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Blog // 02/10/2017

Transport and logistics peaks and troughs

ship transporting goods

The growth in online shopping and the impact of driver shortages in the run up to Christmas is well documented. This can put pressure on logistics and delivery businesses in a number of ways. Some may need to hire agency workers such as drivers and warehouse ‘pickers’, whilst others may need to increase warehouse capacity.

Andrew Galliers - Menzies AccountantResearch indicates that there will be a massive shortage of 1.2 million drivers in the UK’s haulage industry by 2022. If this situation is not addressed, we could see more business failures in the sector, particularly if net migration continues to fall as EU migrants leave the country. To avoid this, transport and logistics businesses must invest in driver training and aim to create a multi-skilled, flexible workforce, which can be deployed to meet shifts in market demand.

While it is obviously early days, increased automation in the sector, including driverless deliveries, could also help to relieve the pressure caused by skills shortages in the longer term.

Hold on to your key workers

Employers in the sector must also look after key workers, particularly those in management roles. These employees understand the importance of using downtime, or quieter periods, to plan for the busy times and stay one step ahead. This can help to smooth out the effect of peaks and troughs, whilst ensuring the business is focused on the future. Employee remuneration and reward schemes may need to be reviewed to ensure this talent is recruited and retained.

A good finance team can help to relieve pressure on cash flow through any seasonal fluctuations in demand. During peak periods, for example, when operational costs are increasing, it becomes even more important for the business to understand its profitability and stay focused on building its new business pipeline and maintaining a high standard of service.

This is where Menzies can help, business owners have grown alongside the business, and once things get to a certain level, critical mass is achieved and no longer can the focus be on the day to day operations. It is important as this point to look at the business strategically, and understand what the numbers are telling you, the worst case scenario is that profitable work is turned down in favour of less desirable jobs due to a lack of understanding the numbers.
To boost this understanding, the management teams of the varying areas of the business need to trained to ensure they can focus on the KPI’s that the business has set. At Menzies, our consultancy services have a proven track record of helping businesses and management teams on this path.

Cash management is always key to running businesses within the sector as supply chains get stretched. Good relationships with key customers are critical to ensure prompt payment and in some instances flexible finance arrangements, such as invoice finance, can provide a valuable cushion of additional funding to boost liquidity if needed. Working capital systems should be kept under continuous review so potential issues can be spotted and dealt with promptly.

Every business has variable costs to consider and for many transport and logistics businesses, changes affecting the price of fuel could erode or increase margins significantly over the course of the financial year. To minimise the risk of cash-flow disruption, businesses should consider building fuel escalator clauses into customer contracts to ensure some or all of any increased costs can be passed on.

For more information or to talk through how you can smooth out the peaks and troughs in your transport and logistics business, contact Andrew Galliers by phone on 01489 566745 or by email at agalliers@menzies.co.uk.

Find out more about Menzies Transport and Logistics advisory services.

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