logistics report 2011

8/3/2019 Logistics Report 2011

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The Logistics Report 2011

Delivering safe, efficient, sustainable logistics

In association with


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We are very pleased to be supporting the FTAs annual Logistics Report. The

report highlights the key issues and progress being made in an industry o vital

importance to the UK and which has a signicant impact on stakeholders rom across

Government, business and society.

Coolin Desai

Logistics Industry Leader

PwC UK

PwC rms provide industry-ocused assurance, tax and advisory services to enhance value or their

clients. More than 161,000 people in 154 countries in rms across the PwC network share their thinking,

experience and solutions to develop resh perspectives and practical advice. See www.pwc.com or more

inormation.

The PwC Transportation & Logistics practice is composed o a global network o approximately 4,900

industry proessionals who support over 93 per cent o the transportation and logistics companies listed in

the Fortune 500.

Freight Transport Association represents the transport interests o companies moving

goods by road, rail, sea and air. FTA members operate over 220,000 goods vehicles

hal the UK feet. In addition they consign over 90 per cent o the reight moved by rail

and over 70 per cent o sea and air reight.

You can nd more inormation at www.ta.co.uk, ollow us on twitter.com/newsromta

and join us on acebook.com/tab

In association

with

Photographs on pages 18 and 38 courtesy o Nathan WilliamsonPhotograph on page 24 courtesy o Unisouth


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Introduction

Welcome to the Logistics Report 2011. This annual publication is a ollow up to last years ground-breaking

report hailing the launch o the Love Logistics campaign.

Produced by FTA in association with PwC and incorporating the evidence o both in-house and independent

research, this years report takes a look at the challenges the logistics industry has had to ace during the

past year and how it has responded. Economic uncertainty; political turbulence in the run up to the General

Election; and ollowing the General Election; snow; erupting volcanoes; red tape and bureaucracy; 2010 gavethe logistics industry more than its air share o things to worry about.

As in other business sectors, many logistics companies had a very tough year. But this report shows that

overall, and despite everything that was thrown at it, the logistics industry continued to deliver the goods or

the UK.

That is an achievement o which everyone involved should be proud and or which the industry should receive

due credit; ater all, without a successul, ecient supply chain, our way o lie would simply grind to a halt. Making

that a reality still requires some work and FTA, through the Love Logistics campaign is striving to deliver that

improved recognition and a airer commercial environment that UK businesses both need and deserve.

The Logistics Report 2011 provides the evidence to suppor t the case. We hope you nd the report inormativeand useul.

Theo de Pencier

Chie Executive

Freight Transpor t Association


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5/54The Logistics Report 2011 Freight Transport Association

Contents

Introduction 3

Evidence base 6

Chapter 1

Dealing with the downturn 9

Chapter 2

Delivering against the odds 27

Chapter 3

Planning or a prosperous, sae and sustainable uture 39

Chapter 4

The logistics dashboard 51



FTA Logistics Industr Surve 2010/11

The Logistics Industry Survey 2010/11 FTAs annual poll

o members experiences o the reight market and trading

environment provides insights into current and uture

levels o business sentiment1 in relation to logistics activity.

The survey was conducted in December 2010 and there

were 200 respondents in the sample, spanning over 10

sectors in the UK. Questions in the industry sur vey centredon economic and political issues that aected the logistics

sector in 2010 and expectations or 2011. Overall results

indicate that the business environment or the logistics

sector was challenging in 2010, however expectations or

2011 remain positive.

PwC 14th Annual Global CEO Surve

As part o PwCs 14th Annual Global CEO Survey 2011,

more than 1,200 business leaders were asked a series o

questions about how their business priorities had changed

and what they considered to be the main business risks

or the uture.

PwC Round table discussion

Coolin Desai, Logistics Industry Leader at PwC UK chaired

a round table discussion with participants including PwC,

FTA, UPS, DHL Supply Chain, Home Delivery Network,

RAC Foundation and Barclays. The event was ocused

around a set o topics which are known to be under active

1 Business sentiment measures the mood o respondents aspositive or negative and is measured using a percentage balanceo responses calculated by subtracting all negative responses to aquestion rom all positive responses

consideration by the Department or Transport as well

as the European institutions, or have been long-standing

challenges or the industry.

In this report we summarise the discussion in our Forward

thinking articles.

FTA Quarterl Transport Activit Surve(QTAS)

FTAs Quarterly Transport Activity Survey (QTAS) is a

quarterly survey o business sentiment within the logistics

sector, based typically on a sample size o around 120 FTA

members. The survey results help to produce an indicator

o current and uture business conditions in the logistics

sector and external actors infuencing eciency.

Evidence base

The Logistics Report 2011 draws its evidence rom the ollowing sources:the latest annual FTA Logistics Industr Surve 2010/11

a selection o data and surve results rom PwC (including the 2011 Global CEO Surve)

the summaries o a series o round table discussions led b PwC

the FTA Quarterl Transport Activit Surves (QTAS)

FTA Managers Guide to Distribution Costs

Ipsos MORI/FTA Stakeholder Research 2010

FTA/TNS-BMRB Surve: Public attitudes to the logistics sector, 2009

ocial statistical publications


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7

The Logistics Report 2011 Freight Transport Association

Evidence base

FTA Managers Guide to Distribution

Costs (MGDC)

This is an annual publication, with three quarterly updates

used by the logistics industry to benchmark costs in our

key areas.

Wages

Vehicle operating costs

Warehouse costs

Haulage trends

Ipsos MORI Freight Transport

Association Stakeholder Research 2010FTA commissioned Ipsos MORI to conduct this research

to determine the perceptions o key stakeholders on:

the logistics industry in general

position o FTA within the logistics arena

FTA as an organisation

relationship o key stakeholders with FTA

Ipsos MORI contacted key stakeholders and securedinterviews with politicians, journalists, senior gures rom

Non-Governmental Organisations (NGOs) and senior

members rom Government and executive agencies. In

total 17 in-depth interviews were conducted.

FTA/TNS-BMRB Surve: Public attitudes to

the logistics sector, 2009

In 2009, FTA commissioned a unique qualitative and

quantitative research study which investigated public

attitudes to the logistics sector. A representative sampleo 2,000 adults took part in the quantitative survey. Two

key ndings were that ew had consciously considered the

industry beore taking part in the research, and the publics

current knowledge and understanding o the logistics

industry was at best modest.


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Chapter 1

Dealing with

the downturn



Dealing with the downturn

A hesitant recovery rom recession, sharply rising uel pricesand a new Coalition Government determined to cut public

spending and raise taxes, combined to create a uniquely

challenging business environment or logistics in 2010

2010 was a challenging year or all. Heavily infuenced by

the worst recession since the 1930s, economic conditionsremained precarious and demanded everyones ull

attention. That combined with the most hotly contested

General Election or a generation and one where the

result was even more surprising than any opinion poll had

suggested ensured that 2010 was something o a roller

coaster ride or the logistics industry.

Economic developments

UK econom 2010

The UK began to turn its back on the long-running

recession in 2010 as the economy saw the rst signs o

a return to growth. Figures rom the Oce o National

Statistics (ONS) showed that in the rst three-quarters o

the year, quarter-on-quarter GDP grew by 0.3, 1.0 and 0.7

per cent respectively, driven in part by strong growth in

manuacturing output. Disappointingly, GDP contracted by

0.51per cent in the ourth quarter compared to the third

quarter. Overall, annual UK GDP grew by 1.4 per cent

in 2010 compared with the contraction o 4.9 per cent

in 2009. While this gure was below ocial orecasts

Government had predicted growth o 2 per cent or 2010

many believe that this was to a large extent a result o

the bad weather in the run up to Christmas rather than an

indication that the recovery was altering. In addition, 2010

saw a weak Sterling trade at an average e/1.17 against

the Euro and $/1.54 against the US Dollar.

Activit and demand b mode

The logistics sector aced a particularly challenging business

environment in 2010 with businesses having to contend

with rapidly rising input prices over which they have no

1 GDP nal revision, ONS Quarter ly National Accounts,29 March 2011

control, and weak levels o business activity as the economy

saw only modest growth.

Domestic road reight activity, which was already on an

upward trend ollowing the depth o the recession in 2008,

continued to grow and expectations or 2011 are positive

(see graph 1.1). However, bulk rail reight remained at a

reduced level primarily because the construction sector,

which is a key customer or rail reight, also experienced a

dicult year. Fortunately, operators are more positive about

the prospects or 2011. Demand or intermodal services ared

better and looks set to improve urther as the downturn in

the manuacturing sector eases (see graph 1.2).

Global and European shipping activity in 2010 and into

2011 indicates that UK exports in particular will see growth

on most routes in the coming year. By contrast UK impor t

volumes are expected to be broadly unchanged refecting

the UKs slow recovery rom recession (see graph 1.3).

Demand or air cargo is also a key barometer or the

health o global trade and has ollowed similar patterns

Graph 1.1

UK domestic road reight activit sentiment

Outlook or 2011 remains positive

40

30

20

10

0

10

20

30

2011201020092008200720062005

Percentage

balance

ofrespondents

Sources: FTA Quarterly Transport Activity Survey

FTA Logistics Industry Survey 2010/11




to that o shipping (see graph 1.4). The International Air

Transport Association (IATA) estimated globally air cargo

volumes grew 18.5 per cent in 2010 down rom earlier

projections o 19.8 per cent, as the rebound eased ater

the summer. The organisation expects cargo demand togrow 5.5 per cent in 2011, slightly ahead o 5.2 per cent

passenger growth. This is on par with pre-recession growth

rates.

Logistics operating costs

With pressure on margins as a result o weak business

volumes and higher input costs, many businesses have

looked or ways to reduce costs; 90 per cent o CEOs in

the transport and logistics industry said they implemented

cost-reduction initiatives in 20102

. FTAs Managers Guide to Distribution Costs shows that in the year to January

2011, whilst operating costs rose by 6.1 per cent well

above infation road haulage rates rose by just 3.6 per

cent3 (see table 1.1 and graph 1.5). This shortall in margins

leaves businesses with little choice but to cut costs, or

example by scaling back plans or uture investment, even

though this leaves them with the business risks associated

with ageing assets and IT systems.

2 14th Annual Global CEO Survey, PwC

3 FTA Managers Guide to Distribution Costs, October 2010 update

Many transport and logistics (T&Ls) companies

are now in a better position to consider transactions,

having used the period o economic downturn to

strengthen balance sheets and ocus on better cost

control and improved cash generationCoolin Desai

Logistics Industry Leader, PwC UK

11

Graph 1.2

Rail reight moved b market segment 200203 to 200910

Bulk fows continue to be aected by the recession, whilst intermodal is

supported by an upturn in exports

0

2

4

6

8

10

12

14

16

Intermodal services

Bulk or semibulk, ie conventional services

Billionnettonnekilometres

200203

200304

200405

200506

200607

200708

200809

200910

Source: Network Rail

Graph 1.3

Deep sea shipping market sentiment 2010 and

expectations or 2011

Growth expectations concentrated in rapidly growing Far East and

Indian Subcontinent markets

50

40

30

20

10

0

10

20

30

40

50

UK imports 2011

UK imports 2010

UK exports 2011

UK exports 2010

Australia

FarEast

Indian

Subcontinent

MiddleEast

Africa

SouthAmerica

NorthAmerica

P

ercentage

balance

ofrespondents

Source: FTA Logistics Industry Sur vey 2010/11


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Fuel costs

World oil prices rose steadily last year rom $79 a barrel

(bbl) at the beginning o 2010, to $95bbl at the end o the

year. Since then they have risen dramatically reaching a high

o almost $120bbl in February 2011 (see graph 1.6). This

volatility has had a signicant impact on the price o diesel

and other uel products, which are a key component in the

cost base o the logistics sector. In the case o road reight,

uel represents around a third o hgv operating costs.

Diesel product costs have risen by 11 pence per litre (ppl).

When this is combined with a duty increase o 2.76ppl, the

uel bill or operator s has increased by 15 per cent, adding

6,4844 to the annual operating cost o a typical 44 tonne

articulated vehicle.

4 85,000 miles 8.2 mpg x 13.76 ppl = 6,484Source: FTA Managers Guide to Distribution Costs

12

Graph 1.4

Air reight market sentiment 2010 and expectations or

2011

Growth expectations or 2011 reduced compared to 2010

3020

10

0

10

20

30

40

50

60

70

WesternEurope

MiddleEast

FarEastincludingJapan

SouthernAfrica

Australia

SouthAmerica

NorthAtlantic

UK imports 2011

UK imports 2010

UK exports 2011

UK exports 2010

Pe

rcentage

balance

ofrepsondents


Graph 1.5

Trends in hgv operating costs and haulage rates 20052010

Rising uel costs and tough market conditions mean hgv operating costs

rises outstrip increases in haulage rates

100

102

104

106

108

110

112

114

116

118

120

122

124

126

128

130

132

134

136 RPI

Haulage trends

Vehicle operating costs

2009 20102008200720062005

I

ndex

January2005

=1

00

Source: FTA Managers Guide to Distribution Costs

Table 1.1

Percentage annual change in hgv operating cost

components (Januar 2011)

Cost elementAnnual percentage

change(Jan 10Jan 11)

VED 0.0

Insurance +1.7

Depreciation 0.0

Diesel +14.9

Tres +2.1

Maintenance +3.2

Vehicle costs +8.7

Emploment cost o driver +2.2

Vehicle and driver costs +6.3

Overheads +5.1

Total vehicle operating costs +6.1

Total vehicle operatingcosts excluding uel

+2.5

Source: FTA Managers Guide to Distribution Costs


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We made several acquisitions in 2010. As we emerge

rom recession there will be good opportunities orcondent, nancially strong businesses

Iain SpeakCEO, Bibby Distribution

13

Graph 1.6

Bulk and orecourt diesel prices Januar 2008March 2011

Bulk and orecourt diesel prices now at all time highs

75

80

85

90

95

100

105

110

115

Marc

h11

Fe

bruary

11

January

11

Decem

ber

10

Novem

ber

10

Oc

tober1

0

S

ep

tem

ber

10

August

10

July10

June

10

May

10

Apri

l10

Marc

h10

Fe

bruary

10

January

10

Decem

ber

09

Novem

ber

09

Oc

tober

09

S

ep

tem

ber

09

August

09

July09

June

09

May

09

Apri

l09

Marc

h09

Fe

bruary

09

January

09

Decem

ber

08

Novem

ber

08

Oc

tober

08

S

ep

tem

ber

08

August

08

July08

June

08

May

08

Apri

l08

Marc

h08

Fe

bruary

08

January

08P

enceperlitre(ppl)excludingVA

T

Forecourt

Contact bulk diesel

Source: EnergyQuote JHA, Arval UK

Graph 1.7

HR priorities or transport/logistics related sta 20102011

Pressure to make redundancies eases

0

5

10

15

20

25

30

35

40

45

50

Increased

training

Cutback

ontraining

Increase

overtime

Reduce

overtime

Usemore

temporarystaff

Cutbackon

temporarystaff

Usemore

agencydriver

s

Cutbackon

agencydriver

s

Employ

morestaff

Make

redundancie

s

Percentage

ofrespondents

20112010

Source: FTA Logistics Industry Survey 2010/11


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Labour costs

Wage costs saw a slight increase through the year: while

45 per cent o respondents to the FTA Logistics Industry

Survey roze basic pay in 2010, just over hal made pay

rises o between one and ve per cent. Other sta related

costs (levels o overtime, bonuses, productivity pay etc)

were largely unchanged compared to a year ago.

On the plus side, ewer companies reported making sta

redundant in 2010 and the percentage o respondents

expecting to make redundancies in 2011 is hal that o

2010. Nevertheless, overtime and training budgets were

still a ocus or reductions 50 per cent o respondents

said they had reduced overtime in 2010 and around

15 per cent cut back on training (see graph 1.7).

Freight rates

With operating margins averaging our per cent in 20105,

there was no alternative but or carriers to pass these cost

rises on to customers where they could. However, the

strong bargaining position o many customers requently

meant that rising costs could not be passed in ull.

Evidence o this can be seen in changes in reight and charter

rates or the year. Freight rates increased across all modes

in 2010 with the biggest rise in rail reight rates mainly

5 Motor Transport Top 100 in 2010

due to rising track access charges and oil price volatility. Air

reight rates rose as demand increased in tandem with the

ragile global economic recovery and rising jet uel costs

which increased 23 per cent rom 35.55ppl at 4 January

2010 to 43.67ppl at 31 December 2010.

Average quarterly sea container reight rates increased by

14 per cent in Q4 2010 compared to Q4 2009, according

to the Shanghai Containerized Freight Index (SCFI).

Charter rates or container ships more than doubled in

2010 as trade rebounded with the global economy, and

bulk charter rates grew in the nal three months o 2010

to an average $34,913 a day, 33 per cent more than the

previous quarter. The outlook or 2011 indicates that

charter rates or container ships will increase by up to

eight per cent, however bulk rates are expected to drop

by around 34 per cent compared to Q4 20106.

Business investment

Figures rom the FTA Logistics Industry Survey suggest

that as businesses looked or cost savings, investment

plans oten had to be scaled back. Few businesses

reported investing in additional distribution premises in

2010 (eight per cent purchased and 21 per cent rented),

15 per cent said that they had acquired another business

(see graph 1.8). In addition, there was little investment

6 Bloomberg survey

14

Graph 1.8

Business investment intentions 2010 and 2011Fewer businesses expect to acquire new property in 2011

0

5

10

15

20

25

Acquiredanother

business

Relocatedbusiness

premises

Rentedadditional

distributionpremises

Purchasedadditional

distributionpremises

Percentage

ofrespondents 2010

2011


Graph 1.9

Fleet investment in 2010 and expectations or 2011Rising expectations o acquiring new trucks and vans in 2011

P

ercentage

balance

ofrespondents

0

5

10

15

20

25

Trailer fleetLcv fleetHgv fleet

2010

2011



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in new vehicles in 2010 as operators extend vehicle

lives rather than committing to unding new assets (see

graph 1.9). Trends in order lead times or commercial

vehicles can provide a helpul indicator o business

condence within the road reight sector, and lead times

at the start o 2011 were shorter than a year previouslyindicating that supply was outweighing demand as vehicle

manuacturers respond to the improving economic

situation by increasing production again7.

Despite the continuing dicult conditions the sector aced,

the number o business insolvencies in reight transport

eased in 2010 (see graph 1.10). However, these gures donot give a ull picture o company closures in the sector, as

many others ceased trading without leaving debts.

Political developments

Budget

Against this economic background, the Labour Government

used its nal Budget in advance o the General Election

to set out its plans to more than halve the scal decit

over our years. As well as identiying cost-cutting savings, the Budget conrmed that spending would continue to

rise in 2010-11 to help support the economy through the

recovery. Inrastructure investment received a welcome

boost as part o this plan, with 100m investment or local

roads and 285m or motorways to improve capacity.

7 FTAs Quar terly Transport Activity Survey (QTAS), January 2011

15

Graph 1.10

Freight transport insolvencies in England and Wales

20072010

Number o insolvencies eased in 2010

0

10

20

30

40

50

60

2007 2008 2009 2010

Numberofbusinesses

Source: Equiax, PwC analysis

Graph 1.11

Fuel dut and infation trends 20002011

Sustained campaigning kept uel duty increases below infation

44

45

46

47

48

4950

51

52

53

54

55

5657

58

5960

61

62

63

64

65

01/09

/2000

01/12

/2000

01/03

/2001

01/06

/2001

01/09

/2001

01/12

/2001

01/03

/2002

01/06

/2002

01/09

/2002

01/12

/2002

01/03

/2003

01/06

/2003

01/09

/2003

01/12

/2003

01/03

/2004

01/06

/2004

01/09

/2004

01/12

/2004

01/03

/2005

01/06

/2005

01/09

/2005

01/12

/2005

01/03

/2006

01/06

/2006

01/09

/2006

01/12

/2006

01/03

/2007

01/06

/2007

01/09

/2007

01/12

/2007

01/03

/2008

01/06

/2008

01/09

/2008

01/12

/2008

01/03

/2009

01/06

/2009

01/09

/2009

01/12

/2009

01/03

/2010

01/06

/2010

01/09

/2010

01/12

/2010

Fuelduty

(pence

per

litre)

Actual duty rate (ppl)

Duty inflated by RPI (ppl)

10ppl

12ppl

11ppl

Source: FTA


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The Chancellors announcement that uel duty rises would

be introduced in three stages April, October and January

2011 instead o the expected infation-busting rise o3p in April 2010, promised some welcome relie or the

logistics industry, though this was undermined by the loss o

the biouel dierential and the urther extension o the uel

duty escalator beyond existing plans to 2014. Despite many

years during which the Labour Government had decided to

reeze uel duties (or to raise them only by infation), in light

o high, volatile world oil prices, this rise became the ourth

in only two years (see graphs 1.11 and 1.12).

Election

In the run up to the Election, FTA published its Logistics

Maniesto (see page 17) which provided a key tool or

lobbying the political parties to ensure that the sectors

essential role in any economic recovery was properly

understood.

A number o these commitments or ones very similar

ound their way into the political parties own maniestos

or policy documents. Labours pledge to tackle congestion

with hard shoulder running was welcome, although it is

no substitute or meaningul, long-term investment in road

inrastructure. Similarly, the air uel stabiliser, which wouldlink uel duty levels with bulk oil prices, which appeared

in the Conservatives maniesto, was an attempt to

address the industrys concerns about uel price volatility.

16

Graph 1.12

Diesel dut dierential compared to UK in 2000 and 2011 b EU member state

Diesel duty gap narrows, but UK remains the most highly taxed

Pence

per

litre

20112000

35

30

25

20

15

10

5

0

Swe

den

Spa

in

Por

tuga

l

Ne

ther

lan

ds

Luxem

bourg

Ita

ly

Ire

lan

d

Greece

Germany

France

Finlan

d

Denmar

k

Be

lgium

Austria

(Index UK = 0)

Source: EU Oil Bulletin


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Meanwhile the Liberal Democrats proposal to create a

UK Inrastructure Bank was, again, an interesting idea,

though benets would only truly accrue i investment in

inrastructure was guaranteed.

The three main political parties between them weighed

in on some vitally important areas aecting the logistics

sector, rom aviation tax and High Speed Rail, to a third

runway at Heathrow and road pricing. However, a rm

commitment to improving the UKs entire transport

inrastructure across road, rail, sea and aviation sectors

with intelligent investment was noticeable by its absence.

Coalition Agreement

In the event, the result o the General Election posed morequestions about the uture direction o Government policy

than it answered. Through the establishment o the rst

Coalition Government in the UK since Winston Churchills,

it introduced an element o uncertainty at a time when

clarity o purpose was crucial.

The challenge or the new Government was considerable

and there was a real concern that Britains economicrecovery could be put at risk i attention was ocused on

issues such as electoral reorm, rather than on ensuring

that UK inrastructure was t to support that recovery.

Our ear is that transport will be used as a political

ootball during this period o horse-trading. This

would be a mistake. Transport must not be the toy

that is used to keep the kids happy while thegrown-ups get on with running the economy

James HookhamMD Policy and Communications, FTA

FTA ManiestoFTA sought ve key commitments rom politicians.

Invest in inrastructure

Britains inrastructure was once the envy o the world. A lack o investment over recent decades set us back, both in

terms o the UKs world standing and our ability to compete in a global economy. Investing in transport inrastructure

or all modes would improve not only the transition between modes, but business eciency and continuity, and deliver

environmental benets too.

Work with the logistics sector on carbon solutions

The logistics sector has come a long way in improving its environmental perormance, rom minimising noxious emissions

to reducing its carbon ootprint. Government should recognise this and reward those businesses that make improvement

a prior ity, while making it more dicult or those who do not. A classic carrot and stick approach.

Amend the Highwa Code

Saety is the paramount concern or all modes within the logistics sector. The UK prides itsel on having the saest

commercial road feet in Europe even putting itsel at a competitive disadvantage with other European nations in order

to maintain this position. Government must work with other governments to ensure the same roadworthiness standards

are applied across the EU. But there must also be concerted eort to educate other road users within the UK on how

to behave around lorries, so that accidents resulting rom risky manoeuvres such as overtaking are reduced.

Respect commercial vehicles

Every UK-registered truck on Britains roads represents a contribution to the economy, yet this is rarely recognised.

Politicians must look at commercial vehicles dierently, see the benets they bring to UK plc and, as a consequence,

revise the taxation regime that applies to them.

Tackle truck crimeTruck crime costs the logistics sector 250 million every year, not only through lost loads and damage to vehicles, but

also through injury to drivers. Supervision by the Serious Organised Crime Agency, greater co-operation between

police orces and a consensus on the collection and collation o data will not only encourage improved reporting o

such crimes, but also tackle the highly organised criminal gangs behind them.

17


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Once published at the end o May, the Coalition Agreement

provided ew real surprises. While there was no indication

o what the uture held or uel duties, the Government

made a number o commitments aecting the logistics

industry including:

to work towards the introduction o a new system

o Lorry Road User Charging (LRUC) to ensure a

airer arrangement or UK hauliers

to reorm the way in which decisions are made

on which transport projects to prioritise so that the benets o low carbon proposals are ully

recognised

to make Network Rail more accountable to its

customers

to reorm the taxation o air travel by switching to

a per-plane tax

Logistics businesses recognise that a LRUC system has

the potential to improve the competitive position or UK

road hauliers relative to oreign carriers, though this woulddepend on the precise details o the scheme. However, the

Governments statement on aviation tax, while no surprise,

was a disappointment to businesses particularly those

that rely heavily on air reight as it poses a threat to

competitiveness.

Emergenc Budget

FTA welcomed the Chancellors statement (in his

Emergency Budget on 22 June) that well judged capital

spending by Government was necessary, and his recognition

o the mistakes made in the recession in the early 1990s

when the then Government cut capital spending too much.

But it stressed that in austere times, Government should

ocus its attention on delivering things that only the public

sector can, and trust in industry to take the lead in other

areas or example accreditation to best practice delivery,

rom sensible sel-regulation to administering testing and

licences issues where it can deliver more cheaply and

eciently than Government or its agencies.

Disappointingly, despite concerted lobbying eorts by FTA

and others, the Government announced that it intended to

press ahead with the uel duty increases announced by the

previous administration, despite a trend o increasing global

oil prices. The decision was widely derided by industry and

added a signicant urther burden to businesses already

struggling to survive.

Comprehensive Spending Review

Octobers Comprehensive Spending Review (CSR), and

the transport spending announcements which ollowed,

provided the rst real opportunities to assess the new

Governments ability to deliver on its promise to tackle

the UKs economic and scal problems, whilst maintaining

essential public services.

A good transport network is vital to sustaining the UKs

economic success. The road and rail network provides

connectivity linking people to jobs and products to

markets. International air and sea hubs are the gateway or

international trade and, in combination with inland road

and rail links, are an integral part o many supply chains.

Supercially this is an attractive policy, but when

you look at the detail it doesnt work. Taxing by

plane will not generate extra revenue or reduce

emissions. Air services, especially reight-only ones,

will simply relocate to continental European hubairports and goods will then be trucked across to

the UK. The resulting loss o business will wipe out

any gain to the Exchequer rom the increased tax

levels. And the goods will still be fying but just with

a longer road leg on the end

Christopher SnellingHead o Global Supply Chain Policy, FTA

Successive, above infation tax hikes since

2009 mean the reight industry is shouldering a

disproportionate burden in narrowing the publicsector decit

Simon ChapmanChie Economist, FTA

18


19/54



FTA Principles or the Comprehensive Spending ReviewPrinciple 1 Be guided b the Eddington Transport Stud

Sir Rod Eddingtons transport study, published in December 2006, took a long-term view o the UKs transport needs

ocusing on the period post 2015. It concluded that although the UK was generally well connected, i uture demandis not met or managed then increasing congestion in England would result in an additional 25 billion o costs to

the economy per annum by 20258. In order to prevent this, Eddington made a number o recommendations or

Government to act on, including:

make the most o existing inrastructure by tackling congestion and capacity issues

identiy schemes that support strategic economic priorities

introduce a sophisticated mix o pricing, better use and sustained transport inrastructure investment

Principle 2 Recognise the long lead times associated with transport schemes

Transport schemes by their nature have long lead times which need to be considered when allocating unding. This

does not make them less important. As a result Government must maintain the momentum o transpor t inrastructure

improvements by:

tackling a cumbersome planning process

prioritising road inrastructure spending

ensuring rail reight is accommodated in the renewal programme or the rail network

anticipating the growing reliance on world trade

Principle 3 Find new sources o nance

I Government cannot nd the public nance to make progress on improving transport inrastructure in the medium-

term, new sources o unding need to be considered. A number o potential sources exist rom ring-encing uture uel

duty increases above infation into a dedicated und, attracting greater private sector nance to road pricing as has

happened with rail.

Principle 4 Focus spending on activit that Government alone can deliver

Government departments and their executive agencies should examine the scope or outsourcing to the private sector

activities previously unded through departmental spending or pay-as-you-go ees. Numerous opportunities or greater

private sector involvement exist, or example, Vehicle and Operator Services Agency (VOSA) annual testing o hgvs

and pcvs and promotion o operational, saety and environmental best practice within the commercial vehicle sector.

Industry has a strong track record o taking the initiative and working with Government to identiy solutions which make

business sense and meet policy objectives.

Even though the recession has meant a temporary allin overall trac volumes, businesses report at best only

marginal improvements in the requency and extent

o delays. Congestion hotspots remain a eature o the

network where the capacity o the existing inrastructure

has ailed to keep pace with growing trac demand, or

where poor connectivity with other modes means the

load is spread unevenly across dierent networks. Crucially

or industry, the most congested parts o the network

coincide with industrys national trade routes where

reight activity is highest.

In its submission to Government in advance o the CSR,FTA highlighted the need to create a ramework to enable

uture investment to be targeted at national trade routes,

where perormance remains poor and where reight

trac demand growth is expected to be greatest as the

UK emerges rom recession. In order to achieve this FTA

recommended the CSR should ollow our key principles

see above.

FTA argued that adopting these key principles would ensure

the best possible outcome or transport spending, allowing

as many priority schemes

9

to be delivered as possible.

8 Compared with the costs o congestion in 2003 9 Key national and regional trade routes identied by FTA in 2009

19


20/54



Clearly some o these messages were received loud and

clear as the transport budget was not cut as severely as

many had predicted or indeed by as much as some other

spending departments. FTA identied 24 schemes o key

importance, the majority (18) o which were protected.

Indeed, o the nine motorway and trunk road schemes

that the Department or Transport spared rom the axe,

six were identied by FTA as key priorities essential to the

UKs economic uture (see table 1.2).

Table 1.2

Status summar o FTA trade routes

To be completed b 2015,subject to planning permission

18/24

Deerred until ater 2015 2/24

Withdrawn or no announcement 4/24

Later announcements delivered urther reassurance in

connection with the Strategic Freight Network, where

Government conrmed that unding would be protected. In

addition the English revenue support grant was reduced byonly 1 million to a total o 19 million. This should ensure that

modal shit grants can continue to make a valuable contribution

to the logistics sector in its consideration o environmentally-

riendly and cost-eective alternatives to road transport.

For Scotland the Budget announcement in November

could only be described as a mixed bag. In line with FTAs

own Spending Review Submission some key projects,

including the For th replacement crossing and the M80, will

be protected. However, with spending on reight industry

projects such as modal shit grants being slashed to

less than a third o current levels11, the logistics industry

appears to be shouldering a disproportionate burden in

narrowing the public sector decit.

The outcome or Wales was equally challenging with the

Welsh Assembly Governments overall budget set to be860m lower (in real terms) in 2011 than in 2010. As

a result the Department or Economy and Transports

revenue budget saw a cash reduction o 2.4 per cent

and capital budgets were reduced by 31 per cent over

the next three years. Inevitably this means that some

key road schemes, identied by FTA as key to Wales

continuing prosperity will not proceed, though Welsh

Transport Minister Ieuan Wyn Jones conrmed that he

would be seeking alternative sources o unding in an

attempt to ll the gap.

While the reductions to transport spending announced

were considered a positive result given the scale o cuts

being implemented elsewhere in Government, FTA and

other business groups had previously demonstrated

the need or transport spending to increase. As the

economy begins to recover and the impact o the

swingeing cuts to local Government spending becomes

clearer, concerns about the perormance o the UKs

inrastructure and its ability to serve business needs will

undoubtedly return.

Industr perceptions o Government

While it was still relatively early days or the coalition, as part

o the FTA Logistics Industry Sur vey 2010/2011, members

were asked to rate the Governments perormance in a

number o areas in comparison with that o the previous

one (see graph 1.13). O the nine possible options, Tackling

the public spending defcitand Managing the economywere

the two key areas where Government scored highest; 57

per cent o respondents rated Governments perormance

as either good or very good in tackling the decit, while

38 per cent did so in relation to Managing the economy.

Developing a reight transport strategy and Inrastructure

investmentresulted in the lowest scores, with more than 45

per cent o respondents rating Governments perormance

as either poor or very poor or the latter.

Understanding/supporting the logistics sectoralso achieved a

relatively low score, although FTA members nevertheless

believed there had been some improvement in this area.

When asked to rate the level o understanding (see graph

1.14), only 12 per cent o respondents rated the Government

as having no understanding o the logistics industry, compared

with almost 26 per cent in the 2009/10 survey. The number

10 Sir Richard Lambert is now the ormer Director General o the CBI(as at 31 January 2011)

The additional 2bn a year o investment spending

will improve the countrys critical inrastructure,

create jobs and stimulate growth

Sir Richard Lambert

Director-General, CBI10

We are encouraged with George Osbornes

declaration o support or transport projects and it

is good news that many o the Trade Routes, that

FTA identied as priority projects demanding urtherinvestment, have been protected

Theo de PencierCEO, FTA

11 The environmental eciency budget was cut rom 10.3m in20102011 to 2.9m in 20112012

20


21/54



o respondents rating Government as having either good

or very good understanding improved to 11 per cent in

2010/11, compared with 10 per cent in 2009/10.

Logistics businesses did, however, have a number o

suggestions as to how Government could improve the

ortunes o the sector. By ar the most popular suggestion

concerned the approach that should be taken over uel

duties, but other recommendations included: the need to

reduce the regulatory burden or the industry; to invest

in transport inrastructure; and to listen to industry in

order to improve its (Governments) understanding and

policies.

2011 The challenge ahead

In comparison with the economic and political change o

2010, 2011 is expected to be relatively benign. Despite

a below-expectation perormance towards the end o

2010, most commentators remain convinced that the UK

economy will continue to recover in 2011 albeit at a

rather sluggish rate. PwC orecasts growth o around 1.4

per cent or 2011 and 2.2 per cent 2012 driven by net

exports, restocking and business investment12

.

The economic outlook remains subdued, and

conditions or the consumer will be tough or some

time to come. But the economy will grow in thecoming two years and, despite the recent shock

o the estimate or GDP in Q4 2010, we do not

oresee a double-dip recession

Ian McCaertChie Economic Advisor, CBI (February 2011)

12 UK Economic Outlook, March 2011, PwC

21

Graph 1.13

Perception o Coalition Governments perormance on ke issues relative to previous Government

Early coalition action to tackle budget decit welcomed by industry

2

=

very

poor,

2

=

very

good

1.0

0.5

0.0

0.5

1.0

1.5

2.0

2.0

1.5

Understanding/

Supportingthe

logisticssector

Transportsecurity

Improving

road/work

placesafety

Carbonreduction

Infrastructure

investment

Developingfreight

transportstrategy

Enhancing

UKbusiness

competitiveness

Tacklingpublic

spendingdeficit

Managingthe

economy


Graph 1.14

Perception o Government understanding o the role o

logistics in the econom

Government needs better understanding o how logistics benets the

economy

A very good understanding

A good understanding

Some understanding

A slight understanding

No understanding2%

12%

39%

38%

9%



22/54



In addition, a survey conducted by PwC13 ound that

condence levels among CEOs were rising virtually across

the board (see graph 1.15).

A return o condence is also identied in the FTA

Logistics Industry Survey 2010/11 (see graph 1.16). The

economic outlook or 2011 is positive across all the

industry sectors, with the exception o public authoritieswho will carry a substantial proportion o the 81bn

public spending cuts made by the Chancellor in the

Comprehensive Spending Review. Construction, retail

and distribution and haulage express cautious optimism

or 2011, with the utilities sector expecting to benet

rom inrastructure investment in the energy and water

supply and distribution networks.

Nevertheless the challenges remain considerable.

The increase in VAT and the Governments public

spending cuts will undoubtedly have an impact

PwC estimates a loss o two per cent o private

sector gross output up to 2014/15 due to the

Spending Review in 201014 (see table 1.3)

Consumer spending will remain under pressure as

pay rates ail to keep pace with wider infation

PwC orecasts real consumer spending growth o

only around 1.2 per cent in 201115

Unemployment is expected to continue to creep

up, although job numbers will also increase as the

recovery picks up

Expectations o relatively weak trading conditions or road

reight operators continue to mean that only 30 per cent

o hgv operators plan to expand their feet in 2011 and

29 per cent o van operators. Prospects or the trailer

market are poorer still with just 20 per cent planning to

13 14th Annual Global CEO Survey, PwC

14 Sectoral and regional impact o scal squeeze, PwC

15 UK Economic Outlook, March 2011, PwC

22

Graph 1.15

CEO condence levels or revenue growth in the next

12 months

Condence is returning and transpor t and logistics companies CEOsare particularly optimistic

70

60

50

40

30

20

10

T&L Total sample

2008 2009 2010 2011Percentageofrespondents

veryconfidentabouttheir

companysprospectsforrevenue

growthoverthenext12months

Source: 14th Annual CEO Sur vey, PwC

Graph 1.16

Business expectations b sector or 2011 compared to

2010

Improving conditions anticipated across most sectors, with the

exception o public authorities where spending cuts are impacting

50

40

30

20

10

0

10

20

30

40

50

60

70

80

90

100

Other

Recycling

Shipping

Distandhaulage

Publicauthorities

Utilities

Construction

Manufacturing

Wholesale

Retail

Agriculture

Percentage

balance

ofrespondents


We know that the Treasury needs to ll its coers

somehow, but hitting businesses in the pocket

by increasing uel duty yet again is going to do

irreparable damage to our economy and could

sound the death knell or companies up and downthe UK

Theo de PencierCEO, FTA


23/54



expand their feets16. Fity our per cent o operators cited

reduced levels o business activity as governing investment

decisions. Equally important though was the lack o unding

or nancing investment plans (see graph 1.17).

Graph 1.13 on page 21 showed that FTA members

believe the Government has made a good start in terms

o managing the economy. But i that perception is to be

sustained, then the Government must take a thorough

look at all its uture policies to ensure that there are nounintended consequences.

Fuel duty is a case in point. The increases planned or 2011

and beyond will put pressure on industry not to mention

motorists and the general public at a time it can least

be accommodated. The emergence o the FairFuelUK

Campaign17 demonstrates the strength and breadth o

eeling surrounding this.

Similarly, Government plans to reorm aviation duty could

place UK exporters at a disadvantage to businesses

located elsewhere in Europe. Carriers would add the

cost onto reight rates, increasing the price o air reight

services to UK exporters and prompting carriers to divert

reight movements to other airport hubs in the near

continent to avoid the charge, thereby urther reducing

the attractiveness o the UK as a place to do business.

The Government should instead be seeking to adopt an

approach which helps to support businesses to enable

them to generate the growth on which the UK will rely.

From a logistics perspective that means three things.

Table 1.3

Estimated private sector output and emploment losses in 2014/15 due to reduced public sector demand

SectorsEstimated gross

output loss (bn at 2007 prices)Loss as % o gross output

in sectorImplied emploment reduction

(000s)

Business services 11.2 3.7 176

Construction 9.4 4.5 92

Manuacturing 8.7 1.9 48

Transport and communications 3.0 1.8 44

Distribution, hotels and catering 1.0 0.3 23

Financial services 1.9 1.0 11

Other sectors 6.7 1.5 41

Total private sector 41.9 2.0 435

Source: Sectoral and regional impact o fscal squeeze, PwC

16 FTA Logistics Industry Survey 2010/11

17 FairFuelUK is suppor ted by FTA, RHA and RAC

23

Graph 1.17

Main actors restricting capital investment decisions in 2011

Risk aversion by lenders and business is putting a brake on new investment

Percentage

balance

ofrespondents

0

10

20

30

40

50

60

70

Delivery

lead-t

imesfrom

manufacturers

New

vehicle

prices

Reductionin

businessactivity

Availability

offunds



24/54



Specically supporting businesses involved in

international trade

Easing the cost pressure on domestic reight activity

and the knock-on impact higher reight prices have

on business input costs and consumer prices

Supporting industry actions to reduce carbon

Government has been single minded in its action to

address the Budget decit. What is needed now is a similar

ocus on measures to support business growth. Without

such positive action, even the most modest economic

growth predictions could prove dicult to deliver.

Budget 2011 note

In his Budget on 23 March, the Chancellor o the Exchequer,

George Osborne announced the cancellation o the ve pence

per litre (ppl) uel dut increase planned or 1 April and instead

introduced an immediate cut o one ppl and the introduction o a

air uel stabiliser.

Furthermore, the Government concluded that a change rom

air passenger dut to a per plane tax would be illegal under

international law and will not be progressing this change. Instead it

will consult on changes to the structure o air passenger dut. The

case or abandoning these plans was a ke eature o FTAs Budget

Submission.

Forward thinking 1: The need or innovation in the sector what orms will it take?

In an industr with alread tight margins, what innovations will

secure those margins against uture economic and regulator

developments likel to create pressure on competitiveness?

A consensus view quickl emerged that continuing consolidation

and collaboration are likel to be ke or the sector with economies

o scale becoming increasingl important. But there was also the

view expressed that the requirements o dierent parts o the

sector would see innovation emerging in dierent was. Lower

margin and what were characterised as commodit businesses

will see innovation maniesting itsel ver dierentl than in more

specialised parts o the sector in which higher margins were still

available to innovators.

Learning rom other businesses and sectors was also seen as critical,

with service becoming more important, particularl in local deliver

to the last mile. Achieving superior service will, said one panellist,

demand management and service being pushed much closer to

the customer. In eect, said another speaker, successul deliver

businesses will be staed b customer service people that drive,

rather than drivers who perorm customer service. Responding to

that challenge will create, said another panel member, a massive need

or training. In eect we have to develop a new breed o person.

Buing behaviour is, noted one speaker, increasingl procurement-driven rather than relationship-based, and that means ensuring that

innovation to reduce costs and increase ecienc are constantl

explored. For this reason, the largest plaers are investing heavil

in increasing their management capabilities and looking or

lessons rom other industries. As such, innovation does not have

to be radical. In act, it is ar more likel to be incremental and

iterative with constant small changes and improvements rather

than attempting to achieve wholesale transormation.

One o the most ertile areas o innovation is taking place in home

deliver, driven b the rapid rise o online shopping, and deliver is

becoming part o dierentiating the customer experience. Deliver

is becoming an extension o the brand. I ou extend the brand ou

have to extend it to the point where the customer has their nalcontact with the transaction, and that means developing a multi-

skilled workorce. But there is also a problem with extending the

brand to the door, observed one panellist, and retailers ma have

to develop the courage to use a service that is not branded, but

the can trust to achieve the customer service that the expect.

Innovations such as Click to collect have grown rapidl in response

to the boom in online shopping, but their growth has not been

without its problems. Retailers, or example, have struggled with

the complexit o managing stock as well as customer collections

in the same space. And the use o collection points raised another

signicant area o discussion: the extent to which local political

pressures could inhibit the creation o appropriate inrastructure.

For example, noted one panel member, creating collection points

ma be barred b nimbism, with the result that the planning

requirements or creating new orms o distribution will be thwarted

b local opinion and these local barriers to more undamental

changes to inrastructure could slow innovation. The localism

agenda arguabl raises a number o problems. Could localism pla

into the hands o smaller plaers as local restrictions inhibit the

national plaers? Could that drive the development o alliances and

networks between large national and smaller local plaers?

24


25/54



Forward thinking 2: Road pricing it is coming, but what is acceptable?

The road pricing debate to date, said one panellist, has been

dominated b all the wrong arguments. Narrowing the arguments

and an polic that ma arise rom them at the reight sector,it was argued, will not address the largest problem, which is the

number o cars on the road with onl a single driver. But an

polic that seeks to address the private motorist needs to ensure

that it creates a clear and tangible benet. Without that it would

be seen as another tax, and consequentl would be likel to meet

with strong popular resistance.

The alternatives or road pricing, that ma include time or

distance-based methodologies, have intrinsic merits and demerits,

but as one panel member put it the practicalit o introducing

an sstem o pricing should be the overriding concern. Excessive

complexit, it was argued, was a danger that had to be avoided.

A progressive approach that started with a simple to understand

and simple to implement charge should be the rst consideration.

Greater sophistication should be introduced over time using pricesignals to control trac according to time o da, or example.

One panellist argued that decreasing dependenc on private

domestic vehicles was inextricabl tied to improvements to

public transport that could make public transport a broadl

more attractive option. When it gets to the stage when it is easier

or cheaper to make the same journe b public transport then

ou will see change. One panel member argued that a switch

o taxation rom usage to ownership could drive a change in

behaviour, with penal rates o VED creating disincentives or car

ownership but others doubted the political palatabilit o such

a move, with high rates o car ownership and an electorate that

alread eels besieged b taxation.

Another dimension introduced to the discussion was the severe

cuts in available unding or road inrastructure and the need to

use unds rom road pricing to pa or investment. A number o

panellists also argued that the option o road privatisation should

be resurrected b the Government, and expressed their concern

that motorwa privatisation in particular seemed to be o the

Government agenda. One speaker argued or an urgent review o

the polic: From a political point o view the Government has

ever excuse the need to do this now. The need the unds and

this is clearl a potentiall major opportunit. But the window is

ver small and it will close i the dont act quickl.

25


26/54


27/54

Chapter 2

Deliveringagainst the

odds



Delivering against the odds

Logistics managers had their work cut out in 2010dealing with extreme weather, natural disasters,

long-standing regulatory restrictions and an increase in

national security levels, yet still kept the goods moving

2010 was beset by operational challenges. Snow, a volcanic

ash cloud, and then more snow showed just what natureis capable o, while Government and its agencies threw in

a ew challenges o their own.

Natural barriers

Snow

2010 ended as it began with the country suering

disruption caused by snow. Although adverse conditions

were widely predicted, the sheer scale o the problems

caught all parties unawares.

According to the Met Oce, the winter o 2009/10 was

uncommon in both scale and geographic extent with

regard to cold and snowall. It was the coldest experienced

across England and Wales since that o 1978/79. In Scotland

and Northern Ireland it was the coldest or more than 50

years. Across the UK, mean monthly temperatures were

well below normal or all three months o the winter.The requent and widespread snowalls throughout the

winter, whilst record-breaking on some occasions, were

also notable or the act that almost the entire UK elt the

eects or the same sustained period o time. This had a

huge impact.

The National Grid issued a gas balancing alert

(GBA) or only the second time, asking power

suppliers to use less gas as more was sourced

overseas

Hundreds o schools were orced to close

Homes were without power ater alling trees and

ice aected power lines

Roads and railways were badly aected

Airports were closed

Ten months later, the early severe onset o winter weather

led to similar types o events being repeated across the

UK.

The knock-on impact or the logistics sector was

considerable. Vehicles and their drivers were trapped

or hours unable to make deliveries; accidents increased;

ports and airports became inaccessible; and railways too

were badly hit. The combination o these incidents placed

unprecedented pressure on the UK supply chain resulting

in delays to essential deliveries and supplies which, on

occasion, led to shortages o particular goods/services.

Government response

During these two episodes the Depar tment or Transport

issued numerous temporary relaxations o drivers hours

regulations and working time regulations to ensure

supplies o essential goods including animal eed, road


29/54



salt, de-icer or airports, heating oil and LPG, and bulk milk

were maintained. Although the process or obtaining

these relaxations was tortuous in the January 2010 snow,

it was clear that lessons were learnt as, once the scale o

the likely disruption in December 2010 was evident, the

approach was more pragmatic allowing or a more timelyand appropriate response.

However, a perceived more general lack o preparedness

and inability to react quickly enough led to widespread

criticism o Government and its agencies. The ailure to

grit key roads, to deploy snow ploughs or other methods

o clearing blocked routes and to ensure adequate salt

supplies despite the severe weather having been widely

predicted by orecasters, drew particular criticism.

Industr response

For its part, the logistics sector worked hard to prepare

or, and respond to, circumstances as they unolded. In

October FTA asked its members how they had altered

their preparations or winter in the light o winter 2009/10

(see graph 2.1). Fity six per cent o respondents indicated

that they had reviewed stock levels o salt at their premises

and 28 per cent reported they had drawn up contingency

delivery plans.

As the severe weather took eect, many businesses took

advantage o the driving and working time relaxations

as they were introduced to help clear the backlog o

deliveries. In addition operators looked or other ways

through which to mitigate the impact. For example, during

the bad weather FTA members were able to incorporate

a range o solutions, such as re-routeing or re-scheduling

deliveries and collections and double-manning vehicles.

Despite its best eorts, the logistics sector suered severe

disruption and aced signicant extra costs. In January

2011, FTA surveyed members to establish the impact o

the two periods o winter weather1 (see graph 2.2). Only

17 per cent o members reported no backlog to deliveries

in December 2010, compared to 28 per cent reporting

no backlog ollowing the January 2010 snow. The average

backlog was just over three days in the winter weather

in December 2010, compared to just over two days in

January 2010. Sixteen per cent o operators surveyed had

backlogs o over ve days in December 2010, compared

to eight per cent in January 2010.

Fity two per cent o operators surveyed said that the

disruption to scheduling and routeing o vehicles in the

December 2010 snowall was signicantly greater than

in January 2010. A urther 40 per cent said that this

disruption was slightly more in December 2010. The

greater operational impact o the snow in December 2010

was compounded by the snowall occurring in the busy

run-up to Christmas.

There was also a wider impact on the UK economy with

a number o large businesses reporting nancial losses:

1 FTA Quarterly Transport Activity Survey, January 2011

29

Graph 2.1

Changes to winter preparedness arrangements b

operators during 2010

Operators made changes to the way they deal with severe winter

weather ollowing snow in January 2010

Percentage

ofresponden

ts

0

10

20

30

40

50

60

Nochangesmade

L

iaisedwithlocal

auth

oritiesrewinter

serviceplans

Contingency

deliveryplans

Contingency

staffingplans

Reviewedstocklevels

ofsaltforpremises

Source: QTAS, FTA


30/54



HMV reported like-or-like sales or the crucial ve weeks

to 1 January 2011 down 10.2 per cent on the previous

year; clothes chain Next said it had lost 22m in store

sales because shoppers stayed away when the snow ell in

the run-up to Christmas; and airports operator BAA said

the severe weather in December cost it 24m. While it is

dicult to put a single gure on the total costs imposed, theOce or National Statistics (ONS) reported2 that rather

than the 0.2 per cent growth that had been predicted

or the ourth quarter o 2010, the UK economy actually

contracted by 0.5per cent with the ONS stating this was

mainly due to the heavy snow.

Disappointingly, the logistics sector was subjected to a

good deal o unair criticism. Rather than recognising that

they were the victims o weather disruption, politicians

and the media suggested lorries were actually the cause

o all the problems. A prime example o this was the

Scottish Governments suggestion that the gridlock in

2 GDP nal revision, ONS Quarterly National Accounts, 29 March 2011

the Central Belt was a result o jack-kning lorries and

their call or lorries to be banned rom the roads in bad

weather. O course such spontaneous reactions ignored

the unintended consequences that would ollow rom

such a move (eg threat to essential supplies, where vehicles

could park-up saely etc) and were oten accompanied

by other contradictory comments. For example, while

blaming lorries or the problems, the Scottish Government

then went on to criticise as unreasonable large retailers

decisions to withdraw their home delivery services.

Lessons or the uture

The disappointing economic gures demonstrate just how

important an eective supply chain is to our economy

and how reliant we are, as a country, on good transportlinks. I we are to avoid such problems becoming a regular

occurrence a number o actions are required.

Firstly, Government (at both national and local levels) and

its agencies must learn the lessons rom, and implement,

the recommendations o Sir David Quarmbys Winter

Resilience Review and subsequent audit.

Secondly, logistics (and other) businesses must ensure that

they are well prepared. Both operators and drivers have

responsibilities and FTA has issued revised guidance to

help support this aim. In addition, the tailored FTA Trac

Inormation Service will be urther promoted within the

industry to encourage greater up-take.

Finally, the ill-inormed and contradictory reactions rom

politicians and the media highlight the continuing need or

the logistics industry to improve understanding o its role.

The Love Logistics campaign has this as its key aim and a

programme o actions has been established to take this

orward in 2011 (see chapter 3).

Volcanic ash cloud

In April 2010, Icelands Eyjajallajokull volcano began

erupting, spewing vast clouds o ash into the atmosphere

30

These are obviously disappointing numbers, but the

ONS has made it very clear that the all in GDP was

driven by the terrible weather in December

The Rt Hon George Osborne MP

Chancellor o the Exchequer

Graph 2.2

Backlog o deliveries during winter weather in Januar

and December 2010

Impact o snow in December 2010 was more signicant or logistics as

it coincided with the pre-Christmas peak

0

5

10

15

20

25

30

December 10

January 10

M

orethan5days

5days

4days

3days

2days

1day

8hours

4hours

Nobacklog

Percentage

ofrespondents

Source: QTAS, FTA


31/54



around Europe and orcing European authorities to act

to avoid potential disasters rom the clogging o aircrat

engines by the ne-particle dust. No fy zones were

implemented in the UK and a number o other European

countries and were in place or many days. This caused

signicant disruption to fights into, out o and throughEurope.

Naturally the media ocus was on passengers stranded

abroad and those trying to get away or their holidays.

However, there was, o course, signicant impact on air

reight. While the volume o goods transported by air is

relatively small, air reighted goods account or a quarter

o the value o goods moved in and out o the UK. High

value products, such as small manuacturing components

and jewellery, and those with a short shel lie rom

green beans and sh to important vaccines rely on air

reight services as the only viable means o transport.

Some companies were able to re-route their shipments

to unaected airports across the European mainland

and successully complete deliveries using international

and road reight services. But this came at a cost the

European Commission estimates that the April disruptions

to air trac cost some e2 billion and caused around

100,000 fights to be cancelled.

The Civil Aviation Authority (CAA) and National Air Trac

Services (NATS) the bodies responsible or regulating

the UKs airspace aced considerable criticism at the timeor a perceived overly-cautious response to the events.

As a result work has begun to provide regulatory bodies,

airlines and other businesses with better inormation

about the impact o volcanic ash and to produce a set

o guidelines which will allow them to determine under

what circumstances it is sae to operate particular types

o aircrat.

According to the DHL website3 the declaration o an

extensive and rapidly expanding no-fy zone across northern

Europe during April and May threatened to severely

disrupt logistics operations. Logistics businesses operating

scheduled cargo fights implemented contingency plans

that transerred hub operations to airports outside the

aected region and delivered cargo to these operations

by road. This required the short-notice mobilisation o a

large number o road vehicles and drivers but deliveries

were maintained throughout the period. With the close

co-operation o customers and the dedication o sta the

impact o the ash cloud was kept to a minimum.

3 www.dhl.co.uk

Regulator environmentIt is not just natural phenomena that create barriers or

the logistics sector. Oten the most rustrating issues the

industry has to deal with are largely man-made. Or to bemore precise, Government-made.

Longer heavier vehicles

The debate surrounding commercial vehicle weights and

dimensions, more specically whether vehicles should be

taller, longer and/or heavier (or indeed the opposite), has

been around or some time. 2010 saw a number o events

and initiatives which anned the fames o this debate.

Following Denby Transports orced abandonment o

its attempt to take its ECO 25.25m trailers onto public

roads, and despite studies demonstrating the potentialbenets o such vehicles a study published by the Dutch

Government demonstrated that Longer Heavier Vehicles

(LHVs) would provide a dramatic cut in emissions and a

signicant increase in productivity the new Government

conrmed that it had no intention o re-opening the issue

o so-called super-lorries.

Longer semi-trailers

The Coalition Government inherited proposals or an

increase in maximum trailer lengths rom its predecessors.This would allow articulated vehicles to operate at the

same overall length as draw-bar trailer combinations. A

ocus on spending cuts and internal reorganisation delayed

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progress on this issue until 2011 and an announcement is

still awaited. Although only modest changes in semi-trailer

length are expected, they will allow increases in payloads

o high-volume, low-weight products that now characterise

many supply chains, especially in consumer goods and ood

and drink businesses. This will translate into real journey

savings and reduced carbon dioxide emissions.

Four metre high vehicles and trailers

At the same time, the EU Commission brought orward a

proposal to introduce a maximum vehicle and trailer height

restriction o our metres, as part o wider dimensional

changes linked to the introduction o whole vehicle type

approval. The double-deck trailers (up to a height o

4.9m) which are now in common use in the UK have

led to substantial reductions in road haulage costs, trac

levels, uel consumption and, most importantly, exhaust

emissions.

A study by Proessor Alan McKinnon (Herriot WattUniversity) ound that replacing the estimated 7,000

double-deck trailers in use with standard height trailers

would have several negative eects, including:

a rise in road haulage costs by around 305

million

uel consumption and CO2

emissions 64 per cent

higher than current levels generated by double-

deck vehicles

a 5.5 per cent increase in articulated lorry tracon UK roads and

a rise in CO2

emissions equivalent to an additional

151,000 cars on the UK road network

This analysis plus evidence provided by members, enabled

FTA to persuade the UK Government to oppose the

proposal. Vehicle design and manuacture has a huge

infuence on the way in which the logistics industry operates

and its ability to continue the progress that has already

Like our predecessors, we reject the proposal

to pilot longer heavier vehicles exceeding 18.75

metres in length. Quite apart rom the concerns o

the rail reight industry, we simply do not believe

the nations roads are designed to deal with suchvehicles and are not persuaded by the arguments

or their introduction

Rt Hon Theresa Villiers MPMinister o State or Transport speech toRail Freight Group July 2010

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been made in improving eciency and reducing carbon

emissions. Without clarity about the uture direction o

Government policy, businesses investment strategies will

be undermined and this will inevitably impact on vehicle

manuacturers ability and willingness to innovate.

Annual goods vehicle testing

The Testing Transormation Programme which was

designed to move more goods vehicle testing capacity to

private premises and thus allow or the closure o some

Vehicle and Operator Service Agency (VOSA) testing sites

experienced numerous diculties throughout 2010.

The initial target o 33 per cent o tests being carried out

at private premises by March 2010 was not met and was

subsequently revised. Roll-out o the programme continued

but concerns within the industry particular ly surrounding

the key issue o hgv testing capacity continued to grow,

culminating in a call rom industry representatives (FTA,

Road Haulage Association (RHA), British Vehicle Rental

and Leasing Association (BVRLA) and Society o Motor

Manuacturers and Traders (SMMT)) or the regime to be

reviewed.

I industry concerns about the programmes implementation

are not met, operators will be orced to travel to more

distant VOSA test stations adding to transport costs, taking

vehicles out the supply chain or longer and increasing uel

consumption and carbon emissions. Not only would thisundermine industrys own eorts to improve eciency, it is

also in direct confict with many other areas o Government

policy.

Promoting modal shit

Government has a long established policy o seeking to

encourage reight o congested roads and moving it by

rail or water. This would, it believes, deliver signicant

environmental benets. Road transport continues to

dominate reight movements, being responsible or

around 84 per cent o goods moved (tonnes lited), with

hgvs accounting or around 20 per cent o UK domestic

transport greenhouse gas emissions and vans or around

11 per cent. While a majority o road reight movements

are within the same region and not necessarily viable

options or transerring to other modes, Government

is nevertheless keen to encourage modal switch where

possible.

A number o policies have been introduced over the years

to help acilitate this movement rom Freight Facilities

Grants (FFG) which are available to help support a switchand which are calculated according to the number o lorry

journeys that would be saved; producing best practice

guidance or navigation authorities to show how better

planning can encourage more reight onto waterways;

to ensuring appropriate access to rail inrastructure or

reight services. These measures combined with growing

congestion on the roads, more stringent regulation o

drivers hours and working time and rising road vehicle

uel costs are all leading to the growth in the use o rail

reight as an economic alternative. Asda Wal-Mart has

suggested that it saves some our million road vehicle miles

per annum by using a rail reight service.

2010 brought urther positive developments in this area:

a stretch o disused rail track was re-opened in Bristol by

Network Rail and Freightliner to acilitate the movement

o wine; FTA launched its FastTrack Rail Freight Assessment

Scheme a ree service which allows members to assess

whether rail can be an option or them in the UK; short

sea shipping promotional bodyFreight by Water (FbW) was

merged into FTA giving it a secure home and the potentialexpansion in the range o what can be done to encourage

companies to take the rst step into this world; and the

House o Commons Select Committee backed calls by the

33

The main attraction o the Authorised

Testing Facility (ATF) concept or industry

when it was originally launched was that

it was supposed to bring testing closer tooperators and make it more convenient

James FirthHead o Road Freight and Enorcement Policy, FTA


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FTA or unding or the Strategic Freight Network to be

protected which Government subsequently did.

Unortunately Government departments do not always

sing rom the same hymn sheet and the prospects or

urther development o rail reight were dealt a severe

blow when the new Communities Secretary, The Rt Hon

Eric Pickles MP, rejected planning applications or essential

new rail reight interchanges in Hertordshire and Kent.I Government is serious about modal shit then it must

ensure a greater consistency o approach.

Night-time deliveries

Fortunately there are examples which demonstrate that

by working in partnership with the private sector on policy

development, a positive outcome can be achieved or all

concerned. Night-time deliveries are one such area.

Out-o-hours deliveries to retail premises have the potential

to oer signicant environmental and social benets and

can have a number o operational and commercial benets

including:

reduced round trip journey times

reduced vehicle turnaround times at stores

reduced uel consumption rom less time spent

stationary, idling in congestion

improved shit productivity rom drivers and

vehicles

increased product availability within store

less confict between deliveries and customers on

the shop foor

However, noise rom vehicle manoeuvring and loading/

unloading activity can impact on local residents, which is

why hgv movements in urban areas are oten constrained

by local curew regulations.

Following a successul pilot study in Wandsworth,London which was undertaken by Sainsburys, the Noise

Abatement Society and Wandsworth Borough Council,

FTA has been working with the Noise Abatement Society

and the Department or Transport to set up the Quiet

Deliveries Demonstration Scheme (QDDS).

In early 2010, QDDS set up six quiet delivery demonstration

trials at retail premises across England. The trials are

examining the benets o quiet deliveries ree rom curew

relaxations, while still protecting local residents rom excess

noise. Results rom the trials which continue until spring

2011 will be used to quantiy the benets, produce casestudies and a eld guide to quiet deliveries at the end o

the project.

Quiet out-o-hours deliveries can reduce congestion,

cut pollution in local areas and save businesses time

and money. I am pleased to be working closely with

FTA and the Noise Abatement Society to develop

best practice and extend these benets across localneighbourhoods

Paul Clark MPParliame

logistics report 2011

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