Friday 21st Oct 2016 - Logistics Manager

All grown up

Graeme Wilson of UK Pallets says the market is no longer in the embryonic stage but has not yet reached full maturity. It’s difficult to estimate the true size of the current market and to guess what it will be like in the future, however, “what we do know is that there is certainly no shortage of volume at the moment”, a trend he thinks will continue. UK Pallets predicts growth of 10 to 15 per cent over the next three to five years.

Confidence across the industry is still high, despite increasing competitive pressures, according to a survey from Palletline. It found that all regions of the UK reported high levels of turnover with operators in the north east experiencing the biggest improvement during the year.

Managing director Glyn Jones says: “Confidence within the sector remains positive, despite price pressures from customers.”

Road congestion is still a major issue affecting the sector and there is a clear need for action to reduce the impact of this cost on hauliers.

Mick Scarlett, chief executive of Palletforce says the sector is growing at about 15 per cent a year, although he reckons that the market is definitely slowing down. In the year to October Palletforce was up 18.6 per cent, although only seven per cent of this was organic growth. “It is a reasonably mature market now and the days of thirty or forty per cent growth are gone without [offering] additional services.”

He believes that future growth is going to come from value-added services and domestic traffic in Europe.

Palletways is currently growing at around 12 per cent a year, says managing director Craig Hibbert, who believes that continental Europe has great potential for growth. Over the past five years, Palletways has been setting up domestic networks on the continent and has just launched an operation in France. At the moment, there are no foreign networks targeting the UK market.

Graeme Wilson says: “European and international traffic is a key element in our future and at UK Pallets we are already experiencing ever increasing demands from our existing customer base to provide services to destinations around the world.”

Pall-Ex managing director Hilary Devey says that in Europe, it is not as easy to get critical mass and she does not expect it to see anything like the growth found in the UK.

The UK is reaching full maturity in terms of population of networks, but, as the sector enhances its service offering to the market, Hibbert thinks the volumes will come and will sustain various networks in various stages of growth. “It’s very exciting.”

Scarlett agrees with Hibbert that “the next big market is the domestic traffic in Europe” and says Palletforce is watching Palletways very closely.

Wilson says: “It’s been well documented that changes in the retail landscape coupled with the pressures facing the traditional logistics players are forcing companies to re-evaluate their transport solutions. As competition increases, companies need to be able to respond quicker to their customers needs and ship smaller and smaller consignments over a shorter period of time while still being cost effective.”

He thinks organic growth will come from its existing customer base as well as new volumes from companies moving away from in-house or contract based service providers.

“Moreover, what we also believe is that we will see a number of strategic alliances between some of the traditional logistics operators and the pallet networks.”

Rates remain very competitive in the market and Wilson says: “Rates will always be an issue, but at UK Pallets, we feel that rather than our customers demanding cheap rates, like any other business, what they really need is to receive value for money so our focus is squarely fixed on ensuring we provide a quality service at the right price.

“We’re not interested in growing volumes that are unsustainable at ridiculously low rates, that wouldn’t be in anyone’s long term interest. What we are interested in and are committed to is providing a service to our customers that they can rely on, both in terms of longevity and quality.

“Of course we will see our competitors trying to win over our customers by offering rates that appear to provide financial savings but if that’s not supported by constant levels of performance and customer service, then like any business, that usually results in false economy.”

Hilary Devey says we have barely scratched the surface of what the sector can offer. “Up until recently, we [Pall-Ex] have concentrated on the one to three pallet consignments. With our new IT infrastructure, we’re now able to act as a freight forwarding desk, using the hub for exchanging full loads as well as the one to three palletised consignments.”

Pall-Ex is also broadening its horizons; it is moving into home delivery of white goods.

Hibbert predicts that increased market share will come from those networks that are able to offer complete added value services. This will allow those companies to lead the market, he says, pointing out that even at the moment customers are demanding extra services such as track and trace in-cab POD facilities, online scanning and so on.

Currently there is plenty of volume around for companies and plenty to sustain businesses going forward, says Hibbert, “but I do believe that the bigger networks or those that drive initiatives into the business will certainly capitalise on the market.

However, he reckons there is not much opportunity for the creation of new networks. “Certainly from the growth that we’ve experienced, the market will sustain what’s currently there.”

Others broadly agree. Devey says any new networks coming into the market will adversely affect the sector, although she reckons there is still plenty of volume left.

Scarlett maintains that there will be fewer networks in the UK in the future. “I estimate that over the next three years there will be a shortage of 150 transport companies within the sector.”

The UK has one or two networks too many, he says. “It’s going to be the smaller weaker networks who will struggle. It isn’t hard to work out who those are.” Being member owned is a benefit as money gets pumped straight back into the network.

Palletline’s Glyn Jones believes that in the future there will be more consolidation, but this was not necessarily easy to make work. “If it were to be approached from a merger and acquisitions route, it is not easy to make that work, because of the uniqueness of the postcode and delivery areas.”

Networks have very individual cultures and combining these could prove difficult. However, Hilary Devey does not rule out consolidation. “I think what you might find is an integration of some of the networks, and some of the networks buying some the smaller networks. I think the modus operandi would need to be considered very carefully, but I do think it would work.”

Economies of scale could be developed, with administrative functions while retaining dependency in the delivery function, she says.