Customer behaviour driving activity in logistics sector

Fluctuations in demand and volume are creating challenges in the logistics and supply chain management sector, as providers feel the pressure of changing customer behaviour, a squeeze on pricing, and increasing customer service levels. According to a poll of logistics industry leaders, 82% of respondents said that changing levels of demand or volume was the biggest challenge facing their business at the moment. The poll, conducted as part of a national series of events jointly hosted by accountancy and business advisory firm BDO LLP and Barclays Corporate Banking, found that more than a quarter (29%) ranked customer pricing pressure as their greatest concern, with customers’ changing service level expectations (24%) also making the top three – above the likes of fuel and energy costs, disruption in the supply chain, and staff shortages and costs. In response to the challenges, more than half of the respondents (59%) said that, in a bid to support business growth, they intend to focus investment on technology that will drive efficiencies, with 53% admitting that they plan to add to their existing customer base by entering new end markets, both domestically and internationally. The poll also confirmed the growing prominence of technology in the logistics and supply chain management industry. In the next five years, 59% of the attendees believed there will be a wider use of technology in supply chain processes, such as AI and big data, with more automation being introduced business wide, including warehouse automation, autonomous vehicles, 3D printing, and the increasing use of drones. Jason Whitworth, M&A partner at BDO LLP, said: “Technology is playing a vital role in a rapidly evolving logistics and supply chain management sector, with rapid change expected over the next five years. The role of technology is not only influencing how businesses are operating, but it’s also shaping decisions being made by investors, who are increasingly being attracted by those businesses willing to push boundaries and innovate in response to a changing market.” James Lean, Industry Director, Manufacturing, Transport and Logistics at Barclays Corporate Banking, added: “Capital expenditure remains a key and somewhat unavoidable priority for the sector despite volatility in volumes, with a majority of clients anticipating significant spend on driving even more efficient service models, quenching the customer thirst for data and adopting emerging ESG-related technologies. Many eyes within the sector will be keenly focussed on seeing how operators get on with their trials of larger 7.5 to 19 ton electric trucks, HVO diesel and potentially hydrogen fuel cells.” The poll follows the publication of BDO’s the ‘UK & Ireland M&A Update – Q1 2023’. It shows that deal activity in the UK logistics and supply chain management sector got off to a ‘slow start’ in 2023, with deal volume and value falling sharply in the first quarter of the year. Transaction volumes dropped by more than a quarter between January and March 2023, compared to the previous quarter, with 13 deals completed (17 in Q4 2023) at a total disclosed deal value of just over £70 million – as compared to £378 million for the previous three months. According to the latest report, in the first quarter of the year, 38% of deals were cross-border. This compares to 60% in Q4 2023. Private equity investment was also lower in Q1, with one transaction involving direct PE investment; however, three acquisitions were completed by PE-backed businesses, demonstrating the continued influence of private equity in the sector. Whitworth said: “It’s fair to say that deal activity got off to a slow start in 2023. The sharp fall in deal volume and, more significantly, in value in Q1, no doubt reflects the changing outlook, given the economic dynamics the sector faced as it entered 2023. “It is reassuring to see that appetite from buyers and investors remains high, despite current caution over the delivery of future earnings which has made completing deals more challenging at this time. I would anticipate a pick-up in activity as the market stabilises and there is more consistency in pricing and earnings expectations” Prominent Q1 deals included Janssen Distribution Services’ acquisition of Norman Global Logistics; the sale of Absolutely Courier to DPD UK; and the sale of Hollyport Logistics to international freight forwarders, Spatial Global. Image: Jason Whitworth, provided by BDO LLP