• Higher costs in transport sector, especially for fuel
  • The shortage of HGV drivers remains acute
  • Online shopping shows long-term growth, fuelling underlying demand
  • Transport and logistics firms that embrace sustainability will have a competitive advantage

The transport and logistics industry kept Britain moving during the most challenging days of the pandemic. However, in the second half of 2022, it faces bumps in the road.

Fuel prices are the primary pain point - one lorry can burn through £20,000 of fuel a year. Some parts of the sector see strong demand and pass higher costs onto customers, but others are squeezed.

The result is a very uneven picture, with some firms expanding fast, while sector insolvencies continue to rise. Government figures for Q2 2022, show a 30% increase in insolvencies in the transport sector from Q2 2021. The half year to June 2022 notes 364 insolvencies recorded, up 88% from 194 for the same period in 2021 - 74% from road transport as opposed to air or water transport.

“There is a long list of challenges,” notes Kieron Franks, Assistant Head of Risk Underwriting at Allianz Trade UK & Ireland.

Transport sector and rising fuel costs

Of course, the transport and logistics sector is not the only industry hit by rising energy costs - energy-intensive industries such as paper and steel are also facing severe problems. However, the Road Haulage Association’s Rod McKenzie laid bare the brutal economics for road hauliers in a BBC interview: "Fuel represents over a third of a truck's operating costs, yet profit margins are between 1% and 2%, “ he said.

"To put this into perspective, the average 44-tonne truck gets less than two miles from a litre of fuel."

Rather than passing on higher costs to customers, long-distance hauliers have seen the prices they charge fall by 1.2% in the year to June 2022, according to analysts Transport Exchange Group, putting even greater pressure on cash flow. This is due, in part, to the weakening UK economy.

The industry also faces rising staff costs because of workforce shortages, particularly HGV drivers. In 2020 and 2021, many elderly drivers retired, and some who hailed from Eastern Europe left the UK. Logistics UK, the industry's trade body, has said that higher wages and faster throughput for testing is starting to make a difference to shortages, but nevertheless the driver shortage remains “chronic”.

Kieron comments: “The HGV driver shortage is a problem that never went away.”

Another challenge is intermittent support from the government. A logistics task force was set up in September 2021, and headed by minister Michael Gove, to help the industry tackle issues such as the driver shortage. However, it was abolished after 37 days, and it is unclear if it ever met.

Any transport operator shipping goods to Europe also faces port/customs delays and increased paperwork following Brexit.

Transport and logistics: pockets of strong demand

In January 2022, business confidence for the whole sector was strong, and ahead of 2021 levels, according to Logistics UK’s annual survey.

The sector is a beneficiary of one of the most important economic trends of the century: the shift to online retail. While online sales were 8.7% below 2020 levels in May 2022, according to analysts IMRG, they were still 46% higher than pre-pandemic 2019.

Courier firms carrying out local deliveries are primary beneficiaries: pushing up costs 7.5% in a year, Transport Exchange Group data shows.

Kieron notes that the online boom has also been very positive for warehousing and other logistics providers. Any business lucky enough to have spare warehouse or logistics space in London has been able to increase rents by 25% in a year.

The big picture in transport and logistics

The latest issues for the transport and logistics sector come at a time when there is also growing pressure for sustainability. Companies selecting logistics partners want to see evidence of improved sustainability, such as fleets that meet the Euro 6 emissions standard or, for courier services, all-electric fleets.

Kieron notes that transport is a highly fragmented sector - and smaller players may find this investment difficult, especially at a time of rising interest rates.

The overall picture, then, remains uneven, with strong demand alongside high levels of insolvency. Around 180 firms in the transport and storage industry became insolvent in England and Wales in the first quarter of 2022, up from 136 in 2019.

The transport and logistics industry plays a significant part in the UK economy – with around 26,000 companies employing more than two million people. From staffing agencies to packaging companies, many firms have transport and logistic companies as significant customers.

Trade credit insurance is the best way to protect against a customer in the sector becoming insolvent. It ensures payment if a transport or logistics firm cannot pay invoices, providing peace of mind.

For a free credit insurance consultation call our UK team, 09:00-17:00 Mon-Fri.