicts that online sales will be 25 per cent of non-food and 10 per cent of food by 2018. But footfall on the high street has fallen 8.1 per cent since 2010 although the number of store closures is slowing. Regardless of the means they are purchased by the consumer, these goods need to be delivered.

The Total Retail Survey offers some interesting insights into UK trends in online deliveries. The dominance of postal/doorstep delivery as a preference is clear, although the popularity of in-store collection and appointment deliveries in the mix underlines that retailers need to offer a range of options if they are to appeal to all consumers. Parcels returns are growing faster than deliveries at around 10 per cent a year. The debate over the sustainability and cost of free returns continues as online purchasing gains ground; 80 per cent of consumers in the Total Retail Survey said free postage for returns was important to them compared to 53 per cent for global respondents.

Many of these goods reach customers by means of parcels home delivery. The UK B2C (Business to Consumer) parcel market, including all deliveries and returns, is due to grow by 4.8 per cent a year, mainly as a result of increasing use of online shopping by consumers. PwC predicts that home delivery volumes will increase by 3.7 per cent per year to 2018; over 1 billion parcels are expected to be home delivered in 2018.”

Occupations and Skill Levels in the sector

Most analysis of the sector workforce using ONS statistics indicates that this is a sector with half the workforce (49 per cent) being employed in the ‘lower skilled occupations’ of Process, plant and machine operatives and Elementary occupations and this is compared unfavourably with the whole UK economy figure for lower skilled occupations (which is at 17 per cent) (ONS, 2013).

This presents a rather misleading picture of the skills of the workforce and reduces the relative attractiveness of the sector to job seekers. The definition of Process, plant and machine operatives includes all vocational drivers – of powered fork lift trucks, vans and lorries and those operating lifting and positioning equipment in warehousing and storage areas. These occupations all require significant training and external examination relating to theory accompanied by practical testing before a licence or certificate of training is issued. LGV Drivers now have to undertake a form of compulsory professional development through their Driver Certificate of Professional Competence.

The definition also includes warehouse operatives. They now use increasingly sophisticated ICT to locate goods and record and monitor the progress of their work, this requires higher level of basic literacy and numeracy than were accepted in past years.
With this context in mind, the analysis of the occupations in the UK Transport & Logistics sector show that the driver workforce (vans and lorries) accounts for 21 per cent of all employment, with a further 8% of employment in the fast growing courier sector (see Key Trends below). A further 20% are engaged in the Warehousing and Storage duties described above.

A smaller but key occupation group and one at the centre of technological change in the sector are Traffic Office staff, responsible for the vehicle fleet and the routeing and scheduling of goods movements.

Transport & Logistics Occupations in the UK economy in 2012

Occupation Number in Transport & Logistics Sector Number in all other Sectors Total Number % of Transport & Logistics sector employment
Purchasing Managers and Supply Chain Directors 4,000 40,000 44,000 2%
Managers and Directors in Transport roles 35,000 35,000 70,000 3%
Managers and Directors in Storage and Warehousing roles 27,000 60,000 87,000 4%
Import/Export staff 4,000 2,000 6,000 Less than 1%
Traffic Office staff 21,000 38,000 60,000 3%
LGV Drivers 171,000 102,000 273,000 12%
Van Drivers 84,000 110,000 194,000 9%
Fork-Lift Truck Drivers 35,000 59,000 94,000 4%
Postal Workers, Mail Sorters, Messengers and Couriers 142,000 38,000 180,000 8%
Elementary Storage Occupations 172,000 224,000 395,000 18%
Other Occupations 802,000 36%
Total 1,495,000 709,000 2,200,000 100%

Source: UKCES analysis of data from the ONS Annual Population Survey (Jan – Dec) 2012

Key Trends and Challenges in the Transport and Logistics Sector

Summary

The accelerating shift from high street shopping to on-line shopping has already dramatically changed the way the sector works. These changes will have a continuing impact on the nature and structure of transport and logistics businesses, the location of warehousing and goods handling facilities, the modes of transport used and the skills of people working in the sector. In this section we explain these changes and the impacts they have.

The sector is emerging from recession. DfT data for 2103 showed a rise in demand for the movement of goods. 58% of Freight Transport Association members surveyed in Q4 of 2013 expected increased activity in 2014 (FTA Logistics Report 2104).

The sector will need new workers and is set to grow. Working Futures IV 2012 forecast that employment across the UK logistics sector will needed a net 820,000 new workers between 2010 and 2020 – a 10% increase.

This is a dynamic sector. Traditional models of warehousing and distribution have been transformed in response to changes driven by online retailing, while vehicle design and operation is changing in response to environmental concerns and the use of technology to provide real time monitoring of vehicles and loads.

Industry Trends

The Freight Transport Association conducts an annual review of sector performance and surveys member companies across the UK. The FTA’s Logistics Report 2014 therefore provides an up to date review of the changes in the sector and this section highlights key sections from that report.

The increase in online shopping and consequent home deliveries goes some way to explaining the rise in van use in recent years. Around 1 in 10 vehicles on the UK’s roads is now a van, with van traffic predicted to rise at twice the rate of cars and almost double by 2040. The number of light commercial vehicles (goods vehicles up to 3.5 tonnes gross vehicle weight) registered in the UK has increased by 29 per cent over the past 10 years to 3.28 million.

Over the same 10-year period, the number of hgvs has decreased by 9 per cent to 386,000. Possible explanations of the increase in van activity include; increased popularity of just-in-time deliveries, more deliveries of critical importance that cannot be stored, greater difficulty of hiring hgv drivers and operating hgvs, various restrictions on hgvs in urban areas (such as weight, emissions, height, width) more home deliveries – resulting from increased popularity of internet shopping and an increased number of households requiring more homewares and shopping deliveries.”

The RAC/AECOM report Van Travel Trends in Great Britain, records that 47 per cent of vans are commercially owned; that is, registered in the name of a business. For these vehicles, most travelling time (35 per cent) is spent collecting or delivering goods. There is indirect evidence that light commercial vehicles (vans) have been used to substitute for hgvs (lorries) due to the rise in home deliveries to which vans are better suited. Home shopping is growing at twice the rate of retailing as a whole, and figures show that internet shopping increased by 11.8 per cent in December 2013 compared with December 2012 and by 1.8 per cent compared with November 2013. In terms of total retail sales (excluding automotive fuel) 11.8 per cent of all sales were made online There is an implied relationship between the state of online food sales and home deliveries and it would not be unreasonable to assume that a large percentage of these would be delivered by light commercial vehicles through the supermarkets’ home delivery network. Non-food retailers are also undertaking e-commerce. Thus, a greater number of vans are required to cope with the increased demand.”

Workforce Trends and Challenges

As a sector where demand for volumes of goods to be carried can rise and fall quickly in response to economic conditions, an on-going challenge for Transport & Logistics companies is to maintain an appropriate workforce. This has created a market where short term peaks and troughs of demand – such as the increased demands prior to Xmas - are met by recruitment of drivers and warehouse staff from recruitment agencies. This is generally successful and a proportion of ‘agency workers’ commonly move into fulltime employment, providing a recruitment route for the sector. A longer term addition to the workforce in the past decade has come from EU migration, which was generally considered to have averted a critical UK driver shortage in the early 2000’s.

The current improvement in the UK economy is causing concern that a new driver shortage is about to emerge. The predicted shortage of available drivers arises from a number of factors. Firstly the number of young people taking their (Category B; car) driving test is falling as acquisition costs and the cost of running a car rise, thus reducing the number of driver able to drive vans or progress to the (Category C; lorry) licence. Secondly, there are concerns that the Driver CPC, with an ongoing requirement for regular compulsory training in order to maintain their entitlement to drive vocationally will lead some drivers – mostly older drivers or part time drivers – to leave the industry. Allied to this, companies are concerned at the extent to which the existing workforce will need updating training in order to get the best economy and environmental performance from new vehicles and to gain the consumer-facing skills needed for home deliveries.

A more positive trend for is that changes to the design and equipment of vans and lorries including power steering, automatic transmission and more ergonomic cab and seating designs have reduced the physical demand on vocational drivers. Allied to a growing recruitment of women into the van-based home delivery sector, this may increase and diversify the driver workforce.

Companies engaged in logistics report a range of issues relating to recruiting and retaining staff. The most recent information is contained in the UK Commission for Employment and Skills (UKCES) report; ‘Understanding Skills and Performance Issues in the Logistics Sector’. This reports their Employer Skills Survey in 2013.
When asked to define the skills needed in various logistics roles, employers noted a range of communication, management, customer service, ICT and interpersonal skills that are commonly required in other sectors. This indicates that with the exception of vehicle driving, the skills needed by the transport and logistics sector are held by people working in other sectors. UKCES report that employers in the sector find it difficult to attract people with these skills at the levels required and in that respect it shares a problem with the manufacturing and agriculture sectors, where skills deficiencies when recruiting are most concentrated and persistent.

Employers anticipate the need to retrain the existing workforce to use the technology and systems being introduced in the warehouse and planning function and to provide the levels of customer service demanded by online retailing.

Number of workers needed 2012 to 2022

In any sector, the demand for new entrants arises from a combination of the need to replace existing workers as they retire or move to other sectors and the need to fill wholly new jobs resulting from business growth.

The UKCES, Working Futures report for the Transport and Logistics sector calculated that replacement demand alone will generate an additional 1 million job openings in the sector, meaning that with growth there is a total requirement of nearly 1.2 million individuals in the period of 2012 to 2022. Over a fifth of replacement is expected in the driving roles, which as noted elsewhere are already experiencing recruitment difficulties. Therefore it is likely that there will be further increases in skills shortages, wages and migration if the supply of labour is not able to meet this future demand.

Key Industry Challenges

Urban deliveries

The cumulative volume of goods being moved as the result of delivery and collection decisions made by individual consumers, retailers and other business is huge. Transport for London calculates that in the capital 15,000 tonnes of goods are picked up or dropped off each hour by lorries alone. This means that road and kerbside networks have to accommodate these trucks and many more vans. The industry is concerned that measures to reduce congestion and improve environmental quality often increase delivery costs, this increasing the price of goods and ultimately raise the cost of living.

More vans, more congestion ?

While vans may have less direct environmental impact than HGVs, the increased number of vehicles on the road and engaged in deliveries is not without consequences, as the FTA report discusses.

“Technology can be used to consolidate transport flows into, out of and within urban areas, so companies engaged in e-commerce will continue to seek to rationalise their logistics and increased efficiencies should be anticipated – the regulatory framework needs to enable this. However, 1 articulated lorry can carry as much as up to 10 vans, so there are potential implications for kerbside delivery space and congestion arising from any shift towards smaller vehicles. They too will need to be accommodated – possibly in ever greater numbers. “

One strategy to reduce the number of van deliveries is to encourage ‘click and collect’. This means the consumer orders goods online but collects them from the retailer’s high street store or at another convenient point near their home. Such local collection points can be dedicated ‘Parcel shops’ or more commonly neighbourhood convenience retail stores or filling station forecourt stores. Examples of this model are emerging in both urban and rural areas and while these collection points currently account for only a small part of the domestic consumer parcel market (around 1 to 2 per cent) it is growing rapidly. For this reason, it is even more difficult than one might initially suppose, to pinpoint the exact relationship between e-commerce and van usage. Agile and reliable logistics is central to the delivery of these products. Unreliable transport networks mean late deliveries and mitigating inefficiencies in the road network involves costly additional use of vehicle and human resources to ensure that goods reach their destination on time.”

Deliveries and PCNs

Local authorities are responsible for enforcement of parking controls and have the authority to issue penalty charge notices (PCNs) - ‘parking fines’. These are frequently issued to freight vehicles making deliveries to retailers in older urban areas where there is no space to park and unload a freight vehicle other than by infringing parking controls. This arises because the current law does not differentiate between ‘parking’ and ‘delivering’.
In October 2013 the House of Commons Transport Select Committee urged greater clarity on the rules for loading and unloading and urged local authorities to work with the industry to devise pragmatic local solutions.

The industry is concerned that the public – which includes potential employees does not understand the importance of the sector to their daily lives and particularly does not understand the progress in the sector regarding road safety and environmental concerns. The FTA Logistics Industry Survey 2013/2014 asked members to rank company board priorities for the coming year. Site and road safety are top of the list, followed closely by staff security.

There is still a perception that logistics is misunderstood by politicians and voters; this gap in understanding matters because it can lead to the adoption of policies that harm logistics’ efficiency and cause unintended economic consequences.

Environment and Air Quality

The Department for Energy and Climate Change report that 21 per cent of UK greenhouse gas emissions are from transport (DECC, 2013), and of all transport emissions, large goods vehicles (LGVs) account for 21 per cent. Allied to the increased cost of fuel , these concerns about the impact of transport on the environment mean that systems based on large regional ‘hubs’ are being questioned, with a new focus on smaller urban aggregation facilities from which deliveries made to multiple customers in city centres.


Logistics companies, in collaboration with manufacturers are testing vehicle technologies which reduce levels of noise and air pollution. This adoption of diesel-electric hybrid vehicles and electric vehicles has created new skills demand in planning the use of the vehicles and in the skills and knowledge needed to service and repair them. The efficiency of diesel and petrol engines has improved significantly, Department for Transport statistics (Transport Statistics Great Britain 2011) note significant reductions in emissions from transport since 1990. Emission of carbon monoxide have fallen by 82%, Nitrogen oxide emissions have fallen by 61% and amounts of Benzene and 1,3 butadiene (involved in the formation of ground level ozone) have fallen by 82% and 89% respectively.


There are growing concerns that the UK’s continued failure to meet European Air Quality standards will result in policies and controls that will increase costs to the Transport & Logistics sector. The European Commission in February 2014 issued infringement proceedings against the UK for breaches of nitrogen dioxide levels. Air pollution limits were regularly exceeded, declared the Commission, in 16 zones across the UK – Greater London, the West Midlands, Greater Manchester, West Yorkshire, Teesside, the Potteries, Hull, Southampton, Glasgow, the East, the South East, the East Midlands, Merseyside, Yorkshire and Humberside and the North East.


The UK, said the Commission, had not presented any ‘credible or workable plan’ for achieving compliance with air quality standards by 2015. In presenting their case for the European Commission in July 2014, lawyers for the Commission were reported (The Guardian, 10 July 2014) to have described the UK’s continued failure to comply as ‘perhaps the longest running infringement in EU history’.

In July 2014, the UK government produced revised figures for nitrogen oxide and dioxide levels anticipating compliance with NO2 levels ‘after 2030’ for Greater London, the West Midlands and West Yorkshire, 2025 for many other areas such as Greater Manchester, Tyneside, Liverpool, Sheffield, Nottingham, Bristol, Leicester, Teesside, the Potteries, Kingston Upon Hull, and 2030 for Southampton.


The transport and logistics sector is therefore concerned that in order to meet these targets, measures might include a tightening of controls on vehicles in cities, with many investigating equivalents to London’s Low Emission Zone; further controls on emissions from vehicle engines, particularly diesel engines. Such measures could increase the cost and complexity of deliveries. Indeed in February 2013 the Mayor of London announced that he had asked TfL to put together plans for an ultra-low emissions zone (ULEZ) to cover all vehicles by 2020.
However Hgvs account for only a small part of emissions from road transport and, in turn, road transport is only one source of air quality emissions. Nationally, Heavy Duty Vehicles (hgvs and buses combined) account for just 13 per cent of NOx emissions and 27 per cent of Particulate emissions. Electricity generation and other stationary combustion are responsible for almost 55 per cent of NOx and 70 per cent of Particulates.

In 2013, Sheffield, one of the UK cities noted above as being in breach of the air quality directive, undertook a Low Emission Zone Feasibility Study. The study showed that buses rather than hgvs were the main source of transport related pollutants in the city centre, while cars were responsible for much of the pollution on its arterial roads. The study concluded that rather than instituting a low emissions zone action should focus on continued promotion of a fuel-efficient driving programme.

Regulation

Transport and Logistics business operate in a highly regulated environment. The operation of a goods vehicle fleet is the subject of an operator licensing scheme overseen by the Traffic Commissioners who have extensive legal powers which at the extreme, can bar a company from operation. Vocational Drivers are subject to initial statutory testing and all driving hours are recorded and monitored to ensure compliance with strictly enforced limits. Since 2009 lorry drivers have to undertake statutory refresher training in order to retain their entitlement to drive. Where goods carried are classified as ‘Dangerous’ – including all fuels and gases – additional training and certification of the driver is required and the vehicle must meet specific regulations relating to design and operation. Vehicles driven on the public road are subject to all the traffic regulations related to weight and size restrictions, speed limits and parking controls all of which have the potential for financial penalties (fixed penalty fines, parking tickets) or even a driving ban through accumulated licence points.

Storage and warehousing facilities need to have appropriate planning consent related to the use of the premises and comply with workplace health and safety requirements, while a range of statutory agencies have powers of inspection and enforcement related to the goods being stored. This is particularly significant in the storage and handling of foodstuffs and goods classified as ‘Dangerous’.

There are a new set of emerging regulatory and compliance issues relating to home delivery. With a huge shift in retail from high street purchase to goods arriving at home, logistics faces the new challenge of dealing with doorstep signature.

Conventional policy for delivery businesses is signature at point of handover, to a warehouse controller, office receptionist or the concierge at a hotel. The delivery of a package direct to a named recipient was a premium service - documents delivered to the board room for consignment addressee only, delivery of government or military documents. These were charged, logged and costed as appropriate.

The highly competitive new market created for home delivery does not allow such premiums to be charged. The point of delivery is remains signature at point of handover, but a question then arises when a consignment such as alcohol, drugs or eighteen rated DVD is handed to a sixteen year old for signature. The need to verify the age of that individual, their authority to answer the door or be alone in that building is new to scope of logistics home delivery. Given the high cost of re-delivery, there is a pressure on the carrier to hand over the goods by the carrier. Re-delivery cost and the risk of breaking laws related to safeguarding of young people is one of the most negative influences to the carrier market in this emerging market.

While transport compliance lies around road and driver legislation and ‘goods carried’ regulations, the retail shift boom from high street to home is in urgent need of best practice guides on point of delivery issues, safeguarding goods and recipients.

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