Thursday, July 1, 2021

Statistics Reveal Contraction of Spending Affecting the UK Logistics Sector

Pandemic has had Ramifications for the Supply Chain
Shipping News Feature

UK – It would appear belts are tightening as the pandemic bites according to two separate sets of figures published this week by the Office for National Statistics (ONS). Both reports impact the freight sector with household spending diminished and research and development (R&D) within the industry also contracting.

Firstly the ONS Consumer Trends report reveals household spending slumped 11% in the first quarter (Q1) of 2021, compared to the same period last year. Even the fact that the hospitality arena felt the most pain with a 63% drop in hotel and restaurant spending will be no comfort to the logistics industry as the effect on supply chains is obvious.

The second link is even more direct with analysis of the figures revealing amount invested in R&D by the transportation and storage industry fell from £13 million in Q4 2020 to £12 million between January and March this year, an 8% drop.

Although R&D spending as a whole fell across UK industries, the average was a mere 3% making logistics the stand out under performer. Analysis of the report by business tax relief consultancy Catax shows while the industry had defied expectations last year overall, recording the same level of R&D investment as it did in 2019, £50 million, this was still lower than the record high of £82 million recorded in 2011. Mark Tighe, CEO of consultancy Catax, commented:

“It’s a mixed result for the logistics sector which has outperformed in the past year but markedly underperformed since the previous quarter. Logistics companies make a fraction of the investment seen in other industries but that doesn’t mean we shouldn’t expect to see sustained growth year on year. With Brexit fading into the background and the looming end of Covid restrictions, the pent up need to grow R&D spending may finally make itself felt in the second half of the year.”

Many of the industry’s members will benefit from R&D tax credits on qualifying spending. This tax relief was introduced by the government in 2000 to incentivise innovation, and results in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

Meanwhile there are a host of firms which don’t realise the work they do qualifies as R&D (which is defined as any work that seeks to resolve a scientific or technological uncertainty, whether that’s a new process, product or service). Crucially, R&D work does not need to have been successful to qualify and claims can be made up to two years beyond the end of the tax year in which the work took place.

As for that slump in household spending, which prompted Head of Consumer Research, David Jinks M.I.L.T. at home delivery company ParcelHero to comment how fortunate the country is to be hit at a time when at least we have advanced from the ‘dial up’ days of the 1990’s, making online shopping a regular feature during the pandemic. He observed:

“This consumer report shows spending fell overall in Q1 this year during Lockdown 3.0, but ParcelHero’s own research reveals online sales grew exponentially to meet the demand for goods and food. In February 2020, online accounted for just 19% of all retail spending; by February 2021, this had mushroomed to 36% of the entire retail spend. Without e-commerce, household expenditure would have collapsed by well over 20%.

”Looking on the bright side, the collapse in household expenditure at the beginning of the year may mean families have more cash in their coffers to spend this summer. We could be looking at a bumper holiday season for stores, hotels and restaurants as Brits enjoy the 2021 Great Staycation [and our] research has found two-thirds of consumers say they will never return to their pre-pandemic High Street shopping habits.”

Photo: The Vita Bella at East Hanningfield, Essex, one of thousands of such restaurants awaiting the return of guests after such a long lay-off.