The logistics and transport industry is an active contributor for the UK economy. It employs more than two million people across 230,000+ enterprises, albeit with unequal distribution, all throughout the nation. 

However, many businesses in this space, especially small and medium sized companies, are currently grappling with high interest rates. The broader impact of inflation and consumer sentiment has also impacted sales volumes and cash flows. 

As of September 2023, the rate of insolvencies in the logistics sector stands at 11.5%. While this is better than sectors like retail (34%) and hospitality (31%), it is still relatively high. Given the recent economic uncertainty surrounding this industry, it’s essential to stay informed if you’re thinking about investing in the UK. To ensure you’re up-to-date, let’s review some recent market developments. 

Logistics Industry: Dealmaking and M&A

A research report by Barclays and BDO states that cost control and efficiency are driving the most deals within the logistics sector. This is primarily because of the fluctuating customer demand levels. More than 71% of logistics firms in the UK cite this as the toughest challenge. As customers renegotiate tenders and contracts more frequently than before, competition has become more cut throat. 

Businesses are also struggling to accommodate a more stabilised supply chain amidst uncertain geopolitical relations and rising inflation costs. Improved service levels are key to winning new business. Cybersecurity has taken more priority as compared to last year with the increasing rate of online scams. 

This is a good time for leaders to invest in ESG (Environmental, Social, and Governance) projects. Most of these initiatives are set to have a positive environmental and financial impact on business performance. The last few months also saw an increased focus on collaboration between service providers, particularly in road and shared transport, digital platforms, technology development, and alternative fuel infrastructure.

Business models are evolving, with asset-light models gaining traction, particularly among those reporting higher confidence levels. Improved service levels, achieved through efficiencies and automation, are seen as the key to winning new business. These will likely require upfront technology investments and can be complicated by uncertain economic conditions and future volume visibility. M&A activity remains robust, driven by the need to expand volumes and explore new sectors. Approximately 40% of logistics leaders anticipate making acquisitions in the next 12 months.

UK Government invests £200 million into Logistics

With an aim to support zero emission trucks and promote decarbonisation, the UK government has invested £200 million into the logistics industry. This investment focuses on bringing future ready innovations and job creation. Heavy goods vehicles (HGVs) are responsible for 20% of all transport emissions in the UK. This government funding will support four green projects, enabling the rollout of up to 370 zero emission HGVs. It will also establish critical infrastructure including 57 refuelling and electric charging sites through a collaboration with Innovate UK.

The freight industry contributes approximately £127 billion to the economy. However, it faces its share of challenges. Prioritising the reduction of the sector’s carbon emissions, streamlining transportation timelines, and alleviating traffic congestion are primary objectives. Additionally, there needs to be a strong emphasis on enhancing the efficiency and connectivity of logistics hubs.

Becoming future ready

This is where this milestone investment can come in handy for the logistics industry. There is also predicted to be a surge in zero emission trucks, ushering in an era of cleaner, more sustainable freight transportation. Another positive development this week included the introduction of the zero-emission vehicle (ZEV) mandate for the UK. This mandate outlines the annual production requirements for new zero emission cars and vans by manufacturers, with a pragmatic and attainable pathway to achieving 100% zero emission vehicle sales by 2035. 

The £200 million investment will be used to advance green battery and hydrogen truck technologies, in collaboration with the Department of Transport. This will not only generate thousands of renewable energy jobs, but also contribute to the nation’s net zero economy. 

This news presents new expansion opportunities for investors looking to diversify their portfolios. For one, the focus on sustainability and decarbonisation solidifies the need to align business goals with global trends. It is a reminder for investors to analyse whether their investments address climate change effectively. If not, then having a sustainability first strategy should be imperative. 

With a focus on enhancing logistics hubs’ efficiency and connectivity, there may also be opportunities in companies specialising in logistics and transportation management, particularly those capable of integrating innovative solutions. Keep a lookout for these to not miss out on any lucrative deals!

Global investment group acquires Transport giant Arriva 

Sunderland based transport company Arriva has been acquired by I Squared Capital. Arriva is one of the North East’s largest transport companies, from its German owners, Deutsche Bahn AG. I Squared Capital is a multinational investment group, with a global presence.

The deal, valuing Arriva at around 1.6 billion euros, is set to conclude next year, pending approval from the Deutsche Bahn supervisory board and the German Federal Ministry for Digital and Transport. Deutsche Bahn, the state-owned German railway company, had been seeking to divest Arriva for some time to concentrate on its core operations. Arriva, which operates buses and trains in the UK and various overseas locations, was purchased by Deutsche Bahn in 2010.

Arriva’s potential for sustainable growth in a liberalising European market was a key factor for this deal to come through successfully. Furthermore, it also highlights  Deutsche Bahn’s focus on investing in environmentally friendly rail infrastructure. 

Mike Cooper, CEO of Arriva Group, shared his vision of reducing traffic congestion and improving air quality by promoting the use of public transport. He also expressed enthusiasm about the opportunities this acquisition would bring to benefit employees, passengers, and transport authorities across Europe.

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