Fleet News

Consolidation in the logistics industry expected to increase

The majority of the UK’s largest logistics companies are now overseas owned and account for the greatest share of turnover with further industry consolidation predicted, according to new research from Barclays Corporate and Grant Thornton.

Overseas ownership of the top 50 UK logistics companies has grown to 52% over the past five years with their turnover now equating to 69% of the top 50’s total turnover, a jump of more than 40% over five years.

Barclays Corporate and Grant Thornton carried out research looking at the changing composition of the top 50 UK logistics companies, surveying key decision makers from UK logistics businesses on their views of the industry.

The research shows that 58% of respondents believe M&A activity in the sector will increase over the next 12 months, with over a third of those companies surveyed actively planning acquisitions.

Philip Bird, corporate finance director at Grant Thornton said: “Many medium-sized logistics firms need to consider mergers or acquisitions to avoid being squeezed out by major operators offering economies of scale or niche players offering tailor-made solutions. UK logistics firms need to be more successful in expanding overseas if they want to remain independent. After all, more than two thirds of the UK’s top 50 total turnover is generated by firms based outside the UK.”

Cost inflation is seen as the biggest issue facing the sector over the coming 12 months, which could see businesses reassess their commercial relationship with customers. Supply chain disruption ranks low, with 66% of those surveyed stating they are not reassessing their business plans in light of recent geopolitical and natural disasters.

Over three quarters of respondents will be investing in vehicles over the next 12 months, which can be seen as a result of rising fuel costs. 83% of businesses are concentrating on improved vehicle efficiency as a measure to counter rising costs, however only 15% of businesses surveyed are currently hedging against fuel prices.

Rob Riddleston, head of transport and logistics at Barclays Corporate said: “The logistics sector is always going to have to face the vagaries of the foreign exchange markets and fuel price volatility. Whilst fundamental movements in FX and fuel rates have to be managed by the sector, companies can hedge against short and medium term volatility in price movements.”

The research shows that overall the UK logistics industry has been resilient despite the recession with employment figures back to 2007 levels and operating margins holding up well throughout the past five years. 66% of logistics businesses surveyed expect up to 10% growth over the next year, while almost half (47%) intend to increase staff numbers.

Bird said: "The sector is hugely competitive both domestically and internationally, and logistics companies have had to be flexible to stay profitable. The ability to increase margins and invest in vehicles suggests that operators have understood the importance of maintaining a firm grip on their cost base as well as there being a degree of buoyancy in core markets, which also helps to explain the growing interest in M&A within the sector.”

When asked about government support, 82% believe UK Government is not supportive enough of the sector, with the majority of respondents calling for a cap or reduction in fuel duty.

Riddleston concluded: “It is pleasing to see that despite the headwinds of the last three years the industry is looking forward positively to the future. The logistics sector is the vital element in helping world trade grow and the economy to become more efficient.”

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