Shipping & Logistics: UK Expectations

Business conditions

Survey respondents in the shipping and logistics sectors have similar views about current business conditions. More respondents think that business conditions are about the same as they were six months ago, although substantial proportions (38.1% and 37.1% of shipping and logistics respondents respectively) think they have become somewhat more difficult.

Looking ahead, there is some difference of opinion between the two sectors. 42.5% of shipping respondents think that business conditions over the next six months will be the same, while 35.7% expect them to become more difficult. In the logistics sector, more businesses think conditions will become somewhat more difficult (48.6%), with 38.0% expecting no change.

Interpreting the numbers

The fact that the shipping sector is experiencing difficult times comes through strongly. Shipping companies have been experiencing challenging business conditions for some time – with overcapacity an ongoing issue – and they don’t, in general, expect things to improve in the short term. Shipping is also a global industry, so UK-based businesses will be affected by the weakness of the global economy as a whole. Such factors are reflected in their more muted turnover, profit, investment and headcount expectations.

Greater optimism amongst logistics businesses reflects the greater diversity of sectors served and some strong sources of demand. For example, e-fulfilment is an expanding logistics market, while demand for new technology is also fuelling logistics activity. The UK economy has also appeared relatively robust, even in the first months after the Brexit vote and despite initial fears about the potential damage that could be caused by uncertainty over the details of the UK’s departure from the European Union. There is, perhaps, a realisation that developments will be gradual and there are unlikely to be major, immediate economic shocks.

The falling pound is one obvious exception, but one that brings both benefits and difficulties, depending on business structures. The low pound has driven up fuel costs, however, with an impact on both shipping and logistics sectors. Although the larger logistics companies will be able to pass on costs due to the cost escalation clauses they have in place, smaller operators will be exposed. The impact of such cost increases is reflected in the fact that both shipping and logistics businesses surveyed have higher expectations for turnover growth than for profit increases.

Cost pressures in the logistics sector are also being heightened by skills shortages, particularly in relation to vehicle drivers, but also across the sector. Logistics businesses were surveyed when just gearing up for the busy pre-Christmas season. High demand for additional staff during this period could increase costs further. Looking further ahead, businesses will be watching Brexit negotiations carefully: could restrictions on immigration create an even greater imbalance in labour supply and demand?