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Sustainable Logistics: Navigating Challenges and Embracing Opportunities in the UK

By: Dave Carter 

INTRODUCTION
The warehousing, logistics and distribution sector in the UK plays a crucial role in ensuring the efficient movement of goods both domestically and internationally. However, the industry faces a number of challenges, including rising operational costs,  regulatory pressures, staffing issues and the increasing demand for sustainable practices. This short white paper will delve into these challenges, highlighting sustainable solutions that deliver positive outcomes for businesses and the environment.

SUSTAINABILITY DOESN’T HAVE TO BE PURELY PHILANTHROPIC!

MARKET TRENDS
The UK shipping and logistics industry is currently at a crossroads, facing a confluence of changing market dynamics, challenges, and opportunities. Businesses continue to seek efficient and cost-effective supply chain solutions but it is becoming increasingly difficult to remain competitive. The number of UK haulage businesses who have either decided to call it quits or have become insolvent has more than doubled since 2021/2022 with business being hit with the convergence of soaring  overheads and spiking interest rates making debt servicing increasingly expensive.

UK Haulage Insolvencies 2020 – 2023  Source: Price Bailey, 2023

Alongside soaring OpEx costs, continuing post-Brexit complexity, labour shortages, regulatory pressures, restrictive UK freight infrastructure continues to make the industry challenging to operate within. Amidst these challenges however, lies significant  opportunities for the industry to evolve and thrive. Challenges have always existed to varying degrees of severity and impactfulness – the businesses that survive are those that innovate and move with the times, not those who hope the challenges will go  away. Embracing digital technologies, such as IoT-driven tracking and automation for instance, can enhance and unlock efficiencies in ‘time to’, reduce fuel and fleet servicing costs as well as increasing transparency. Investing in sustainable practices not  only aligns with current and anticipated regulatory requirements but also positions companies to meet the growing consumer and upstream client demand for ecofriendly logistics solutions. The demand for faster, more reliable delivery services in the e-commerce era adds further complexity and is predicted to accelerate – not abate. To succeed in this dynamic landscape, collaboration, innovation, and strategic investment will be critical to not only businesses looking to thrive – but to those just looking to survive.

Operational Challenges in the UK Logistics and Distribution Industry:

RISING FUEL COSTS
The logistics industry continues to grapple with volatile fuel prices which constitute a substantial share of operational costs. In 2022, fuel expenses soared by 30%, underscoring the sector’s vulnerability to economic fluctuations. Whilst prices have dipped  in recent months from prior highs, there is a growing demand for effective cost management strategies when it comes to mitigating fuel price fluctuations.

RISING INSURANCE

Escalating insurance premiums are impacting consumers and industry alike. This is attributed to an increased number of road accidents and cargo theft but is also a direct consequence of insurers passing on their rising operational costs to customers. Industry reports reveal an anticipated further 12+% surge in insurance costs over the coming year, prompting companies to assess potential investments in telematics and driver safety programs to reduce premiums. Mitigating these rising costs demands  proactive risk management strategies and technology-driven solutions to improve safety records and reduce insurance liabilities.

RISING ENERGY COSTS

Energy costs for commercial spaces rose dramatically across 2022-2023 and unlike consumer energy, there is no price cap protecting commercial users. Solutions are available however – 3rd party management of utilities can save businesses significant  cost. Without proactive oversight and supplier management, gas meters which require individual contracting arrangements on a unit by unit basis can quickly be impacted by suppliers not kept in check through active procurement strategies. Large  commercial spaces like warehouses and distribution centres are also opportune sites to leverage solar energy solutions to offset expenses. Upwards of 30% of energy usage costs can be reduced through solar with the time-to-payback in a number of cases given the improvements in technology and the increasing price of energy now being under 3 years to deliver positive ROI.

CREDIT RISK
Accountants, Price Bailey, looked at credit risk scores using data from the Delphi Risk score by the Market IQ database. London-based haulage businesses’ credit risk score showed that 41 per cent are currently classified as maximum risk, which was significantly higher than the 26 per cent figure 12 months ago. Moreover, ESG (Environmental, Social & Governance) factors are increasingly being taken into account by lenders with sustainability having the potential to be a material influence on credit  worthiness.

REGULATORY COMPLIANCE & LEGISLATION
UK haulage has long been aware of a need to become greener but the requirement is now moving from being a nice to do, to a need to do. By 2035, all HGVs under 26 tonnes sold in the UK must be zero emission with heavier vehicles needing to meet the same requirement by 2040. There remain questions however from the industry regarding the level of infrastructure the UK has, as well as the level of incentivisation and financial support available to hauliers needing to modernise. More immediately  however, urban congestion legislation targeted at reducing emissions, notably in London (LEZ) but also in Bath and Birmingham (CAZ) are impacting hauliers today. These initiatives by government have two main impacts – either as a direct cost to HGVs  entering restricted zones (requiring the levy to be paid) or as indirect costs in avoiding the zones, leading to extended delivery times and heightened emissions. The £100 LEZ charge represents a 25% rise in the daily running cost of an HGV. As a root cause  solution, this necessitates collaboration between central & local government and logistics companies to optimise urban delivery networks and alleviate the environmental and cost impacts.

CONSUMER EXPECTATIONS 
Modern consumers are increasingly driven by eco-conscious values, reshaping industry standards and perspectives. A survey by Descartes showed 54% of consumers were prepared to wait longer for an item if it is being shipped by a more sustainable method, and 20% were prepared to pay more.

Efficient Route Planning & Fleet Management
In the face of the aforementioned legislative changes and growing operational costs, leveraging advanced technologies for optimising route planning and fleet management is increasingly worth the investment. Tools now frequently use machine learning algorithms & AI to deliver immediate impact and can typically deliver savings upward of 20-25% in operational costs when compared to traditional, paper-based route planning. Route & fleet management is also becoming increasingly complex to do manually. With hybrid/EV vehicles becoming more commonplace, tailoring the characteristics of a route to the vehicle is a growing requirement with EV vehicles which prefer shorter, flatter routes to maximise range and efficiency.

Eco-friendly Packaging, Materials and Waste Disposal
To address environmental concerns, traditional packaging and materials are coming under increased scrutiny as a result of their lack of sustainability or the excess waste created. One of the main challenges for more eco-friendly solutions is that the unit costs are often greater than traditional options. Holistically, however, the additional cost may be offset elsewhere in the value chain. New products typically require consideration of usage either in their design or use – this can create efficiencies in shipping  less air or simply by being smarter in the ‘how-to’ of using products and warehousing/packing SOPs. Sustainable packing, whether biodegradable bags, compostable wrap or recyclable also reduces levels of waste and the space it requires and lowers the  cost of removal and handling.

How can Auditel help you?
Auditel has proven experience in supporting UK businesses to become more sustainable in relation to their carbon footprints but from a commercial perspective too.

WE’LL WORK WITH FINANCE to ensure Procurement decisions take account of Carbon Footprints (and find some quick win savings too that could pay for the whole Carbon Footprint program).

WE’LL WORK WITH YOUR MARKETING TEAM to ensure your marketing message is right (avoid Greenwashing, intentional or unintentional).

WE’LL WORK WITH YOUR SALES TEAM to support on pitches and proposals to ensure your carbon credentials are communicated to new clients and you can leverage them for new business.

WE’LL WORK WITH HR to ensure Carbon Neutrality is correctly used for attracting and importantly retaining staff.

The industry is becoming increasingly complex and facets of the business which used to be simple now have layers of depth and complexity requiring outside knowledge and support – from hedging cost risks to understanding regulations or managing fleet  routes. By embracing technology, eco-friendly practices and getting ahead of the curve of upcoming legislation, businesses can position themselves for long-term success in an increasingly regulated and costly landscape.

CONCLUSION
The UK logistics and distribution industry continues to face increasing challenges related to rising costs and environmental concerns. Businesses that address each aspect individually will undoubtedly see benefits in the areas they focus on but those businesses who look at their future growth and success more holistically are those who will likely thrive – viewing the challenges of today as an opportunity.