While UK Economy Grows Logistics Takes a Serious Hit

UK – A comment from business tax relief consultancy Catax makes interesting, and worrying reading this week, examining as it does two consecutive quarters of negative business investment, based upon the latest ONS data that covers the logistics sector. The ONS business investment statistics are an indication of net capital expenditure by UK businesses, which includes spending on items such as plant and machinery, transport equipment, software and buildings.

This is the first time since records began in 1997 that net negative business investment has been recorded in the industry, and no other industry monitored in the dataset has recorded a negative number in that time. The transportation and storage sector, which includes haulage, logistics and warehousing businesses, recorded net business investment of –£275m in Q2 this year, having registered –£822m in Q1.

Catax says the data suggests the logistics and warehousing sector, together with other areas of transportation, could be weathering the after-effects of the pandemic, including an acute absence of drivers, by disposing of assets they can’t use while second-hand asset prices remain high. Mark Tighe, CEO of Catax, commented:

“The logistics sector is having to navigate its way through a nightmare scenario of extremely high demand and crippling labour and supply shortages. At a time of severe stress, many providers are clearly battening down the hatches and trying to put the asset wealth they have to good use.”

The ONS transportation and storage classification also includes rail freight, air cargo and other transport services such as passenger air transport. It is this last which is likely to have had a serious impact on the figures however this year’s statistics represent a marked change on 2020. As well as increased indirect costs, logistics providers face higher wage bills in the light of the paucity of both drivers and warehouse workers.

The sector closed out last year with business investment of £2.9 billion in Q4, having reached £3.4 billion in the final quarter of 2019, just before the pandemic began. The record high for the logistics sector was set in Q4 2010 when it peaked at £6.8 billion.

The sector’s performance is a far cry from that of the UK as a whole. Overall business investment nationally rose 4.5% in the second quarter of 2021 compared with the first quarter of the year, and grew 12.9% on an annual basis. By comparison, UK GDP increased by 5.5% in Q2, leaving it 3.3% below where it was pre-pandemic (Q4 2019).