The logistics sector is the backbone of our economy, employing 2.7 million people, or 8% of the UK workforce, and contributing £163 billion to the UK economy annually. It is used for supply chain management and product delivery by public and private enterprises. It includes transportation via road, rail, water and air as well as segments such as warehousing, cold storage facilities etc.1
Logistics UK, in partnership with Demica, organised the Logistics Finance Forum 2023 on September 12th in London. There were expert panel sessions on productivity, decarbonisation, financing, sector outlook and the future outlook for the industry. The sessions also included discussion of the findings of Logistics UK’s new report with Oxford Economics, Logistics: Delivering the solution to the UK’s productivity puzzle, which highlights key drivers of productivity. The report looks at the potential for logistics to boost UK productivity and growth, highlighting how the sector can deliver for the UK.
Four key themes stood out, giving an insight into the priorities of logistics businesses:
Decarbonisation and sustainability
If one was to pick ‘Topic of the Day’, this was it! The sector is carbon intensive given the usage of a variety of transportation vehicles. Firms face the dual pressures of balancing commercial viability and keeping costs low, while also showing progress on the sustainability front. Investments have to be planned not just for the near term, but for the next 10 to 20 years – moving the industry towards its ‘Net zero transition plans’. Logistics companies are balancing the need to spend on new technology against the risk of technology becoming ‘old’ in the near future given the pace of technological advancements. Advice from panellists based on their experience was that companies need to take continuous small steps in this direction, so they are ready to adapt and integrate new technology and are not left behind.
Data remains a challenge, especially in accounting for Scope 3 emissions. Data collection methods and output are far from being standardised. This means carbon accounting experts and senior industry leaders have to be aligned on the subject. Collaboration between various participants – industry, government, public and private enterprises – is key in the path towards decarbonisation.
Financing partners are under pressure from their stakeholders and regulators to support green initiatives, but there is a lack of opportunities for them to invest in. On the other hand, SMEs in the industry remain hungry for more financing support. It is not easy for financial institutions (FIs) to provide homogenous solutions across the board for all enterprises. However, there are various risk sharing and innovative financing structures being developed to support transition financing.
Funding diversification is crucial for firms and working capital finance will remain an important tool for diversification and unlocking more cash resource. A wide range of supply chain finance products is available for companies to use. A number of larger organisations have payables finance and receivable’s securitisation programs in place while smaller firms tend to use the factoring product alongside signing up for the payables finance programs of their suppliers. Working capital solutions are not pure financing products but are very closely tied to sales and procurement, are balance sheet friendly and are cost effective relative to senior financing.
Impact of Brexit and UK Politics on investment
Post Brexit, investors are turning their attention to mainland Europe for investments. The perception resulting from political instability was damaging but is now getting better. In the UK senior executives at multi-national organisations have to build a case to attract investments to UK versus other countries. There has been a significant policy shift in the country, both from a regulatory and disclosure standpoint. Policy certainty is needed as the UK looks to develop its own regulations to suit its requirements, instead of taking on the existing European regulations. ESG regulations in particular are relevant to this sector’s growth and the industry has been waiting for a significant government statement on decarbonisation. The government also needs to involve large corporates in developing new rules given the scale at which such firms operate.
Upskilling of workforce
Firms in the sector have to keep up with new technology including artificial intelligence (AI). Decarbonisation, as already mentioned, is also a source of new technology initiatives. With all this, the workforce needs to understand, adapt to and learn to use the new technology. This also means that adequate investment is needed from the private sector as well as government so the industry can boost productivity further and meet its regulatory requirements.
In recent years COVID crises brought about many challenges as well as opportunities for the logistics sector. The industry has a lot to do to get to net-zero. Coupled with the macro-economic challenges and requirements mentioned above, significant investment and financing will be needed in systems and people to allow the sector to deliver more sustainable and efficient solutions for the economy, in turn driving up the nation’s productivity.
Shikha has many years of experience in banking, finance and advisory roles across US, Europe, Asia and Middle East, majority of which have been focussed on receivables and supply chain finance. Shikha joined Demica in 2019, as a senior member of its Structuring team, from Rabobank, where she spent over 11 years in in working capital finance / trade receivable securitisation teams across various countries and in different roles such as Origination, Structuring and Portfolio & Transaction Management. At the start of her career, Shikha was also involved in setting up of large-scale microfinance programs in India, followed by a stint at ICICI Bank, Mumbai.
Published 21st September 2023 in Blogs