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Retiring workers driving rapid change in the logistics sector

Retiring workers impose urgent change in Logistics

Logistic firms will face other challenges outside of Brexit, such as the impact of the aging nature of its workforce.

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Drivers are clocking up the miles

With many logistics firms preoccupied with the myriad challenges of EU Exit, less attention has been focused on grappling with a range of other challenges threatening the sector and, by dint, the wider economy. One such issue is the aging nature of its workforce.

The statistics are stark. Nearly half of the 300,000 heavy goods vehicle (HGV) drivers working UK domestic haulage routes are aged over 50. More than 13,000 are over the age of 65 and a quarter are expected to retire in the next decade. Just 7 percent are under 30.

Chart 1

Figure 1: Age demographics for professional LGV drivers compared to the general employed population – Source: Office for National Statistics

View the full image here.

Meanwhile, the number of new HGV drivers has remained well below the replacement level for years – discouraged, perhaps, by the unsociable hours, cost of qualification and perceived limited career prospects. MPs on the transport select committee estimate the UK already has a shortage of 45,000-60,000 drivers.

In recent years, the slack has been at least partially taken up by EU-27 workers. The Freight Transport Association (FTA) estimates that non-UK nationals now make up 13 percent (43,000) of drivers, in addition to 19 percent (193,000) of warehouse staff and a further 25 percent (19,000) of other supply chain roles.

Regardless of how the UK’s relationship with the EU evolves over the coming months and years, a continent-wide shortage of qualified drivers will persist. The potential impact on supply chains requires hauliers to respond urgently to ensure their customers are serviced and their own businesses continue to operate profitably.

Impact on business

There’s anecdotal evidence to indicate some of the bigger players have been offering sizeable pay rises in order to both retain and attract qualified workers and ensure their own contractual commitments are fulfilled.

For smaller hauliers with limited financial strength, this leaves them unable to compete and facing loss of skilled personnel, lured away by better offers. The result is otherwise profitable contracts are now being turned away as firms cannot commit to fulfilling them. Unexpected wage inflation is now eating into margins in a sector where long-term, fixed-price contracts are already agreed with customers.

Some have responded by withdrawing from the long-distance and continental haulage market, allowing drivers to return home more regularly and retain a work-life balance. Others are taking on high volumes of low-margin jobs with a knock-on impact on reliability and service. Many are deepening informal relationships with their competitors around resource and backload sharing in order to shore up margin, but this exposes the whole sector to contagion risk if one should fail unexpectedly.

When combined with margin-sapping issues such as Brexit bureaucracy, fuel price rises, increasingly tight environmental regulation and a growing risk of customer failure, the potential for sustained labour shortages to exacerbate underlying business stress is real.

How can firms respond?

With fully automated vehicles still some way from launch, attracting new drivers is a problem that will require a long-term, industry-wide solution. In the meantime, there are four areas logistics firms can look at in order to immediately improve financial and operational performance.

  1. Efficiencies. Long-established haulage businesses often have hidden layers of inefficiency that have built up imperceptibly over time. What can seem like a pragmatic ‘if it ain’t broke’ mindset can result in sustained underinvestment and declining competitiveness. Yet relatively simple adjustments, such as automating operational procedures or reviewing supplier payments in order to improve working capital, can have a transformative and immediate impact both on cash and profitability.
  2. Finding a clear strategic proposition. Small-scale general logistics operators may be out-manoeuvred by specialist rivals which can provide services tailored to specific sector or customer requirements. An urgent strategic review that considers consolidation and/or business unit disposal may be necessary, releasing funds needed to develop ‘market-leading’ specialisms.
  3. Risk sharing. If loading delays worsen after UK exit, the impact on haulier operations could be substantial. Introducing and enforcing fair contractual terms will be necessary to ensure liability for performance issues are appropriately shared.
  4. Future planning. Whilst full automation remains a distant vision, the prospect of ‘platooning’ (where multiple vehicles are controlled by one driver at the front with those behind moving in convoy) may be commonplace in a matter of years, revolutionising freight transportation. Logistics operators must be open to transforming their operations and establishing a long-term financial position that allows investment in this and other technologies. Consolidation may be one means by which forward-thinking players can develop the economies of scale necessary to make such investment possible.

At KPMG we are supporting logistics firms at a variety of scales and across the UK address many of these issues. 

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