Economics

Any port in a storm

By - Talent in Logistics Journal

Any port in a storm

The logistics sector accounts for eight per cent of the UK workforce, employing a total of 2.35 million people both directly and indirectly. This, in the face of a period of global economic cooling, gives just cause for those in the industry to be a little worried.

The current wave of economic deceleration is primarily being driven by a surge of protectionism, decreasing product output by major exporters, a selection of new international trading tariffs between major global economies and a resurgence of political uncertainty among consumer nations. Against this backdrop, the logistics sector continues to keep the flow of products and supplies moving to ensure they arrive at the right place at the right time.

The most significant of the international trade disputes damaging global confidence is between the US and China. President Trump imposed his first round of tariffs in July 2018, after which global uncertainty began to rise. Studies by the International Monetary Fund (IMF), Stanford University and the Federal Reserve estimate that trade uncertainty in the first quarter of 2019 stifled global growth by 0.75 percentage points. Furthermore, Germany, a lead exporter in the EU, is nearing a recession, which is having knock-on effects across the European Economic Area. Across the globe, a trade war between Japan and South Korea, fuelled by historic grievances, has led to export restrictions being placed by Japan upon goods headed for its neighbour, and a retaliatory WTO complaint being filed by Seoul.

While the global context provides a basis for understanding anxiety within the UK logistics sector, far more direct is the impact of Brexit, and the implications of the UK leaving the European Union (EU) on 31 October without a deal. Following Boris Johnson’s appointment as Prime Minister of the United Kingdom, the odds of this becoming a reality have increased dramatically. But what does this mean for a sector that relies on a global workforce and flows of goods across borders with minuscule margins for error? Thanks to the reluctant publication of the Government’s Yellowhammer documents in early September, spectators have a clearer idea of the worst-case scenario.


The worst-case scenario

In the event of a no-deal Brexit, the Government anticipates that with the UK relegated to “third country” status and no concluded bilateral agreements in place with any individual member states, there will be a number of negative knock-on consequences. From day one (D1ND, as the Yellowhammer document states), freight flow will be disrupted as EU mandatory controls are imposed on UK goods leaving the country. While the Government reports that France has already “built infrastructure and IT systems to manage and process customs declarations,” there is an expectation that 50-85 per cent of HGVs travelling via the Channel will not be ready.

Without this preparation from operators, we could see flow rate reduced to 40 to 60 per cent on current levels “within one day” and up to three months before this improves to 50 to 70 per cent on current levels. The Government anticipates that “in a reasonable worst-case scenario, HGVs could face maximum delays of 1.5 to 2.5 days before being able to cross the border. The impact this could have is yet uncalculated for an industry reliant on just-in-time delivery of parts and products from the EU. For medicines, flow rate could drop to as low as 40 per cent via the Channel Straits, with the disruption that could last well into 2020. Given three-quarters of medicines come via the short straits, with a supply chain reliant on time-sensitive transportation schedules due to limited shelf life of products, priority may need to be given to this cargo. Aside from these direct impacts, cross border data agreements, financial flows, fuel availability and cost and consumer spending changes are also expected to a negative impact on the sector.

It is not only the Government that is taking preparatory action. A survey by shopper research firm HIM found that 14 per cent of people are already stockpiling supplies in anticipation of food shortages following Brexit. The same study also revealed that 61 per cent of consumers expect food shortages to become a reality when Britain leaves the EU. As Britain imports between two-fifths and half of all food consumed, mostly from the EU, the worries of these anxious consumers are not baseless.

This considered, the Liberal Democrats, Labour Party, SNP and Conservative rebels, have provided a degree of resistance to the Government, attempting to reduce the likelihood of a no-deal outcome. On 9 September, Parliament passed a law preventing the Government from enforcing a no-deal exit without the support of MPs, should the prospect of an acceptable deal not materialise. In the instance there is no approval, the European Union (Withdrawal) (No. 2) Act 2019 states that an extension must be sought. Without a working majority, there is little the Prime Minister can do. However, if the UK is to have an imminent General Election, the tables could be turned yet again.

For the logistics sector, this means more uncertainty. Not only is this little comfort to bosses wishing to innovate, expand and secure their operations, but more so to staff who are looking to ensure security in their careers and the assurance of a future for their professional development.


Changing demand and unstable supply

Consumer expectations are changing. Testament to the achievements of the logistics sector, consumers now expect next-day delivery of goods purchased online as standard. Not only this, there is a growing appetite for free returns policies, rapid delivery times on bespoke orders and even same-day delivery on certain items. In response, logistics has had to become even more sophisticated, using automation technologies and artificial intelligence to map the divide between consumer expectation and an inability to have all items in stock all of the time. However, to ensure this model is sustainable, the sector needs a sufficiently skilled workforce to keep all the trains on the tracks – so to speak.

The International Road Transport Union (IRU) reports a 21 per cent shortage in drivers across Europe. Meanwhile, the Freight Transport Association (FTA) found the vacancy rate for HGV drivers to be 52,000 in the UK alone. This is even more concerning given the raised possibility of a no-deal or bad-deal Brexit which could result in many in this sector being forced to leave the country. Should this scenario play out, the sector will have to look at new ways to recruit talent and ensure retention rates are as high as possible.

The logistics sector already has difficulty recruiting skilled staff, despite the astonishing numbers who work in the industry. The FTA estimates that those working in the sector contribute over £121 billion to the nation’s Gross Value Added but remains concerned about the sustainability of operators without adequate investment in recruitment and training. In 2017, the Government introduced the Apprenticeship Levy, asking logistics businesses with a payroll of over £3 million to contribute 0.5 per cent. However, the National Audit Office reported that employers from all sectors had only used 9 per cent of the available funds for apprenticeship training in the first year. This is partially due to a lack of training standards and courses and partly down to the lack of support it provides for candidates wishing to enter the industry via other pathways.


Brighter skies ahead

It isn’t all doom and gloom. In fact, within the logistics sector, there is a lot of good to shout about. The development of new technologies is changing the landscape of logistics. Automated Guided Vehicles (AGVs) are being used to perform transport tasks on-site; agile supply chain methodologies, bolstered by blockchain, are enabling more reactive distribution; big data is analysing consumer trends more effectively and allowing predictive logistics; robotics is revolutionising warehousing; and artificial intelligence is increasingly streamlining operations to increase sustainability and boost productivity. All of this is needed to maintain industry competitiveness amidst the rise of global economic uncertainty.

For logistics professionals, this means new opportunities to upskill, develop professionally and engage in an evolving and dynamic sector. However, companies must remain aware of the wider challenges and react accordingly. Be this with innovative recruiting strategies, drawing from talent pools ignored by other industries, ensuring that development opportunities are in place for staff and creating a culture where teams are supportive and engaging, operators within the sector have a huge role to play. With the right workforce strategies in place, the sector has a strong chance of weathering the storm ahead.


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