Price inflation in some of the key operating costs for Logistics service providers is manifesting in price increases to customers.  Coupled with this, providers are becoming more inclined to push for these increases in some markets because the recession has taken a lot of capacity out of provision, and the continuing lack of readily available investment capital is constraining any growth in physical provision.

For example, there have been numerous reports in recent weeks heralding the return of pre-crisis, global trading activity. Indeed, two key airports, Hong Kong and Frankfurt, have reported record monthly Air Cargo volumes in May with year on year growth at around the 40% mark. It is also anticipated that Ocean Container import volumes into the USA for 2010 will match 2008 levels. While this news is encouraging for the global economy and, in particular, Asian markets, where confidence is growing, there still remains uncertainty around economic prospects in the European and US markets. For cargo shippers this means that it is as important as ever to review transport expenditure. Focus on improving service and rates while some capacity is still available makes great sense. Action now will also make dealing with the impact of potential capacity constraints in the future that much easier to manage.

Within the UK, anecdotal evidence from what we would regard as upper tier (in terms of service capability) providers indicates that they have been busier in the first half of 2010 than has been the case for many years. Similarly, although new LGV registrations have still not recovered, trailer manufacturers are reporting significantly fuller order books, and some are investing in additional manufacturing capacity. Ironically, although one trailer manufacturer is currently reporting that their UK facility is under threat because of overall reduced demand across Europe, the UK plant’s domestic order book is now significantly higher than this time last year.

Undoubtedly, the web has caused a major change in distribution patterns. The knock-on effect is that both client companies and logistics providers are having to learn to adapt at a faster rate than ever, and some are more successful in this than others. Consequently, although pricing from incumbent suppliers may be competitive for your business profile 12 months ago, that may no longer be the case. Not only are providers having to change, but purchaser’s staff need to build new levels of market knowledge as to who is providing what, and who can meet their needs competitively going forward.

The one sector of the Logistics business where we are seeing increased capacity availability within the UK is Warehousing. Our Logistics Team held their quarterly meeting in the North Midlands last week, and remarked on the availability of vacant properties on what has been regarded as one of the prime distribution estates for several years.  Despite the best efforts of property agents, travelling around the country, we cannot fail to see the proliferation of properties to let.  Even in those areas of previously insatiable demand in the golden triangle, properties lie vacant.  The availability of warehousing property is in our view a reflection of the overall depressed demand for storage and handling facilities. Our dealings with full-service providers also shows that many are finding they have more free space on offer.

Stock costs money both in terms of cash flow and storage costs.  The better organisations are actively managing stock levels and, as a minimum, ensuring that they mirror any downturn in sales, aided by sophisticated I.T. packages that allow total visibility of stock and demand throughout the supply chain.

The implications of this are that, for those looking to acquire property or already in situ, rents should remain competitive to attract and retain tenants. Shorter term lease commitments and attractive rental rates are available with the opportunity for further negotiation.

For those who have contracted out their warehousing and storage activity, or looking to change distribution networks, or even flex capacity to reflect growth demands without capital commitment, storage and handling rates remain competitive.  However the main message for these companies is that they should ensure that any storage arrangement is flexible with no long term commitments that may not match the future needs of their business.

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The table below shows examples of some of our recent project results.

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To many businesses, Internet Shopping represents an increasingly important part of their sales mix. It may be that their retail customers demand that they provide a home-delivery service for product sold through the retailer’s web-site or from store. Alternatively, some manufacturers and wholesalers have found that it is a cost effective way to develop direct sales to end consumers, without a traditional retail distribution chain. All forecasts indicate that sales volumes via the internet will continue to increase for the foreseeable future. However, logistics and distribution unit costs rise exponentially as volume increases.

Despite initial concerns over fraud, and the dot-com bubble, Broadband Britain has taken to Internet Shopping with a passion. Going on-line is easy, and clicking through a purchase is fast and convenient. Unfortunately, sometimes the actual delivery of the goods is less so.

Traditional methods of delivery, using Parcel Carriers or Royal Mail may be fine for small letter size packages to business premises, but once the goods are too big for the letter box, or a domestic address is involved, some method of convenient secure receipt must be found. In the modern world, nobody may be available to take receipt of goods during the traditional working day, and having to take a half-day or day’s holiday may be sufficient to kill an otherwise attractive purchase.

Many goods now sold over the Internet are just too bulky to be delivered using the traditional carriers, or may require some amount of assembly or fitment on delivery. It may take more than one person to manhandle the products from the delivery vehicle to the customer’s premises.

Unfortunately, in many respects, Logistics Suppliers are failing to keep up with both volume, and service requirements. Whilst the providers of delivery networks of the 20^th Century are well developed, and highly effective to the needs of high-street supply-chains, many have so far failed to adapt to the service and cost requirements of their customers for the Internet Shopping market of the 21^st Century.

The ERA Logistics Team is up to speed with supplier provision in this area and continues to monitor developments for the benefit of clients. So if you are not happy with the cost or service achieved for the delivery of your goods sold over the internet, why not call us now for a detailed review ?

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