Reasons for Optimism 2016

Earlier in the year we came across an article (www.microlise.com/six-reasons-for-optimism-in-2016) in the magazine of the Chartered Institute of Logistics and Transport by Matthew Hague, a director of Microlise, the Telematics specialist.

From the viewpoint of the start of the year, Hague begins by presciently pointing out the level of uncertainty there was at that time: global markets in turmoil for all sorts of reasons, chief amongst them the oil price collapse (markets seem to not like oil prices when they are high or low!); an economy that – whilst in apparently better shape than in 2008-2012 - has grown at an inconsistent and slow rate since; and - not mentioned in the article but clearing playing a big role in 2016’s dynamics - the EU referendum. Within the logistics industry, the shortage of qualified drivers adds a further pressure.

But off-setting this grey background are some reasons to be optimistic…

  1. Vehicle Demand – 2015 teed up a good 2016! The Society of Motor Manufacturers state that commercial vehicle registrations reached an all-time high of 424k in 2015. Demand for trucks was up by a quarter, driven by a strong 2015 and confidence for 2016. (Of course, this may imply more over-supply in a downturn or slowdown).
  2. The Internet – driving growth! The internet is driving logistics growth in two ways – firstly, the continuing growth of e-commerce demands ever more sophisticated logistics solutions to support it, both in terms of systems and distribution networks. Secondly, new net-based technologies – such as telematics, backload sites and Freightex in distribution, and Zupplychain in warehousing . are enabling the industry to operate more efficiently and grow the market.
  3. Servitisation – driving customer retention and more profitable business! Servitisation is the trend from asset-led consumption and supply to a service-led structure. Hague uses Rolls Royce to illustrate this point: it has transformed from a seller of engines to a provider of power by the hour, taking responsibility for everything required to deliver the end result. The logistics industry continues to exploit this trend in terms of its focus on complete service propositions for its customers, aided by the sophistication of systems to manage end-to-end multimodal supply chains.
  4. Roads remain king! Around 90% of internal freight in the UK is transported by road (for Europe as a whole, it is 76%). According to the Department of Transport, there were 136 billion tonne kilometres in 2014; vehicles travelled 16.9 billion km. The long term trend is towards less miles per tonne as technology enables the industry to operate with fuller vehicles and denser, better optimised networks. Much of this technology is relatively new – further benefits will come through (see 5 below). A more efficient industry is usually a more profitable one and certainly one better placed to withstand external shocks.
  5. Maturing Technology – the great leap forward! One of the factors behind the rapid world growth of 1993-2005 was the widespread efficiency gains of the growth of computer based technology and IT systems, particularly the adoption of PC and/or network access for nearly all office based employees. A second great leap forward is happening for the logistics industry. Microlise point to their own speciality as an example – telematics can shave 10% from fuel bills, increase vehicle utilisation and encourage drivers to improve their safety record, without creating an industry of data analysis. Coupled with advances in devices (smartphones etc), the logistics industry is on a steep curve of technology led efficiency growth.
  6. The Government – increasing its support! Last December, the Department of Innovation and Business approved a new Trailblazer apprenticeship programme to develop the next generation of HGV drivers. Meanwhile the DVSA is using new technology to enable its enforcement to identify the best operators who can gain ‘Earned Recognition’. Both are indicators that the government understands the critical under-pinning role of the logistics industry for the growth of UK plc.

How do these predictions from the beginning of the year feel now we have reached the time for a half term report? With one caveat, we think ‘pretty well’: the economy continues to grow, albeit at the lower end of the long term range; and new technologies – such as Zupplychain – are having a growing influence on the speed and efficiency with which the logistics industry can act.

The one caveat is – of course – the effect of the referendum on both consumer and business sentiment. And whilst it’s clear that the immediate aftermath of the Brexit decision has seen uncertainty, particularly in investment, there’s little clarity over how the dust will eventually settle. One thing is for certain, however – whether it be warehousing, transport, distribution or strategy, no business can be successful without good logistics solutions. And from that perspective, we have much to be optimistic about.