At a time when the economy seems primed for logistics companies to thrive, figures for the past year show that company insolvencies in the sector are up by a fifth. The number of delivery and transport companies driven to collapse has risen from 184 in 2013, to 221 in 2014. The latest research shows that falling fuel prices alone will not be enough to stem this tide.
Despite the well publicised collapse of City Link in the run up to Christmas, the majority of the logistics companies going under are smaller firms that are struggling as a result of the boom in ecommerce. It is thought the surge in ecommerce sales is responsible for creating a growing gulf between the ‘haves’ and ‘have-nots’ in the sector.
Smaller players are being forced out of the market
Smaller businesses are finding it increasingly difficult to meet the growing demands of online consumers, who now expect full flexibility in respect to the time and location of deliveries. There’s also intense competition in the one and three day delivery market, which is driving down margins to levels the minnows cannot meet.
However, the accelerated growth of ecommerce has also created new opportunities in the sector, with the rise of so-called ‘reverse logistics’ solutions. This involves the collection and repacking of faulty or unwanted goods which are transported back to the seller for resale.
These new opportunities are further boosting the fortunes of many larger logistics companies and leaving those without the resources to keep up even further behind. This has created a climate in which the major players are more confident than they have been for many years, and the weaker companies are being forced out.
The traditional courier model is under threat
The number of company liquidations in the logistics sector has more than doubled in recent years. In 2010, just 109 companies went bust. In 2014, this more than doubled to 221.
It is believed that a generational shift in the way we shop has put the level of investment required to run a haulage or courier company beyond the means of many smaller companies. Now, younger people are regularly ordering more items than they intend to keep, and expect to be able to return several items without any additional cost.
These purchasing patterns present challenges that many smaller operators are unable to meet. The cost of installing the IT systems required to deliver such an efficient service can be prohibitive. As margins continue to be squeezed, larger companies are using the advantage of scale to compete their smaller rivals out of business.
Lower fuel prices have not delivered the expected boost
While we might assume the lower oil price and subsequent reduction in the cost of fuel would directly impact on the expenses of logistics companies, many delivery contracts are run on an ‘open-book’ basis. This means that any savings firms can make as a result of a reduction in fuel costs must be passed onto the customers in the form of reduced delivery costs.
Phillip Bird, logistics specialists at accounting firm Moore Stephens, explains: “While most of us have been delighted to see fuel prices falling, for delivery businesses it has been mostly irrelevant. The retailers have had the ‘whip-hand’ due to excess capacity in the sector, and have been able to negotiate contracts that place more of the risk on the side of delivery providers.”
If your logistic/transport company cash-flow is under strain and you believe you may be insolvent then call 08000 746 757 to speak to a specialist.
Written by: Mike Smith