The Logistics Report 2011: Delivering Safe, Efficient, Sustainable Logistics

The Logistics Report 2011
In association with
Delivering safe, efficient, sustainable logistics
Freight Transport Association represents the transport interests of companies moving goods by road, rail, sea and air. FTA members operate over 220,000 goods vehicles half the UK fleet. In addition they consign over 90 per cent of the freight moved by rail and over 70 per cent of sea and air freight. You can find more information at www.fta.co.uk, follow us on twitter.com/newsfromfta and join us on facebook.com/ftafb
In association with 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 of vital importance to the UK and which has a significant impact on stakeholders from across Government, business and society.
Coolin Desai Logistics Industry Leader PwC UK

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. The PwC Transportation & Logistics practice is composed of a global network of approximately 4,900 industry professionals who support over 93 per cent of the transportation and logistics companies listed in the Fortune 500.
Photographs on pages 18 and 38 courtesy of Nathan Williamson Photograph on page 24 courtesy of Unisouth
Introduction
Welcome to the Logistics Report 2011. This annual publication is a follow up to last years ground-breaking report hailing the launch of the Love Logistics campaign. Produced by FTA in association with PwC and incorporating the evidence of both in-house and independent research, this years report takes a look at the challenges the logistics industry has had to face during the past year and how it has responded. Economic uncertainty; political turbulence in the run up to the General Election; and following the General Election; snow; erupting volcanoes; red tape and bureaucracy; 2010 gave the logistics industry more than its fair share of 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 for the UK. That is an achievement of which everyone involved should be proud and for which the industry should receive due credit; after all, without a successful, efficient supply chain, our way of life 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 fairer commercial environment that UK businesses both need and deserve. The Logistics Report 2011 provides the evidence to support the case.We hope you find the report informative and useful.
Theo de Pencier Chief Executive Freight Transport Association
Contents
Introduction Evidence base
Chapter 1 3
Dealing with the downturn

Chapter 2
Delivering against the odds

Chapter 3
27
Planning for a prosperous, safe and sustainable future

Chapter 4
39
The logistics dashboard
51
The Logistics Report 2011 Freight Transport Association
Evidence base
The Logistics Report 2011 draws its evidence from the following sources:
the latest annual FTA Logistics Industry Survey 2010/11 a selection of data and survey results from PwC (including the 2011 Global CEO Survey) the summaries of a series of round table discussions led by PwC the FTA Quarterly Transport Activity Surveys (QTAS) FTA Managers Guide to Distribution Costs Ipsos MORI/FTA Stakeholder Research 2010 FTA/TNS-BMRB Survey: Public attitudes to the logistics sector, 2009 official statistical publications
consideration by the Department for Transport as well as the European institutions, or have been long-standing challenges for the industry. In this report we summarise the discussion in four Forward thinking articles.
FTA Logistics Industry Survey 2010/11

The Logistics Industry Survey 2010/11 FTAs annual poll of members experiences of the freight market and trading environment provides insights into current and future levels of 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 survey centred on economic and political issues that affected the logistics sector in 2010 and expectations for 2011. Overall results indicate that the business environment for the logistics sector was challenging in 2010, however expectations for 2011 remain positive.
FTA Quarterly Transport Activity Survey (QTAS)

FTAs Quarterly Transport Activity Survey (QTAS) is a quarterly survey of business sentiment within the logistics sector, based typically on a sample size of around 120 FTA members. The survey results help to produce an indicator of current and future business conditions in the logistics sector and external factors influencing efficiency.
PwC 14th Annual Global CEO Survey

As part of PwCs 14th Annual Global CEO Survey 2011, more than 1,200 business leaders were asked a series of questions about how their business priorities had changed and what they considered to be the main business risks for the future.
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 focused around a set of topics which are known to be under active
1 Business sentiment measures the mood of respondents as positive or negative and is measured using a percentage balance of responses calculated by subtracting all negative responses to a question from all positive responses
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 four key areas. Wages Vehicle operating costs Warehouse costs Haulage trends
FTA/TNS-BMRB Survey: 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 sample of 2,000 adults took part in the quantitative survey. Two key findings were that few had consciously considered the industry before taking part in the research, and the publics current knowledge and understanding of the logistics industry was at best modest.
Ipsos MORI Freight Transport Association Stakeholder Research 2010

FTA commissioned Ipsos MORI to conduct this research to determine the perceptions of key stakeholders on: the logistics industry in general position of FTA within the logistics arena FTA as an organisation relationship of key stakeholders with FTA
Ipsos MORI contacted key stakeholders and secured interviews with politicians, journalists, senior figures from Non-Governmental Organisations (NGOs) and senior members from Government and executive agencies. In total 17 in-depth interviews were conducted.
Chapter 1

A hesitant recovery from recession, sharply rising fuel prices and a new Coalition Government determined to cut public spending and raise taxes, combined to create a uniquely challenging business environment for logistics in 2010
Percentage balance of respondents
2010 was a challenging year for all. Heavily influenced by the worst recession since the 1930s, economic conditions remained precarious and demanded everyones full attention. That combined with the most hotly contested General Election for a generation and one where the result was even more surprising than any opinion poll had suggested ensured that 2010 was something of a roller coaster ride for the logistics industry.
Graph 1.1 UK domestic road freight activity sentiment

Outlook for 2011 remains positive
30 20 10 0 10 20 30 40
2005 2006 2007 2008 2009 2010 2011
Economic developments
UK economy 2010
The UK began to turn its back on the long-running recession in 2010 as the economy saw the first signs of a return to growth. Figures from the Office of National Statistics (ONS) showed that in the first three-quarters of 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 manufacturing output. Disappointingly, GDP contracted by 0.51per cent in the fourth quarter compared to the third quarter. Overall, annual UK GDP grew by 1.4 per cent in 2010 compared with the contraction of 4.9 per cent in 2009. While this figure was below official forecasts Government had predicted growth of 2 per cent for 2010 many believe that this was to a large extent a result of the bad weather in the run up to Christmas rather than an indication that the recovery was faltering. In addition, 2010 saw a weak Sterling trade at an average e/1.17 against the Euro and $/1.54 against the US Dollar.
Sources: FTA Quarterly Transport Activity Survey FTA Logistics Industry Survey 2010/11
control, and weak levels of business activity as the economy saw only modest growth. Domestic road freight activity, which was already on an upward trend following the depth of the recession in 2008, continued to grow and expectations for 2011 are positive (see graph 1.1). However, bulk rail freight remained at a reduced level primarily because the construction sector, which is a key customer for rail freight, also experienced a difficult year. Fortunately, operators are more positive about the prospects for 2011. Demand for intermodal services fared better and looks set to improve further as the downturn in the manufacturing 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 import volumes are expected to be broadly unchanged reflecting the UKs slow recovery from recession (see graph 1.3). Demand for air cargo is also a key barometer for the health of global trade and has followed similar patterns
Activity and demand by mode

The logistics sector faced a particularly challenging business environment in 2010 with businesses having to contend with rapidly rising input prices over which they have no
1 GDP final revision, ONS Quarterly National Accounts, 29 March 2011
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Graph 1.2 Rail freight moved by market segment 200203 to 200910

Bulk flows continue to be affected by the recession, whilst intermodal is supported by an upturn in exports
16
Billion net tonne kilometres
Many transport and logistics (T&Ls) companies are now in a better position to consider transactions, having used the period of economic downturn to strengthen balance sheets and focus on better cost control and improved cash generation
Coolin Desai Logistics Industry Leader, PwC UK
14 12 10 8 6 4 2
200203 200304 200405 200506 200607 200708 200809 200910
Graph 1.3 Deep sea shipping market sentiment 2010 and expectations for 2011
Growth expectations concentrated in rapidly growing Far East and Indian Subcontinent markets UK exports 2010 UK exports 2011 Percentage balance of respondents 50 40 30 20 10 0 10 20 30 40 50 North America South America Indian Subcontinent Africa Middle East Australia Far East UK imports 2010 UK imports 2011
Intermodal services Bulk or semibulk, ie conventional services

Source: Network Rail
to that of shipping (see graph 1.4). The International Air Transport Association (IATA) estimated globally air cargo volumes grew 18.5 per cent in 2010 down from earlier projections of 19.8 per cent, as the rebound eased after the summer. The organisation expects cargo demand to grow 5.5 per cent in 2011, slightly ahead of 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 of weak business volumes and higher input costs, many businesses have looked for ways to reduce costs; 90 per cent of 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 inflation road haulage rates rose by just 3.6 per cent3 (see table 1.1 and graph 1.5).This shortfall in margins leaves businesses with little choice but to cut costs, for example by scaling back plans for future investment, even though this leaves them with the business risks associated with ageing assets and IT systems.
Source: FTA Logistics Industry Survey 2010/11
2 14th Annual Global CEO Survey, PwC 3 FTA Managers Guide to Distribution Costs, October 2010 update
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Graph 1.4 Air freight market sentiment 2010 and expectations for 2011
Growth expectations for 2011 reduced compared to 2010 UK exports 2010 UK exports 2011 70 Percentage balance of repsondents 60 40 30 20 10 0 10 20 North Atlantic Far East including Japan South America Australia Southern Africa Middle East Western Europe 30 50 UK imports 2010 UK imports 2011
Graph 1.5 Trends in hgv operating costs and haulage rates 20052010
Rising fuel costs and tough market conditions mean hgv operating costs rises outstrip increases in haulage rates 136 134 132 130 128 126 124 122 120 118 116 114 112 110 108 106 104 102 100
RPI Haulage trends Vehicle operating costs
Index January 2005 = 100
2005
2006
2007
2008
2009
2010
Source: FTA Managers Guide to Distribution Costs
Table 1.1 Percentage annual change in hgv operating cost components (January 2011)
Cost element VED Insurance Depreciation Diesel Tyres Maintenance Vehicle costs Employment cost of driver Vehicle and driver costs Overheads Total vehicle operating costs Total vehicle operating costs excluding fuel Annual percentage change (Jan 10Jan 11) 0.0 +1.7 0.0 +14.9 +2.1 +3.2 +8.7 +2.2 +6.3 +5.1 +6.1 +2.5 Source: FTA Managers Guide to Distribution Costs 4 85,000 miles 8.2 mpg x 13.76 ppl = 6,484 Source: FTA Managers Guide to Distribution Costs
Fuel costs
World oil prices rose steadily last year from $79 a barrel (bbl) at the beginning of 2010, to $95bbl at the end of the year. Since then they have risen dramatically reaching a high of almost $120bbl in February 2011 (see graph 1.6). This volatility has had a significant impact on the price of diesel and other fuel products, which are a key component in the cost base of the logistics sector. In the case of road freight, fuel represents around a third of hgv operating costs. Diesel product costs have risen by 11 pence per litre (ppl). When this is combined with a duty increase of 2.76ppl, the fuel bill for operators has increased by 15 per cent, adding 6,4844 to the annual operating cost of a typical 44 tonne articulated vehicle.
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Graph 1.6 Bulk and forecourt diesel prices January 2008March 2011
Bulk and forecourt diesel prices now at all time highs Pence per litre (ppl) excluding VAT 115 110 105 100 95 90 85 80 75 Forecourt Contact bulk diesel
January 08 February 08 March 08 April 08 May 08 June 08 July 08 August 08 September 08 October 08 November 08 December 08 January 09 February 09 March 09 April 09 May 09 June 09 July 09 August 09 September 09 October 09 November 09 December 09 January 10 February 10 March 10 April 10 May 10 June 10 July 10 August 10 September 10 October10 November 10 December 10 January 11 February 11 March 11
Source: EnergyQuote JHA, Arval UK
Graph 1.7 HR priorities for transport/logistics related staff 20102011

Pressure to make redundancies eases 50 45 40 Percentage of respondents 35 30 25 20 15 10 5 0 Cut back on training Make redundancies Cut back on agency drivers Use more agency drivers Employ more staff Cut back on temporary staff Use more temporary staff Increased training Iain Speak CEO, Bibby Distribution Reduce overtime Increase overtime 2010 2011
We made several acquisitions in 2010. As we emerge from recession there will be good opportunities for confident, financially strong businesses
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Labour costs
Wage costs saw a slight increase through the year: while 45 per cent of respondents to the FTA Logistics Industry Survey froze basic pay in 2010, just over half made pay rises of between one and five per cent. Other staff related costs (levels of overtime, bonuses, productivity pay etc) were largely unchanged compared to a year ago. On the plus side, fewer companies reported making staff redundant in 2010 and the percentage of respondents expecting to make redundancies in 2011 is half that of 2010. Nevertheless, overtime and training budgets were still a focus for reductions 50 per cent of respondents said they had reduced overtime in 2010 and around 15 per cent cut back on training (see graph 1.7).
due to rising track access charges and oil price volatility. Air freight rates rose as demand increased in tandem with the fragile global economic recovery and rising jet fuel costs which increased 23 per cent from 35.55ppl at 4 January 2010 to 43.67ppl at 31 December 2010. Average quarterly sea container freight rates increased by 14 per cent in Q4 2010 compared to Q4 2009, according to the Shanghai Containerized Freight Index (SCFI). Charter rates for container ships more than doubled in 2010 as trade rebounded with the global economy, and bulk charter rates grew in the final three months of 2010 to an average $34,913 a day, 33 per cent more than the previous quarter. The outlook for 2011 indicates that charter rates for 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.
Freight rates
With operating margins averaging four per cent in 20105, there was no alternative but for carriers to pass these cost rises on to customers where they could. However, the strong bargaining position of many customers frequently meant that rising costs could not be passed in full. Evidence of this can be seen in changes in freight and charter rates for the year. Freight rates increased across all modes in 2010 with the biggest rise in rail freight rates mainly
5 Motor Transport Top 100 in 2010
Business investment
Figures from the FTA Logistics Industry Survey suggest that as businesses looked for cost savings, investment plans often 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
Graph 1.8 Business investment intentions 2010 and 2011

Fewer businesses expect to acquire new property in 2011 Percentage of respondents 25 20 15 10 5 2010 2011
Graph 1.9 Fleet investment in 2010 and expectations for 2011

Rising expectations of acquiring new trucks and vans in 2011 Percentage balance of respondents 25 20 15 10 5 0
2010 2011
Purchased additional distribution premises
Rented additional distribution premises
Relocated business premises
Acquired another business
Hgv fleet
Lcv fleet
Trailer fleet
15
in new vehicles in 2010 as operators extend vehicle lives rather than committing to funding new assets (see graph 1.9). Trends in order lead times for commercial vehicles can provide a helpful indicator of business confidence within the road freight sector, and lead times at the start of 2011 were shorter than a year previously indicating that supply was outweighing demand as vehicle
manufacturers respond to the improving economic situation by increasing production again7. Despite the continuing difficult conditions the sector faced, the number of business insolvencies in freight transport eased in 2010 (see graph 1.10). However, these figures do not give a full picture of company closures in the sector, as many others ceased trading without leaving debts.
Graph 1.10 Freight transport insolvencies in England and Wales 20072010

Number of insolvencies eased in 2010 60 Number of businesses 50 40 30 20 10 0 2007 2008 2009 2010
Political developments
Budget
Against this economic background, the Labour Government used its final Budget in advance of the General Election to set out its plans to more than halve the fiscal deficit over four years. As well as identifying cost-cutting savings, the Budget confirmed that spending would continue to rise in 2010-11 to help support the economy through the recovery. Infrastructure investment received a welcome boost as part of this plan, with 100m investment for local roads and 285m for motorways to improve capacity.
Source: Equifax, PwC analysis
7 FTAs Quarterly Transport Activity Survey (QTAS), January 2011
Graph 1.11 Fuel duty and inflation trends 20002011

Sustained campaigning kept fuel duty increases below inflation 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44
Actual duty rate (ppl) Duty inflated by RPI (ppl)
Fuel duty (pence per litre)
12ppl 11ppl 10ppl
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 Source: FTA The Logistics Report 2011 Freight Transport Association
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Graph 1.12 Diesel duty differential compared to UK in 2000 and 2011 by EU member state
Diesel duty gap narrows, but UK remains the most highly taxed 2000 0 5 10 Pence per litre 15 20 25 30 35 2011 (Index UK = 0)
Luxembourg
Netherlands
Germany
Denmark
Portugal
Source: EU Oil Bulletin
The Chancellors announcement that fuel duty rises would be introduced in three stages April, October and January 2011 instead of the expected inflation-busting rise of 3p in April 2010, promised some welcome relief for the logistics industry, though this was undermined by the loss of the biofuel differential and the further extension of the fuel duty escalator beyond existing plans to 2014. Despite many years during which the Labour Government had decided to freeze fuel duties (or to raise them only by inflation), in light of high, volatile world oil prices, this rise became the fourth in only two years (see graphs 1.11 and 1.12).
Election
In the run up to the Election, FTA published its Logistics Manifesto (see page 17) which provided a key tool for lobbying the political parties to ensure that the sectors essential role in any economic recovery was properly understood. A number of these commitments or ones very similar found their way into the political parties own manifestos or policy documents. Labours pledge to tackle congestion with hard shoulder running was welcome, although it is no substitute for meaningful, long-term investment in road infrastructure. Similarly, the fair fuel stabiliser, which would link fuel duty levels with bulk oil prices, which appeared in the Conservatives manifesto, was an attempt to address the industrys concerns about fuel price volatility.
Sweden
Austria
Greece
Belgium
Finland
France
Ireland
Spain
Italy
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FTA Manifesto
FTA sought five key commitments from politicians.
Invest in infrastructure
Britains infrastructure was once the envy of the world. A lack of investment over recent decades set us back, both in terms of the UKs world standing and our ability to compete in a global economy. Investing in transport infrastructure for all modes would improve not only the transition between modes, but business efficiency and continuity, and deliver environmental benefits too.
Work with the logistics sector on carbon solutions

The logistics sector has come a long way in improving its environmental performance, from minimising noxious emissions to reducing its carbon footprint. Government should recognise this and reward those businesses that make improvement a priority, while making it more difficult for those who do not. A classic carrot and stick approach.
Amend the Highway Code

Safety is the paramount concern for all modes within the logistics sector. The UK prides itself on having the safest commercial road fleet in Europe even putting itself 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 effort to educate other road users within the UK on how to behave around lorries, so that accidents resulting from 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 differently, see the benefits they bring to UK plc and, as a consequence, revise the taxation regime that applies to them.
Tackle truck crime

Truck 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 forces and a consensus on the collection and collation of data will not only encourage improved reporting of such crimes, but also tackle the highly organised criminal gangs behind them.
Meanwhile the Liberal Democrats proposal to create a UK Infrastructure Bank was, again, an interesting idea, though benefits would only truly accrue if investment in infrastructure was guaranteed. The three main political parties between them weighed in on some vitally important areas affecting the logistics sector, from aviation tax and High Speed Rail, to a third runway at Heathrow and road pricing. However, a firm commitment to improving the UKs entire transport infrastructure across road, rail, sea and aviation sectors with intelligent investment was noticeable by its absence.
it introduced an element of uncertainty at a time when clarity of purpose was crucial. The challenge for the new Government was considerable and there was a real concern that Britains economic recovery could be put at risk if attention was focused on issues such as electoral reform, rather than on ensuring that UK infrastructure was fit to support that recovery.
Coalition Agreement
In the event, the result of the General Election posed more questions about the future direction of Government policy than it answered. Through the establishment of the first Coalition Government in the UK since Winston Churchills,
Our fear is that transport will be used as a political football during this period of horse-trading.This would be a mistake.Transport must not be the toy that is used to keep the kids happy while the grown-ups get on with running the economy
James Hookham MD Policy and Communications, FTA
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Superficially 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 freight-only ones, will simply relocate to continental European hub airports and goods will then be trucked across to the UK.The resulting loss of business will wipe out any gain to the Exchequer from the increased tax levels. And the goods will still be flying but just with a longer road leg on the end
Christopher Snelling Head of Global Supply Chain Policy, FTA
Once published at the end of May, the Coalition Agreement provided few real surprises. While there was no indication of what the future held for fuel duties, the Government made a number of commitments affecting the logistics industry including: to work towards the introduction of a new system of Lorry Road User Charging (LRUC) to ensure a fairer arrangement for UK hauliers to reform the way in which decisions are made on which transport projects to prioritise so that the benefits of low carbon proposals are fully recognised to make Network Rail more accountable to its customers to reform the taxation of air travel by switching to a per-plane tax
Emergency 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 of 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 focus its attention on delivering things that only the public sector can, and trust in industry to take the lead in other areas for example accreditation to best practice delivery, from sensible self-regulation to administering testing and licences issues where it can deliver more cheaply and efficiently than Government or its agencies. Disappointingly, despite concerted lobbying efforts by FTA and others, the Government announced that it intended to press ahead with the fuel duty increases announced by the previous administration, despite a trend of increasing global oil prices. The decision was widely derided by industry and added a significant further burden to businesses already struggling to survive.
Logistics businesses recognise that a LRUC system has the potential to improve the competitive position for UK road hauliers relative to foreign carriers, though this would depend on the precise details of the scheme. However, the Governments statement on aviation tax, while no surprise, was a disappointment to businesses particularly those that rely heavily on air freight as it poses a threat to competitiveness.
Comprehensive Spending Review

Octobers Comprehensive Spending Review (CSR), and the transport spending announcements which followed, provided the first real opportunities to assess the new Governments ability to deliver on its promise to tackle the UKs economic and fiscal 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 for international trade and, in combination with inland road and rail links, are an integral part of many supply chains.
Successive, above inflation tax hikes since 2009 mean the freight industry is shouldering a disproportionate burden in narrowing the public sector deficit
Simon Chapman Chief Economist, FTA
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FTA Principles for the Comprehensive Spending Review

Principle 1 Be guided by the Eddington Transport Study
Sir Rod Eddingtons transport study, published in December 2006, took a long-term view of the UKs transport needs focusing on the period post 2015. It concluded that although the UK was generally well connected, if future demand is not met or managed then increasing congestion in England would result in an additional 25 billion of costs to the economy per annum by 20258. In order to prevent this, Eddington made a number of recommendations for Government to act on, including: make the most of existing infrastructure by tackling congestion and capacity issues identify schemes that support strategic economic priorities introduce a sophisticated mix of pricing, better use and sustained transport infrastructure 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 funding. This does not make them less important. As a result Government must maintain the momentum of transport infrastructure improvements by: tackling a cumbersome planning process prioritising road infrastructure spending ensuring rail freight is accommodated in the renewal programme for the rail network anticipating the growing reliance on world trade
Principle 3 Find new sources of finance

If Government cannot find the public finance to make progress on improving transport infrastructure in the mediumterm, new sources of funding need to be considered. A number of potential sources exist from ring-fencing future fuel duty increases above inflation into a dedicated fund, attracting greater private sector finance to road pricing as has happened with rail.
Principle 4 Focus spending on activity that Government alone can deliver

Government departments and their executive agencies should examine the scope for outsourcing to the private sector activities previously funded through departmental spending or pay-as-you-go fees. Numerous opportunities for greater private sector involvement exist, for example, Vehicle and Operator Services Agency (VOSA) annual testing of hgvs and pcvs and promotion of operational, safety and environmental best practice within the commercial vehicle sector. Industry has a strong track record of taking the initiative and working with Government to identify solutions which make business sense and meet policy objectives.
Even though the recession has meant a temporary fall in overall traffic volumes, businesses report at best only marginal improvements in the frequency and extent of delays. Congestion hotspots remain a feature of the network where the capacity of the existing infrastructure has failed to keep pace with growing traffic demand, or where poor connectivity with other modes means the load is spread unevenly across different networks. Crucially for industry, the most congested parts of the network coincide with industrys national trade routes where freight activity is highest.
In its submission to Government in advance of the CSR, FTA highlighted the need to create a framework to enable future investment to be targeted at national trade routes, where performance remains poor and where freight traffic demand growth is expected to be greatest as the UK emerges from recession. In order to achieve this FTA recommended the CSR should follow four key principles see above. FTA argued that adopting these key principles would ensure the best possible outcome for transport spending, allowing as many priority schemes9 to be delivered as possible.
8 Compared with the costs of congestion in 2003
9 Key national and regional trade routes identified by FTA in 2009
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The additional 2bn a year of investment spending will improve the countrys critical infrastructure, create jobs and stimulate growth
Sir Richard Lambert Director-General, CBI10
less than a third of current levels11, the logistics industry appears to be shouldering a disproportionate burden in narrowing the public sector deficit. The outcome for Wales was equally challenging with the Welsh Assembly Governments overall budget set to be 860m lower (in real terms) in 2011 than in 2010. As a result the Department for Economy and Transports revenue budget saw a cash reduction of 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, identified by FTA as key to Wales continuing prosperity will not proceed, though Welsh Transport Minister Ieuan Wyn Jones confirmed that he would be seeking alternative sources of funding in an attempt to fill the gap. While the reductions to transport spending announced were considered a positive result given the scale of cuts being implemented elsewhere in Government, FTA and other business groups had previously demonstrated the need for transport spending to increase. As the economy begins to recover and the impact of the swingeing cuts to local Government spending becomes clearer, concerns about the performance of the UKs infrastructure and its ability to serve business needs will undoubtedly return.
Clearly some of 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 identified 24 schemes of key importance, the majority (18) of which were protected. Indeed, of the nine motorway and trunk road schemes that the Department for Transport spared from the axe, six were identified by FTA as key priorities essential to the UKs economic future (see table 1.2). Table 1.2 Status summary of FTA trade routes
To be completed by 2015, subject to planning permission Deferred until after 2015 Withdrawn or no announcement 18/24 2/24 4/24
Later announcements delivered further reassurance in connection with the Strategic Freight Network, where Government confirmed that funding would be protected. In addition the English revenue support grant was reduced by only 1 million to a total of 19 million.This should ensure that modal shift grants can continue to make a valuable contribution to the logistics sector in its consideration of environmentallyfriendly and cost-effective 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 Forth replacement crossing and the M80, will be protected. However, with spending on freight industry projects such as modal shift grants being slashed to
Industry perceptions of Government

While it was still relatively early days for the coalition, as part of the FTA Logistics Industry Survey 2010/2011, members were asked to rate the Governments performance in a number of areas in comparison with that of the previous one (see graph 1.13). Of the nine possible options, Tackling the public spending deficit and Managing the economy were the two key areas where Government scored highest; 57 per cent of respondents rated Governments performance as either good or very good in tackling the deficit, while 38 per cent did so in relation to Managing the economy. Developing a freight transport strategy and Infrastructure investment resulted in the lowest scores, with more than 45 per cent of respondents rating Governments performance as either poor or very poor for the latter. Understanding/supporting the logistics sector also achieved a relatively low score, although FTA members nevertheless believed there had been some improvement in this area. When asked to rate the level of understanding (see graph 1.14), only 12 per cent of respondents rated the Government as having no understanding of the logistics industry, compared with almost 26 per cent in the 2009/10 survey. The number
11 The environmental efficiency budget was cut from 10.3m in 20102011 to 2.9m in 20112012
10 Sir Richard Lambert is now the former Director General of the CBI (as at 31 January 2011)
We are encouraged with George Osbornes declaration of support for transport projects and it is good news that many of the Trade Routes, that FTA identified as priority projects demanding further investment, have been protected
Theo de Pencier CEO, FTA
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Graph 1.13 Perception of Coalition Governments performance on key issues relative to previous Government
Early coalition action to tackle budget deficit welcomed by industry 2.0 1.5 1.0 0.5 0.0 0.5 1.0 1.5 2.0
2 = very poor, 2 = very good
Managing the economy
Developing freight transport strategy
Carbon reduction
Tackling public spending deficit
Infrastructure investment
Transport security
Enhancing UK business competitiveness
Improving road/work place safety
of 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 of suggestions as to how Government could improve the fortunes of the sector. By far the most popular suggestion concerned the approach that should be taken over fuel duties, but other recommendations included: the need to
The economic outlook remains subdued, and conditions for the consumer will be tough for some time to come. But the economy will grow in the coming two years and, despite the recent shock of the estimate for GDP in Q4 2010, we do not foresee a double-dip recession
Ian McCafferty Chief Economic Advisor, CBI (February 2011)
Graph 1.14 Perception of Government understanding of the role of logistics in the economy
Government needs better understanding of how logistics benefits the economy 9% 2% 12%
reduce the regulatory burden for the industry; to invest in transport infrastructure; and to listen to industry in order to improve its (Governments) understanding and policies.
No understanding A slight understanding Some understanding A good understanding A very good understanding 39%
2011 The challenge ahead

In comparison with the economic and political change of 2010, 2011 is expected to be relatively benign. Despite a below-expectation performance towards the end of 2010, most commentators remain convinced that the UK economy will continue to recover in 2011 albeit at a rather sluggish rate. PwC forecasts growth of around 1.4 per cent for 2011 and 2.2 per cent 2012 driven by net exports, restocking and business investment12.
38% Source: FTA Logistics Industry Survey 2010/11
12 UK Economic Outlook, March 2011, PwC
Understanding/ Supporting the logistics sector
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We know that the Treasury needs to fill its coffers somehow, but hitting businesses in the pocket by increasing fuel duty yet again is going to do irreparable damage to our economy and could sound the death knell for companies up and down the UK
Theo de Pencier CEO, FTA
Graph 1.16 Business expectations by sector for 2011 compared to 2010

Improving conditions anticipated across most sectors, with the exception of public authorities where spending cuts are impacting 100 90 80 70 Percentage balance of respondents 60 50 40 30 20 10 0 10 20 30 40 50 Agriculture Wholesale Retail Construction Utilities Manufacturing Public authorities Dist and haulage Recycling Shipping Other
Graph 1.15 CEO confidence levels for revenue growth in the next 12 months
Confidence is returning and transport and logistics companies CEOs are particularly optimistic Percentage of respondents very confident about their companys prospects for revenue growth over the next 12 months 70 60 50 40 30 20 10 2008 2009 2010 2011 T&L Total sample
Source: 14th Annual CEO Survey, PwC
In addition, a survey conducted by PwC13 found that confidence levels among CEOs were rising virtually across the board (see graph 1.15). A return of confidence is also identified in the FTA Logistics Industry Survey 2010/11 (see graph 1.16). The economic outlook for 2011 is positive across all the industry sectors, with the exception of public authorities who will carry a substantial proportion of the 81bn public spending cuts made by the Chancellor in the Comprehensive Spending Review. Construction, retail and distribution and haulage express cautious optimism for 2011, with the utilities sector expecting to benefit from infrastructure 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 of two per cent of 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 fail to keep pace with wider inflation PwC forecasts real consumer spending growth of 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 of relatively weak trading conditions for road freight operators continue to mean that only 30 per cent of hgv operators plan to expand their fleet in 2011 and 29 per cent of van operators. Prospects for 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 of fiscal squeeze, PwC 15 UK Economic Outlook, March 2011, PwC
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Table 1.3 Estimated private sector output and employment losses in 2014/15 due to reduced public sector demand
Sectors Business services Construction Manufacturing Transport and communications Distribution, hotels and catering Financial services Other sectors Total private sector Estimated gross output loss (bn at 2007 prices) 11.2 9.4 8.7 3.0 1.0 1.9 6.7 41.9 Loss as % of gross output in sector 3.7 4.5 1.9 1.8 0.3 1.0 1.5 2.0 Implied employment reduction (000s) 176 92 48 44 23 11 41 435
Source: Sectoral and regional impact of fiscal squeeze, PwC
Graph 1.17 Main factors restricting capital investment decisions in 2011

Risk aversion by lenders and business is putting a brake on new investment 70 Percentage balance of respondents 60 50 40 30 20 10 0 Reduction in business activity Availability of funds New vehicle prices Delivery lead-times from manufacturers
expand their fleets16. Fifty four per cent of operators cited reduced levels of business activity as governing investment decisions. Equally important though was the lack of funding for financing 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 of managing the economy. But if that perception is to be sustained, then the Government must take a thorough look at all its future policies to ensure that there are no unintended consequences. Fuel duty is a case in point. The increases planned for 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 of the FairFuelUK Campaign17 demonstrates the strength and breadth of feeling surrounding this. Similarly, Government plans to reform aviation duty could place UK exporters at a disadvantage to businesses located elsewhere in Europe. Carriers would add the cost onto freight rates, increasing the price of air freight services to UK exporters and prompting carriers to divert freight movements to other airport hubs in the near continent to avoid the charge, thereby further reducing the attractiveness of 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.
16 FTA Logistics Industry Survey 2010/11 17 FairFuelUK is supported by FTA, RHA and RAC
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Specifically supporting businesses involved in international trade Easing the cost pressure on domestic freight activity and the knock-on impact higher freight prices have on business input costs and consumer prices Supporting industry actions to reduce carbon
Budget 2011 note

In his Budget on 23 March, the Chancellor of the Exchequer, George Osborne announced the cancellation of the five pence per litre (ppl) fuel duty increase planned for 1 April and instead introduced an immediate cut of one ppl and the introduction of a fair fuel stabiliser. Furthermore, the Government concluded that a change from air passenger duty 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 of air passenger duty. The case for abandoning these plans was a key feature of FTAs Budget Submission.
Government has been single minded in its action to address the Budget deficit.What is needed now is a similar focus on measures to support business growth. Without such positive action, even the most modest economic growth predictions could prove difficult to deliver.
Forward thinking 1: The need for innovation in the sector what forms will it take?
In an industry with already tight margins, what innovations will secure those margins against future economic and regulatory developments likely to create pressure on competitiveness? A consensus view quickly emerged that continuing consolidation and collaboration are likely to be key for the sector with economies of scale becoming increasingly important. But there was also the view expressed that the requirements of different parts of the sector would see innovation emerging in different ways. Lower margin and what were characterised as commodity businesses will see innovation manifesting itself very differently than in more specialised parts of the sector in which higher margins were still available to innovators. Learning from other businesses and sectors was also seen as critical, with service becoming more important, particularly in local delivery to the last mile. Achieving superior service will, said one panellist, demand management and service being pushed much closer to the customer. In effect, said another speaker, successful delivery businesses will be staffed by customer service people that drive, rather than drivers who perform customer service. Responding to that challenge will create, said another panel member,a massive need for training. In effect we have to develop a new breed of person. Buying behaviour is, noted one speaker, increasingly procurementdriven rather than relationship-based, and that means ensuring that innovation to reduce costs and increase efficiency are constantly explored. For this reason, the largest players are investing heavily in increasing their management capabilities and looking for lessons from other industries. As such, innovation does not have to be radical. In fact, it is far more likely to be incremental and iterative with constant small changes and improvements rather than attempting to achieve wholesale transformation. One of the most fertile areas of innovation is taking place in home delivery, driven by the rapid rise of online shopping, and delivery is becoming part of differentiating the customer experience.Delivery is becoming an extension of the brand. If you extend the brand you have to extend it to the point where the customer has their final contact with the transaction, and that means developing a multiskilled workforce. But there is also a problem with extending the brand to the door, observed one panellist, and retailers may have to develop the courage to use a service that is not branded, but they can trust to achieve the customer service that they expect. Innovations such as Click to collect have grown rapidly in response to the boom in online shopping, but their growth has not been without its problems. Retailers, for example, have struggled with the complexity of managing stock as well as customer collections in the same space. And the use of collection points raised another significant area of discussion: the extent to which local political pressures could inhibit the creation of appropriate infrastructure. For example, noted one panel member, creating collection points may be barred by nimbyism, with the result that the planning requirements for creating new forms of distribution will be thwarted by local opinion and these local barriers to more fundamental changes to infrastructure could slow innovation. The localism agenda arguably raises a number of problems. Could localism play into the hands of smaller players as local restrictions inhibit the national players? Could that drive the development of alliances and networks between large national and smaller local players?
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Forward thinking 2: Road pricing it is coming, but what is acceptable?

A progressive approach that started with a simple to understand and simple to implement charge should be the first consideration. Greater sophistication should be introduced over time using price signals to control traffic according to time of day, for example. One panellist argued that decreasing dependency on private domestic vehicles was inextricably tied to improvements to public transport that could make public transport a broadly more attractive option. When it gets to the stage when it is easier or cheaper to make the same journey by public transport then you will see change. One panel member argued that a switch of taxation from usage to ownership could drive a change in behaviour, with penal rates of VED creating disincentives for car ownership but others doubted the political palatability of such a move, with high rates of car ownership and an electorate that already feels besieged by taxation. Another dimension introduced to the discussion was the severe cuts in available funding for road infrastructure and the need to use funds from road pricing to pay for investment. A number of panellists also argued that the option of road privatisation should be resurrected by the Government, and expressed their concern that motorway privatisation in particular seemed to be off the Government agenda. One speaker argued for an urgent review of the policy: From a political point of view the Government has every excuse they need to do this now. They need the funds and this is clearly a potentially major opportunity. But the window is very small and it will close if they dont act quickly.
The road pricing debate to date, said one panellist, has been dominated by all the wrong arguments. Narrowing the arguments and any policy that may arise from them at the freight sector, it was argued, will not address the largest problem, which is the number of cars on the road with only a single driver. But any policy that seeks to address the private motorist needs to ensure that it creates a clear and tangible benefit. Without that it would be seen as another tax, and consequently would be likely to meet with strong popular resistance. The alternatives for road pricing, that may include time or distance-based methodologies, have intrinsic merits and demerits, but as one panel member put it the practicality of introducing any system of pricing should be the overriding concern. Excessive complexity, it was argued, was a danger that had to be avoided.
Chapter 2

Logistics managers had their work cut out in 2010 dealing 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 nature is capable of, while Government and its agencies threw in a few challenges of their own.
Natural barriers
Snow
2010 ended as it began with the country suffering disruption caused by snow. Although adverse conditions were widely predicted, the sheer scale of the problems caught all parties unawares. According to the Met Office, the winter of 2009/10 was uncommon in both scale and geographic extent with regard to cold and snowfall. It was the coldest experienced across England and Wales since that of 1978/79. In Scotland and Northern Ireland it was the coldest for more than 50
years. Across the UK, mean monthly temperatures were well below normal for all three months of the winter. The frequent and widespread snowfalls throughout the winter, whilst record-breaking on some occasions, were also notable for the fact that almost the entire UK felt the effects for the same sustained period of time. This had a huge impact. The National Grid issued a gas balancing alert (GBA) for only the second time, asking power suppliers to use less gas as more was sourced overseas Hundreds of schools were forced to close Homes were without power after falling trees and ice affected power lines Roads and railways were badly affected Airports were closed
Ten months later, the early severe onset of winter weather led to similar types of events being repeated across the UK. The knock-on impact for the logistics sector was considerable. Vehicles and their drivers were trapped for hours unable to make deliveries; accidents increased; ports and airports became inaccessible; and railways too were badly hit. The combination of these incidents placed unprecedented pressure on the UK supply chain resulting in delays to essential deliveries and supplies which, on occasion, led to shortages of particular goods/services.
Government response
During these two episodes the Department for Transport issued numerous temporary relaxations of drivers hours regulations and working time regulations to ensure supplies of essential goods including animal feed, road
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salt, de-icer for airports, heating oil and LPG, and bulk milk were maintained. Although the process for obtaining these relaxations was tortuous in the January 2010 snow, it was clear that lessons were learnt as, once the scale of the likely disruption in December 2010 was evident, the approach was more pragmatic allowing for a more timely and appropriate response. However, a perceived more general lack of preparedness and inability to react quickly enough led to widespread criticism of Government and its agencies. The failure to grit key roads, to deploy snow ploughs or other methods of clearing blocked routes and to ensure adequate salt supplies despite the severe weather having been widely predicted by forecasters, drew particular criticism.
Industry response
For its part, the logistics sector worked hard to prepare for, and respond to, circumstances as they unfolded. In October FTA asked its members how they had altered their preparations for winter in the light of winter 2009/10 (see graph 2.1). Fifty six per cent of respondents indicated that they had reviewed stock levels of salt at their premises and 28 per cent reported they had drawn up contingency delivery plans. As the severe weather took effect, many businesses took advantage of the driving and working time relaxations
as they were introduced to help clear the backlog of deliveries. In addition operators looked for other ways through which to mitigate the impact. For example, during the bad weather FTA members were able to incorporate a range of solutions, such as re-routeing or re-scheduling deliveries and collections and double-manning vehicles. Despite its best efforts, the logistics sector suffered severe disruption and faced significant extra costs. In January 2011, FTA surveyed members to establish the impact of the two periods of winter weather1 (see graph 2.2). Only 17 per cent of members reported no backlog to deliveries in December 2010, compared to 28 per cent reporting no backlog following 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 of operators surveyed had backlogs of over five days in December 2010, compared to eight per cent in January 2010. Fifty two per cent of operators surveyed said that the disruption to scheduling and routeing of vehicles in the December 2010 snowfall was significantly greater than in January 2010. A further 40 per cent said that this disruption was slightly more in December 2010. The greater operational impact of the snow in December 2010 was compounded by the snowfall occurring in the busy run-up to Christmas. There was also a wider impact on the UK economy with a number of large businesses reporting financial losses:
1 FTA Quarterly Transport Activity Survey, January 2011
Graph 2.1 Changes to winter preparedness arrangements by operators during 2010

Operators made changes to the way they deal with severe winter weather following snow in January 2010
60 Percentage of respondents 50 40 30 20 10 0 Reviewed stock levels of salt for premises Contingency staffing plans Contingency delivery plans Liaised with local authorities re winter service plans No changes made
Source: QTAS, FTA
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These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December
The Rt Hon George Osborne MP Chancellor of the Exchequer
Graph 2.2 Backlog of deliveries during winter weather in January and December 2010
Impact of snow in December 2010 was more significant for logistics as it coincided with the pre-Christmas peak
30 Percentage of respondents 25 20 15 10 5 0 January 10 December 10
the Central Belt was a result of jack-knifing lorries and their call for lorries to be banned from the roads in bad weather. Of course such spontaneous reactions ignored the unintended consequences that would follow from such a move (eg threat to essential supplies, where vehicles could park-up safely etc) and were often accompanied by other contradictory comments. For example, while blaming lorries for the problems, the Scottish Government then went on to criticise as unreasonable large retailers decisions to withdraw their home delivery services.
More than 5 days
No backlog
4 hours
8 hours
2 days
3 days
4 days
5 days
1 day
Lessons for the future

The disappointing economic figures demonstrate just how important an effective supply chain is to our economy and how reliant we are, as a country, on good transport links. If we are to avoid such problems becoming a regular occurrence a number of actions are required. Firstly, Government (at both national and local levels) and its agencies must learn the lessons from, and implement, the recommendations of 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 Traffic Information Service will be further promoted within the industry to encourage greater up-take. Finally, the ill-informed and contradictory reactions from politicians and the media highlight the continuing need for the logistics industry to improve understanding of its role. The Love Logistics campaign has this as its key aim and a programme of actions has been established to take this forward in 2011 (see chapter 3).
Source: QTAS, FTA
HMV reported like-for-like sales for the crucial five 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 fell in the run-up to Christmas; and airports operator BAA said the severe weather in December cost it 24m. While it is difficult to put a single figure on the total costs imposed, the Office for National Statistics (ONS) reported2 that rather than the 0.2 per cent growth that had been predicted for the fourth quarter of 2010, the UK economy actually contracted by 0.5 per cent with the ONS stating this was mainly due to the heavy snow. Disappointingly, the logistics sector was subjected to a good deal of unfair criticism. Rather than recognising that they were the victims of weather disruption, politicians and the media suggested lorries were actually the cause of all the problems. A prime example of this was the Scottish Governments suggestion that the gridlock in
Volcanic ash cloud

In April 2010, Icelands Eyjafjallajokull volcano began erupting, spewing vast clouds of ash into the atmosphere
2 GDP final revision, ONS Quarterly National Accounts, 29 March 2011
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around Europe and forcing European authorities to act to avoid potential disasters from the clogging of aircraft engines by the fine-particle dust. No fly zones were implemented in the UK and a number of other European countries and were in place for many days. This caused significant disruption to flights into, out of and through Europe. Naturally the media focus was on passengers stranded abroad and those trying to get away for their holidays. However, there was, of course, significant impact on air freight. While the volume of goods transported by air is relatively small, air freighted goods account for a quarter of the value of goods moved in and out of the UK. High value products, such as small manufacturing components and jewellery, and those with a short shelf life from green beans and fish to important vaccines rely on air freight services as the only viable means of transport. Some companies were able to re-route their shipments to unaffected airports across the European mainland and successfully complete deliveries using international and road freight services. But this came at a cost the European Commission estimates that the April disruptions to air traffic cost some e2 billion and caused around 100,000 flights to be cancelled. The Civil Aviation Authority (CAA) and National Air Traffic Services (NATS) the bodies responsible for regulating the UKs airspace faced considerable criticism at the time for a perceived overly-cautious response to the events. As a result work has begun to provide regulatory bodies, airlines and other businesses with better information about the impact of volcanic ash and to produce a set of guidelines which will allow them to determine under what circumstances it is safe to operate particular types of aircraft. According to the DHL website3 the declaration of an extensive and rapidly expanding no-fly zone across northern Europe during April and May threatened to severely disrupt logistics operations. Logistics businesses operating scheduled cargo flights implemented contingency plans that transferred hub operations to airports outside the affected region and delivered cargo to these operations by road. This required the short-notice mobilisation of a large number of road vehicles and drivers but deliveries were maintained throughout the period. With the close co-operation of customers and the dedication of staff the impact of the ash cloud was kept to a minimum.
Regulatory environment
It is not just natural phenomena that create barriers for the logistics sector. Often the most frustrating issues the industry has to deal with are largely man-made. Or to be more precise, Government-made.
Longer heavier vehicles

The debate surrounding commercial vehicle weights and dimensions, more specifically whether vehicles should be taller, longer and/or heavier (or indeed the opposite), has been around for some time. 2010 saw a number of events and initiatives which fanned the flames of this debate. Following Denby Transports forced abandonment of its attempt to take its ECO 25.25m trailers onto public roads, and despite studies demonstrating the potential benefits of such vehicles a study published by the Dutch Government demonstrated that Longer Heavier Vehicles (LHVs) would provide a dramatic cut in emissions and a significant increase in productivity the new Government confirmed that it had no intention of re-opening the issue of so-called super-lorries.
Longer semi-trailers
The Coalition Government inherited proposals for an increase in maximum trailer lengths from its predecessors. This would allow articulated vehicles to operate at the same overall length as draw-bar trailer combinations. A focus on spending cuts and internal reorganisation delayed
www.dhl.co.uk
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Like our predecessors, we reject the proposal to pilot longer heavier vehicles exceeding 18.75 metres in length. Quite apart from the concerns of the rail freight industry, we simply do not believe the nations roads are designed to deal with such vehicles and are not persuaded by the arguments for their introduction
Rt Hon Theresa Villiers MP Minister of State for Transport speech to Rail Freight Group July 2010
4.9m) which are now in common use in the UK have led to substantial reductions in road haulage costs, traffic levels, fuel consumption and, most importantly, exhaust emissions. A study by Professor Alan McKinnon (Herriot Watt University) found that replacing the estimated 7,000 double-deck trailers in use with standard height trailers would have several negative effects, including: a rise in road haulage costs by around 305 million fuel consumption and CO2 emissions 64 per cent higher than current levels generated by doubledeck vehicles a 5.5 per cent increase in articulated lorry traffic on UK roads and a rise in CO2 emissions equivalent to an additional 151,000 cars on the UK road network
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 of high-volume, low-weight products that now characterise many supply chains, especially in consumer goods and food 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 forward a proposal to introduce a maximum vehicle and trailer height restriction of four metres, as part of wider dimensional changes linked to the introduction of whole vehicle type approval. The double-deck trailers (up to a height of
This analysis plus evidence provided by members, enabled FTA to persuade the UK Government to oppose the proposal. Vehicle design and manufacture has a huge influence on the way in which the logistics industry operates and its ability to continue the progress that has already
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been made in improving efficiency and reducing carbon emissions. Without clarity about the future direction of Government policy, businesses investment strategies will be undermined and this will inevitably impact on vehicle manufacturers ability and willingness to innovate.
Annual goods vehicle testing

The Testing Transformation Programme which was designed to move more goods vehicle testing capacity to private premises and thus allow for the closure of some Vehicle and Operator Service Agency (VOSA) testing sites experienced numerous difficulties throughout 2010. The initial target of 33 per cent of tests being carried out at private premises by March 2010 was not met and was subsequently revised. Roll-out of the programme continued but concerns within the industry particularly surrounding the key issue of hgv testing capacity continued to grow, culminating in a call from industry representatives (FTA, Road Haulage Association (RHA), British Vehicle Rental and Leasing Association (BVRLA) and Society of Motor Manufacturers and Traders (SMMT)) for the regime to be reviewed. If industry concerns about the programmes implementation are not met, operators will be forced to travel to more distant VOSA test stations adding to transport costs, taking vehicles out the supply chain for longer and increasing fuel consumption and carbon emissions. Not only would this undermine industrys own efforts to improve efficiency, it is also in direct conflict with many other areas of Government policy.
planning can encourage more freight onto waterways; to ensuring appropriate access to rail infrastructure for freight services. These measures combined with growing congestion on the roads, more stringent regulation of drivers hours and working time and rising road vehicle fuel costs are all leading to the growth in the use of rail freight as an economic alternative. Asda Wal-Mart has suggested that it saves some four million road vehicle miles per annum by using a rail freight service. 2010 brought further positive developments in this area: a stretch of disused rail track was re-opened in Bristol by Network Rail and Freightliner to facilitate the movement of wine; FTA launched its FastTrack Rail Freight Assessment Scheme a free service which allows members to assess whether rail can be an option for them in the UK; short sea shipping promotional body Freight by Water (FbW) was merged into FTA giving it a secure home and the potential expansion in the range of what can be done to encourage companies to take the first step into this world; and the House of Commons Select Committee backed calls by the
Promoting modal shift

Government has a long established policy of seeking to encourage freight off congested roads and moving it by rail or water. This would, it believes, deliver significant environmental benefits. Road transport continues to dominate freight movements, being responsible for around 84 per cent of goods moved (tonnes lifted), with hgvs accounting for around 20 per cent of UK domestic transport greenhouse gas emissions and vans for around 11 per cent. While a majority of road freight movements are within the same region and not necessarily viable options for transferring to other modes, Government is nevertheless keen to encourage modal switch where possible. A number of policies have been introduced over the years to help facilitate this movement from Freight Facilities Grants (FFG) which are available to help support a switch and which are calculated according to the number of lorry journeys that would be saved; producing best practice guidance for navigation authorities to show how better
The main attraction of the Authorised Testing Facility (ATF) concept for industry when it was originally launched was that it was supposed to bring testing closer to operators and make it more convenient
James Firth Head of Road Freight and Enforcement Policy, FTA
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FTA for funding for the Strategic Freight Network to be protected which Government subsequently did. Unfortunately Government departments do not always sing from the same hymn sheet and the prospects for further development of rail freight were dealt a severe blow when the new Communities Secretary, The Rt Hon Eric Pickles MP, rejected planning applications for essential new rail freight interchanges in Hertfordshire and Kent. If Government is serious about modal shift then it must ensure a greater consistency of approach.
reduced round trip journey times reduced vehicle turnaround times at stores reduced fuel consumption from less time spent stationary, idling in congestion improved shift productivity from drivers and vehicles increased product availability within store less conflict between deliveries and customers on the shop floor
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 for all concerned. Night-time deliveries are one such area. Out-of-hours deliveries to retail premises have the potential to offer significant environmental and social benefits and can have a number of operational and commercial benefits including:
However, noise from vehicle manoeuvring and loading/ unloading activity can impact on local residents, which is why hgv movements in urban areas are often constrained by local curfew regulations. Following a successful 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 for 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 benefits of quiet deliveries free from curfew relaxations, while still protecting local residents from excess noise. Results from the trials which continue until spring 2011 will be used to quantify the benefits, produce case studies and a field guide to quiet deliveries at the end of the project.
Quiet out-of-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 benefits across local neighbourhoods
Paul Clark MP Parliamentary Under Secretary of State for Transport January 2010
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Improving the odds

2010 served as a reminder of just how many obstacles can get in the way of essential supply chains. The logistics industry did its best to cope in what were sometimes extremely difficult circumstances. But the disruption caused was significant and this inevitably brought with it a cost that could not have been foreseen. If the industry is to continue to develop and support the UK economy on its path to recovery, then efforts to remove (or where that is impossible, to minimise the impact of) those obstacles must be prioritised. Businesses and Government must learn the lessons of past experiences to ensure they can be better prepared for
There is a need for Government and business to work together to create the sound and consistent policies required for a successful economy
Sir Richard Lambert Director-General, CBI
the future. And all parties involved must work to ensure a better understanding of the impact of their decisions and actions. While it may be a somewhat overused phrase, a partnership approach is the best way of delivering such improvement as the experience with the night-time delivery pilot experience most ably demonstrated.
Forward thinking 3: Responding to the local agenda

With Localism agenda and specifically Total Place, what are the opportunities and challenges that these create for the industry? Will, for example, local authorities policies create challenges or do they raise possible benefits? Would mandatory consolidation with one supplier receiving a local authority mandate create benefits? Aside from the legal barriers that would have to be overcome in order for a local authority to restrict entry to one business, most panellists agreed with the view that: if consolidation was the answer, then the market would have created it by now. Few examples of restricting access to specific places exist. Those that do are for reasons other than economics or social benefits. An airport or a large construction site, are two examples where an overriding driver security makes it feasible and essential to restrict deliveries to a single supplier. Aiming to restrict deliveries was, argued one panellist, aiming at the wrong target. The real problem is private cars, but there are significant political sensitivities about saying so. The industry needs to be better at articulating the social and economic benefits we provide and help focus attention on where the real problem is. However, a number of experiments have been put in place in the UK, notably in Bristol where as part of the EU START (Short Term Actions to Reorganise the Transport of goods) initiative a consolidation centre was built, but panellists agreed that it had not delivered fundamental change or benefits that had inspired others to follow the example. In other commercially driven instances, such as shopping centres, the approach had driven broader economic benefits as retailers have been able to devote more space to retail than storage. But, overall, the benefits were not seen to be clear should initiatives such as this were enacted on a wider scale and panellists commented on a disconnect between policy and practice. That disconnect could result in worse outcomes, argued one panellist as policy could lead to increased traffic (ie the number of small vans) and it makes no sense socially, economically or environmentally to have a large number of vehicles full of nothing but fresh air travelling up and down the road. Where different models do exist, they have largely come about as a result of public policy. One panellist offered the example of Basle, Switzerland where there are no deliveries to the centre, all are handled by consolidation centres around the margins. Its funded through additional taxation in the form of rates, so its a conscious choice of residents to subsidise the additional cost. There is a balance to be achieved between the economic, social and environmental considerations of consolidation and restricting the flow of vehicles into urban centres, panellists agreed. But achieving equitable policy results will require the industry to engage effectively with local authorities to explore the options, influence the debate and achieve favourable outcomes that benefit everyone.
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Forward thinking 4: Rail a viable alternative to road on what basis?

The Governments backing for rail as an alternative to the road system, and the investment in programmes such as the high speed lines, signals an emphasis for future infrastructure spending on rail rather than road. Panellists were asked their views about the prospects for rail freight and the associated constraints aside from cost that would need to be overcome for rail to be considered a real alternative. Overwhelmingly, two factors stood out: capacity and flexibility. The CSR outcomes suggest that significant investment will head to rail and it is a Government belief that more freight should travel on the rail network. What are the service and institutional issues that get in the way of the conversations that Government should expect to be taking place with rail freight operators? One panellist pointed out that regardless of the pricing model there is only 15-20 per cent spare capacity on the rail network. This, in his view, suggested that short of wholesale transformation, rail infrastructure could only offer a limited contribution to the logistics industry. Another panel member concurred, arguing that passenger priority for the rail operators would relegate freight to a very distant second place, it simply is not going to be an issue that they are very keen to engage on. The investment in HS2 was cited as one way, addressing the issue of creating more capacity on the existing network that high speed replaces. However, while seen prima facie as creating more capacity, the primacy of the passenger means that there would not be a simple transfer of capacity freight would still be of a much lower order of priority. But another panel member questioned the extent to which the logistics industry was motivated to consider rail as an alternative There is no real pressure on the industry to campaign for more freight capacity because there is at present no clear economic driver to do so. And even if the economic drivers moved significantly, others argued, it was unlikely that there would be a surge of interest. One of the challenges cited was the lack of a clear commercial relationship. One of the problems we encountered was the entry point commercially to rail freight. The sub contracting means that you lose visibility and control of the service that you get. We have had to go through multiple conversations with multiple people even to try and work out a price, let alone the service levels that we are going to have. Insufficient flexibility was raised as an additional barrier to considering freight. Where it may be possible for some businesses with planned and predictable needs, the minute you introduce any form of unpredictability, and that today means most supply chains, it falls down. Despite Government commitment (at national and European levels) to rail, the barriers to it becoming a major component of the logistics industry look formidable. As one panel member pointed out: Rail today takes 3.7 per cent of total annual tonne kilometres, so even if you double the flow at considerable cost it will only have a minimal impact overall. And the question remains whether that is a price worth paying.
Chapter 3

In the longer term, logistics will need to blend business innovation with responsible safety and sustainability programmes and an improving public attitude to meet the expectations of customers, shareholders and wider society The search for growth
The economic turmoil of the past few years has meant that many businesses boards have had to re-evaluate their priorities and adjust their strategies in order to ensure a secure future. Indeed 90 per cent of transport and logistics companies (T&L) CEOs have altered their strategies in the past two years, with 37 per cent of these describing the change as fundamental1.
1 14th Annual Global CEO Survey, PwC
The economy
Perhaps unsurprisingly, the direction of the global economy was considered to be the top threat to growth, with 29 per cent of CEOs describing themselves as extremely concerned (see graph 3.1). T&L CEOs were even more worried 38 per cent were extremely concerned. Also, concerns over the ability of highly-leveraged countries to refinance their debt and the volatile, knock-on effect in currency markets greatly complicate strategies geared towards more trade across more borders.
Graph 3.1 Changes in CEO risk priorities 20082011

Recession and economy is the top priority for the third year running
2008
1 2 3 4 5 6 7 8 9 Availability of key skills Recession/economy Overregulation Low-cost competition Energy security Scarcity of resources Protectionism Security of supply chain Technology disruption
2009
Recession/economy Unstable capital markets Overregulation Energy costs Inflation Low-cost competition Availability of key skills Protectionism Security of supply chain
2010
Recession/economy Overregulation Unstable capital markets Currency volatility* Economic imbalances* Low-cost competition Energy costs Availability of key skills Protectionism
2011
Recession/economy Public deficit* Overregulation Availability of key skills Increasing tax burden* Exchange rate volatility Unstable capital markets Shift in consumers Energy costs
*New options
Base: 2008 (1,150), 2009 (1,124), 2010 (1,198), 2011 (1,201). Note: Rank of top threats, by percentage of somewhat or extremely concerned. Source: 14th Annual Global CEO Survey, PwC
41
Using innovation to drive growth

CEOs in every sector are placing a higher premium on innovation today. T&L CEOs are no exception. Some of the service innovations the industry is making include offering customers zero-carbon shipping options and the opportunity to offset carbon emissions. In fact, 67 per cent of T&L CEOs say developing environmentally-friendly products or services is an important part of their innovation strategy. And, like their peers in the overall sample, they are confident their innovations will succeed: 73 per cent believe the new products and services their companies are developing will lead to new revenue opportunities. But T&L CEOs think innovation can deliver other benefits as well: 85 per cent believe innovation will result in operational efficiencies that give their companies a competitive advantage (see graph 3.2).Technology is one way to realise that goal: 82 per cent of T&L CEOs are investing in IT to reduce costs and become more efficient.
We can bring logistics best practice to other sectors and import theirs back to our core business
Perry Watts MD, DHL UK & Ireland
Opening innovation to supply chain partners and beyond

The same demand for innovation is driven through the supply chain. It is not uncommon for supply chain partners to work together in the search for innovation, across industries, and also in T&L; 40 per cent of sector CEOs said they expect the majority of their future innovations to be co-developed. While the focus on the economy and business performance has been and will remain - paramount, a number of other strategic policy issues were also demanding attention from management teams in logistics businesses throughout 2010.
The low carbon agenda

Efforts to reduce greenhouse gas emissions have risen up the agenda for both politicians and businesses since the publication of the Stern Report in 2006 and the passing of the Climate Change Act by the previous Government at the end of 2008. The debate about how to tackle climate change came to the forefront of national and global leaders minds again as countries gathered in Cancun in December 2010 to pursue new targets to tackle emissions. Judged more of a success than the outcome in Copenhagen the year before, global consensus remains elusive. Instead, many countries are establishing or committing to their own reduction targets, none more so than the UK. All three UK political parties focused heavily on their green credentials during the run-up to the Election, highlighting a variety of commitments ranging from a moratorium on runway capacity and reform of Air Passenger Duty, encouraging the development of greener vehicles and supporting infrastructure, to tough new carbon reduction targets and a new Green Deal. Since the domestic transport sector accounts for 22 per cent of total UK greenhouse gas emissions2 with freight accounting for almost a third
Graph 3.2 T&L CEOs are counting on innovation to improve efficiencies

Extent to which innovation will lead to operational efficiencies that provide competitive advantage Total sample
5 2 52 27
Transport and logistics

7 0 45
40
Disagree strongly Disagree
Agree Agree strongly
Base: All respondents (Total sample, 1201; T&L, 60). Note: Neither/nor and Dont know/refused excluded. Source: 14th Annual Global CEO Survey, PwC
2 Department for Energy and Climate Change
42
Graph 3.3 Board priorities linked to transport and logistics in 2011

Businesses remain most focused on safety of their staff and the Public Please indicate your company board's priority level for each of the following measures in 2011 Site safety Reducing accidents on the road Staff security Reducing CO2 Reducing air pollution Ethical trading Reducing noise pollution 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00
1 = not priority 3 = a high priority Source: FTA Logistics Industry Survey 2010/11
of domestic transport emissions any future Government programme will inevitably impinge on the way freight transport operates in the short and long-term. Many logistics operators already recognise the contribution transport makes to climate change and the role the sector must have in delivering reductions. Almost 60 per
cent of respondents to the FTA Logistics Industry Survey said that reducing carbon was a high priority for their company board (see graph 3.3). A variety of mechanisms have been identified and deployed in order to reduce carbon emissions: from investing in driver training, low carbon fuel technologies and aerodynamics to improve vehicle fuel efficiency; to backhauling and sharing loads with competitors to cut mileage and fuel consumption. While many of these initiatives can have a positive financial impact, as well as delivering environmental improvements, if they come with an up-front cost attached, they will inevitably prove less attractive to businesses when economic conditions are difficult. This was certainly the case in 2010 there was little investment in new commercial vehicles, and around 15 per cent of survey respondents reported that they had cut back on training. The outlook is more optimistic for 2011 with vehicle investment levels expected to rise and fewer companies expecting to reduce their training (only 10 per cent said this was their intention). But these results highlight the importance of a stable economy and a clear Government policy framework for delivering the desired reductions.
There is a lot more that individual organisations can do by focusing on the simple stuff like... reducing empty miles and increasing vehicle fill through better planning, reducing stem miles through better network design and improving fuel efficiency through training and technology
Simon Pearson Head of Central Supply Chain, Asda
Yes, emissions were down in 2009 but so was the economy so this is no time for back slapping. A low carbon approach has to be a vital part of kickstarting and future proofing our economy, getting us off the oil hook and onto long-term green growth
The Rt Hon Chris Huhne MP Secretary of State for Energy and Climate Change
The Logistics Carbon Reduction Scheme

The Logistics Carbon Reduction Scheme (LCRS) launched in 2010 aims to collectively embrace the work undertaken
43
by the freight industry to reduce carbon emissions. It offers industry a key platform to share best practice and enable logistics buyers to embed low carbon logistics throughout their distribution networks. The scheme was initially supported by 12 founding members from a wide range of different sectors and operations. Each had undertaken key carbon reduction actions but recognised that through working together to pool their efforts and share experience, management effort could be more effectively prioritised and high yield carbon reduction opportunities made more accessible. The LCRS was therefore developed by FTA to record, report and ultimately reduce carbon emissions from freight transport. To take part, freight operators submit operational fuel usage data and vehicle numbers that are converted into carbon emissions using Government approved conversion factors. The figures are then analysed and aggregated to build up an accurate picture of the logistics sectors total carbon emissions. In so doing, the scheme provides the roadmap for future transportrelated carbon reduction policy in the UK. Over the last 12 months, 46 logistics companies have signed up to the scheme accounting for around 40,000 commercial vehicles. To ensure the robustness and credibility of the scheme, FTA visits each participant to check through their data submission. FTA has collaborated with Heriot-Watt University which has acted as an external moderator for the scheme and supported the Association in developing a voluntary carbon reduction target for the scheme to 2015.The LCRSs unique priorities in 2011 are to grow scheme membership and to map carbon emissions across modes other than road, and provide logistics businesses with the tools that they need to continue to reduce their carbon emissions.
The need for confidence and stability are paramount. Some recent Government statements un-nerve an already fragile recovery. Lets focus on the positives.
Ray Ashworth MD DAF UK
The commitment demonstrated by the schemes participants has allowed FTA to open up discussions with Government about using the scheme as the principal mechanism for carbon reduction in supply chains, rather than Government relying on taxation and more regulation to engender change. This would have the benefit of giving logistics businesses a flexibility of approach allowing them to decide which mix of measures works best for their particular circumstances. Without this flexibility, there is a danger that carbon reduction will be achieved at the expense of other key national objectives. The most recent emissions figures published by the Department of Energy and Climate Change show that in 2009, UK net emissions of carbon dioxide were estimated to be around 9.8 per cent lower than in 2008. Emissions from the transport sector were 4.2 per cent lower than the previous year. While this is good
We have signed up to and are active members of FTAs LCRS Our plans are to aim for a 20 per cent reduction in CO2 emissions by 2012, using 2006 as a baseline
Chris Pascall Head of Transport, UK Power Networks
44
news, it cannot be ignored that the economic recession was a significant contributory factor. With their more initimate knowlegde of their sector, businesses not Government are best placed to identify the most efficient methods of delivering change. The Governments role must be to provide a policy framework, complete with carefully designed incentives and penalties, to allow businesses to do this.
Industry image
The logistics sector has an impact on everything we do and rely on our homes, our clothes, our food, our schools, our hospitals. By rights it should be a highly prized national industry, viewed by all as an essential, valuable contribution to society. Sadly, that is not the case. In the FTA Logistics Industry Survey 2010/2011, more than 83 per cent of respondents said that the public had
either no understanding or only slight understanding of the role of logistics in the economy (see graph 3.4). These findings were echoed in the Ipsos MORI Issues Index (see graph 3.5) and those of the public attitudes research undertaken for FTA in 20103 which found that the publics current knowledge and understanding of the logistics industry was at best modest. Many people questioned as part of the research admitted that they took the benefits of freight for granted and had rarely, if ever, considered the mechanics of how the industry works. Despite this lack of awareness, however, attitudes towards road freight were quite well defined. Congestion, road safety concerns (particularly concerning lorries) and environmental concerns were the top three public anxieties about the logistics sector. As a result, freight was accepted as being nothing more than a necessary evil by the public. These generally negative perceptions are both undeserved and potentially damaging. Not only do they make it less likely that future generations will see the industry as an attractive place in which to work, but they also contribute to an atmosphere in which politicians and policy-makers find it relatively easy to overlook the industrys needs. Restrictive parking policies, night-time delivery bans, low emissions zones all these developments have been made easier as a result of public apathy and misunderstanding. Changing public attitudes is not simple, especially at a time when transport issues are viewed as a low priority, but there is a strong desire within the industry that something must be done. 2010 saw a number of positive developments on this front including the launch of the FTAs Love Logistics project, a new code of practice for van operators known as Van Excellence, advertising campaigns by UPS and Ford, and a TV series looking at Stobarts.
Graph 3.4 Perception of public understanding of the role of logistics in the economy
Little awareness of logistics by the public 0% 2% 16% 35%
No understanding A slight understanding Some understanding A good understanding A very good understanding
48% Source: FTA Logistics Industry Survey 2010/11
Love Logistics
The ongoing Love Logistics campaign, was launched in 2010 with two key elements the publication of The Logistics Report, a comprehensive analysis looking at public and industry attitudes to the industry; and The Love Logistics Showcase, an industry event designed to stimulate widespread action. That was followed up by various other support projects distribution of promotional videos, a reception for MPs
Its everything to keep the country going.....I just dont want to know about it
FTA Public Attitudes Research
I just think they should put more freight back to the trains and get the lorries off the roads
3 Public Attitudes to the Logistics Sector reports the results of qualitative and quantitative research undertaken by TNS-BMRB for FTA
45
Graph 3.5 Extent to which transport issues feature in public awareness

Transport issues are not a high priority for the public
25 Mayor approves London congestion charge Potters Bar rail crash Paddington rail crash 15 Brown becomes PM Cameron becomes PM Fuel protests
Percentage of public who rate transport issus as important
20
10
May 1997
May 1998
May 1999
May 2000
May 2001
May 2002
May 2003
May 2004
May 2005
May 2006
May 2007
May 2008
May 2009
May 2010
Base: Representative sample of 1,000 British adults aged 18 and over. Source: Ipsos MORI Issues Index
and other parliamentarians, press and media support, and distribution of The Logistics Report and other material. FTAs endeavours met with widespread welcome and admiration from across the industry suggesting that, even in difficult economic conditions, or perhaps because of these difficult conditions, the industry needs to make greater efforts to state its case. Going forward into 2011 the campaign programme will include additional and varied new activities including: The Love Logistics Toolkit which will provide individual members with the ability to create and operate their own personalised campaign, designed to promote locally both the logistics industry and their own company operations; a new video focusing on a life without freight and website; and a series of activities and events aimed at educating MPs and policy makers.
(Their priorities should be) to try and improve public understanding of the industry(and) to try and get better legislation for the industry
Political stakeholder Ipsos Mori research
They ( FTA) perhaps have to remind people that, you know, theyre not just a bunch of lorry drivers who want to drive 44-tonne trucks through your childs school yard or something or up your street
Political stakeholder Ipsos Mori research
Van Excellence
There are currently more than 3.2 million vans in the UK. Van numbers have grown by 38 per cent in the last decade and now represent one in 10 of all vehicles on our roads. Whether the van is used to deliver goods or is a mobile base for a tradesman, its
There is still a lack of appreciation of the significant role that logistics has within the retail/ manufacturing supply chain.We must emphasise the important role that logistics plays in meeting our every day requirements
John Russell Chairman, John G Russell Transport Ltd
46
We must stress the attractive features of a career in logistics. If you want to work internationally, are interested in the green agenda and are willing to take responsibility early, then logistics is for you
Leigh Pomlett CEO Europe, CEVA logistics
operation is vital to the success of the UK economy. But vans suffer a poor public reputation and regulatory action has long been threatened by national Government and the European Commission to bring discipline to the sector. Many van operators, however, have developed excellent working practices to ensure the safety of their staff and other road users, to minimise the environmental impact of their operations and to operate in a conscientious and responsible manner. Throughout 2010 FTA has been working with a group of the UKs biggest and best van operators to develop a comprehensive and realistic Code of Excellence that sets demanding but achievable standards for van operation, and addresses many of the issues cited in public and Government criticism of van operators and drivers. The purpose of Van Excellence is to demonstrate achievement of high standards of van operation beyond that currently required by law. Accreditation against the codes standards through annual audits will demonstrate to customers, shareholders, regulators and the public a meaningful commitment to safe, efficient and sustainable operations. Through these initiatives, operators will be able to challenge public misconceptions and present a more positive picture of the industry. And by generating better public understanding and support, greater pressure can be brought to bear on politicians in order to secure a more industry friendly approach to policy making.
This is perhaps not surprising given that, despite the huge improvements which have been delivered over recent years, logistics remains a potentially hazardous industry in which to work. Hgvs were involved in 7,013 accidents in 20094 (the latest year for which data is available). This represents 17 per cent fewer than in 2008 These accidents resulted in 268 fatalities (27 per cent fewer), 1,171 serious injuries (13 per cent fewer), and 8,256 slight injuries (18 per cent fewer) Foreign registered hgvs were involved in 736 accidents in 2009, 12 per cent fewer than in 2008 These accidents resulted in 21 fatalities (40 per cent fewer than 2008), 65 serious injuries (31 per cent fewer) and 921 slight injuries (15 per cent fewer) There were 19,794 reported workplace accidents for the transport and communications sector in 2009/10, 10 per cent fewer than in 2008/095 The number of trucks stolen in 2010 shot up 59 per cent on 2009 figures
Safety and security

Safety and security issues have always been at the forefront of the minds of those involved in the logistics industry.
In 2010, these issues were once again a high priority for company boards (see graph 3.3) with site safety, reducing accidents on the roads and staff security taking the top three positions in the priorities list. Delivering further improvements is not easy and it is unlikely that logistics could ever be turned into a riskfree environment. But it is an objective which everyone shares. Businesses, Government and its agencies, as well
Its the white vans that are the worst blocking up the roads with the deliveries when you are trying to get to work
4 DfTs Reported Road Casualties in Great Britain 2009 5 HSEs latest report on the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR)
47
as third parties such as other road users, all have a role in delivering the improvements which will ensure that the statistics presented above continue on their downward trends. Action was taken on a number of fronts during 2010 demonstrating the industrys continuing commitment to delivering improvement.
is blamed on a higher demand for lorries and mechanical parts in developing countries. In addition, opportunists are stealing vehicles in the hope of finding expensive cargo inside trailers. Truck crime costs the logistics industry around 250 million per year through lost loads, damage to vehicles and through injury to drivers. While there are some good lorry parks and truck stops across the country, currently there are not enough, safe, secure and well placed facilities for drivers to take the breaks that the law requires of them. As a result they often have no option other than to park up in lay-bys and side streets. FTA has urged Government to ensure the adequate provision of truck stops which are properly maintained and resourced with security systems, shower blocks and toilets. By working with local government to establish shared use park and ride schemes close to the major road network, public nuisance could be reduced and drivers would be able to take to the road properly rested and refreshed. Some good progress was made in this area during the year: the Highways Agency has produced an online guide to truck stops and there are currently initiatives to improve facilities for trucks at motorway service areas; in Europe two research projects were established to look at a model for secure lorry parking (SETPOS) and a method of grading lorry parks for comfort for the driver and safety, together with mapping systems to make the information usable as a web-based system (LABEL); and the DfT began implementing its strategy for lorry parking in England and commissioned a study into the strategic need for these facilities.
FTA Logistics Safety Working Group

The FTA Logistics Safety Working Group was established in May 2010 as part of the Associations commitment as a signatory to the Health and Safety Executive stakeholder pledge. The group is made up of 18 member organisations representing the diverse nature of FTA membership and the logistics sector, including organisations from retail, third party logistics, courier and express services, waste, utilities and essential service industries. Its objective is to reduce the number of work-related deaths, injuries and ill health in the logistics sector. Three key workstreams have been identified for the group going forward: sharing and promoting good practice; identifying and tackling key issues; and developing appropriate logistics health and safety performance measures.
Load security
The HSE launched a campaign in early 2010 to ensure that loads were being transported securely on vehicles. This raised concerns about standards of compliance within the industry. In response, FTA and other industry organisations, together with HSE and VOSA, established an industry load security working group to ensure that vehicles and loading operations complied with all legal requirements. Discussions within this working group focused on achieving a common understanding of load security requirements, resolving industry issues associated with complying with these requirements, and agreeing on methods of load security which were acceptable to all.The aim of the group is compile UK draft guidance on load security, providing pragmatic advice for operators to supplement the Department for Transports Code of Practice. The Health and Safety Laboratory will fund and publish this work in association with FTA and other industry organisations. The aim is for the guide to be published in summer 2011.
National security
Transport networks have become a favoured target of terrorists in recent years, and 47 per cent of T&L CEOs were concerned that terrorism could prove a threat to growth, far more than across the survey sample overall (22 per cent). One quarter of T&L CEOs7 said they were explicitly factoring the risk of terrorism into their strategic planning and risk management activities, but with supply chain security becoming an increasingly vital issue, this is likely to become even more important in the future. The events at East Midlands Airport in 2010 highlighted the need for effective security systems for freight. In response, DfT is reviewing air freight security arrangements and FTA is a part of an industry liaison group with Transec8
Safe and secure lorry parking

The choice of parking locations is of fundamental importance to the safety of the driver and security of the vehicle and its load. Lorry crime has risen considerably in the past year: some 2,552 hgvs were reported stolen in 2010, compared to 1,604 in 20096. The sharp rise in thefts
6 Truckpol statistics
7 14th Annual Global CEO Survey, PwC 8 TRANSEC is the Transport Security Division of DfT
48
debating the proposed changes. Tighter controls are the most likely outcome which could impose more costs on business. FTA is working to ensure any measures taken are intelligent, focused and proportionate to the risks involved. Simplistic, politically appealing measures need to be avoided.
Emerging risks and opportunities

Predicting the future is an imprecise science but needs to be undertaken in order to assess risk to existing business models and spot opportunities for new ones.These are some of the issues we expect to be featuring in future Logistics Reports, along with many others that have yet to emerge.
Table 3.1 Emerging risks and opportunities for the logistics sector
Immediate (201112) Economic/business Double dip recession Inflation Public spending cuts Consumer confidence Fuel duty increases Oil prices Euro-zone defaults Bank lending /credit terms Supply chain disruption caused by Japanese tsunami Political Stability of Coalition Policy stagnation Economic stability Scottish Parliament elections (2011) London Mayoral Elections (2012) Operational/policy Road maintenance APD/per plane tax O licence changes Olympic Games Railways restructuring Longer semi-trailers Congestion and journey times Lorry road user charging Infrastructure provision New employment legislation Anti-terrorism measures Industry image Urban access/parking Air quality restrictions Cabotage restrictions removed Skills shortages Road pricing Super-size container ships Short term (25 years) UK economic growth rates Inflation risk Interest rates Industrial unrest Consumer spending Business taxation levels Property prices/rents Euro-zone growth rates Emerging economies Medium term (5+ years) Carbon trading Road pricing Oil prices Carbon emission targets
General Election (2015) Localism and planning Devolution progress
Chapter 4

The size and diversity of logistics means that there are numerous ways to report its progress and achievements.The logistics dashboard brings together a selection of 50 indicators that characterise different aspects of logistics and transport activity and performance in the economy.These provide a snapshot of the health of logistics and the economy that it serves
(The most recent reported data are shown and the change on the previous years figure is reported)
KPI
2008
2009
2010
2011
Most recent year on year change
ROAD TRANSPORT INDUSTRy

1 2 3 4 5 6 7 8 9 Reported profit margin of top 100 road hauliers Number of operator licences Number of hgvs licensed Number of vans licensed Hgv registrations Van registrations Unemployment levels for hgv drivers (claimant count for December) Hgvs laid up (SORN) Percentage penetration of cross channel market by UK hgvs 2% 95,436 436,000 3,303,000 57,410 289,463 8,880 40,795 19% 1% 91,200 415,000 3,285,000 34,746 186,386 10,665 43,266 20% 34,457 222,915 6,550 4%
SAFETy
10 11 12 13 14 15 16 17 Hgv test pass rate initial Number of trailers tested Van test pass rate initial Hgv roadside encounter prohibition rate percentage roadworthiness Hgv roadside encounter failure rate percentage drivers hours and tacho Hgv roadside encounter failure rate percentage overloading RIDDOR reportable workplace accidents for transport Road accident rate for hgvs (number killed or seriously injured) 68% 240,094 51% 33% 17% 31% 21,905 1,712 73% 230,966 50% 32% 15% 38% 19,794 1,439
EFFICIENCy
18 19 20 21 Percentage of hgvs empty running Percentage of inland freight moved by rail (billion tonne kilometres) Lading factor percentage for hgvs Hgv average fuel consumption (mpg) 29% 20% 60% 7.7 28% 19% 60% 7.7
53
KPI
2008
2009
2010
2011
Most recent year on year change
22 23
Use of alternative fuels in hgvs (million tonnes of oil equivalent) Average hgv payload capacity (tonnes)
0.8 10.88
1.0 10.96
TRAFFIC AND INFRASTRUCTURE

24 25 26 27 28 29 30 31 32 33 Containers handled by UK ports (thousand TEUs) Freight handled by air (million tonnes) Goods moved by hgvs (billion tonne kilometres) Goods moved by rail (billion tonne kilometres) Van kilometres (billion vehicle kilometres) Hgv movements to mainland Europe (million) Unaccompanied trailer movements to mainland Europe Congestion on inter-urban roads (minutes per 10 miles) compared to March 2008 baseline Motorway network length in Great Britain (miles) Number of rail freight train movements 8,764 2.282 118 21 68.1 2.060 709,000 9.8% 2,211.46 316,684 7,413 2.048 101 19 66.6 1.764 611,000 8.9% 2,211.90 278,496 1.794 673,000 9.0%
ECONOMIC INDICATORS
UK economic activity 34 GDP (Q4 annual percentage change) 2.7% 2.8% 1.5% UK exports Growth in goods exported to the EU by volume (in December) 35 percentage change on one year earlier Growth in goods exported to the rest of the world by volume 36 (in December) percentage change on one year earlier UK imports Growth in goods imported from the EU by volume (in 37 December) percentage change on one year earlier Growth in goods imported from the rest of the world by 38 volume (in December) percentage change on one year earlier UK inflation and currency 39 40 41 42 Costs 43 44 Fuel 45 46 47 48 49 50 Bulk diesel (average pence per litre excluding VAT in February) Gas oil (average pence per litre excluding VAT in February) Rotterdam diesel (average per tonne in February) Brent crude (average per barrel in February) Jet fuel (Rotterdam kerosene) (average per tonne in February) Rotterdam gas oil (average per tonne in February) 88.88 47.18 $875.24 $95.21 $920.73 $864.02 79.93 36.44 $425.25 $43.18 $431.60 $402.63 90.86 44.85 $634.49 $73.63 $662.64 $617.29 107.85 59.40 $899.43 $103.53 $959.55 $880.46 Wage settlements (annual change in basic pay) Total hgv operating costs (annual change for 38t gvw artic) 2.7% 1.0% 0.1% 4.8% 2.1% 6.6% Retail Prices Index (in February) Consumer Prices Index (in February) $/ exchange rate (average for February) e/ exchange rate (average for February)
17.5% 6.7%
1.8% 3.5%
13.8% 9.9%
20.1% 5.8%
14.1% 0.7%
3.5% 20.9%
4.1% 2.5% $1.9639 e1.3308
0% 3.2% $1.4417 e1.1277
3.7% 3.0% $1.5623 e1.1416
5.5% 4.4% $1.6123 e1.1817
Information on source material is available at www.lovelogistics.co.uk/dashboard
Freight Transport Association Limited Hermes House St Johns Road Tunbridge Wells Kent TN4 9UZ
Telephone: 01892 526171 Fax: 01892 534989 Website: www.fta.co.uk

Registered in England Number 391957 FTA 04.11/SR

The Logistics Report 2011: Delivering Safe, Efficient, Sustainable Logistics

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The Logistics Report 2011: Delivering Safe, Efficient, Sustainable Logistics

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The Logistics Report 2011

Delivering safe, efficient, sustainable logistics

Coolin Desai Logistics Industry Leader PwC UK

Theo de Pencier Chief Executive Freight Transport Association

Dealing with the downturn

Delivering against the odds

Planning for a prosperous, safe and sustainable future

The logistics dashboard

The Logistics Report 2011 Freight Transport Association

FTA Logistics Industry Survey 2010/11

FTA Quarterly Transport Activity Survey (QTAS)

PwC 14th Annual Global CEO Survey

PwC Round table discussion

The Logistics Report 2011 Freight Transport Association

FTA Managers Guide to Distribution Costs (MGDC)

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

Ipsos MORI Freight Transport Association Stakeholder Research 2010

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

Dealing with the downturn

Percentage balance of respondents

Graph 1.1 UK domestic road freight activity sentiment

Activity and demand by mode

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

Graph 1.2 Rail freight moved by market segment 200203 to 200910

Intermodal services Bulk or semibulk, ie conventional services

Logistics operating costs

Source: FTA Logistics Industry Survey 2010/11

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

RPI Haulage trends Vehicle operating costs

Index January 2005 = 100

Source: FTA Logistics Industry Survey 2010/11

Source: FTA Managers Guide to Distribution Costs

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

Source: EnergyQuote JHA, Arval UK

Graph 1.7 HR priorities for transport/logistics related staff 20102011

Source: FTA Logistics Industry Survey 2010/11

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

Graph 1.8 Business investment intentions 2010 and 2011

Graph 1.9 Fleet investment in 2010 and expectations for 2011

Purchased additional distribution premises

Rented additional distribution premises

Relocated business premises

Acquired another business

Source: FTA Logistics Industry Survey 2010/11

Source: FTA Logistics Industry Survey 2010/11

The Logistics Report 2011 Freight Transport Association

Dealing with the downturn

Graph 1.10 Freight transport insolvencies in England and Wales 20072010

Source: Equifax, PwC analysis

7 FTAs Quarterly Transport Activity Survey (QTAS), January 2011

Graph 1.11 Fuel duty and inflation trends 20002011

Actual duty rate (ppl) Duty inflated by RPI (ppl)

Fuel duty (pence per litre)

12ppl 11ppl 10ppl

Dealing with the downturn

Source: EU Oil Bulletin

The Logistics Report 2011 Freight Transport Association