Supply chain reaction

The global pandemic this year has changed the world in ways we couldn’t possibly have foreseen at the dawn of 2020. Even at the Association’s National Conference in March, although awareness of Coronavirus was beginning to spread, we had no idea that our key messages, urging members to embrace change or be left behind, in hindsight would have such resonance. 

The growth of e-commerce and the impact on warehousing of increased online shopping, was certainly already a major talking point. In February the British Property Foundation report ‘Delivering The Goods in 2020’, predicted that online spending would double by 2040, driving requirement for 21m sq ft of extra warehousing every year for the next 20 years.  

Just months later, as the national lockdown of the UK saw all ‘non-essential’ shops close and the general public advised to stay at home, a whole new swathe of the population had turned to online shopping, massively accelerating the curve well beyond any previous predictions.

According to a report by one of the major grocery retailers, the number of consumers in the UK who do a weekly shop for their groceries online has doubled since the coronavirus lockdown, in a trend that it says is now “irreversible” as we head towards 2021.

One in four consumers now buy food and essentials at least once a week online, while more than three-quarters order at least some of their regular household goods from supermarket websites – up from 61% in 2019, Waitrose’s research revealed.

All the leading supermarkets have increased online selling to serve millions more shoppers as Covid-19 has driven demand, particularly from more vulnerable customers, including elderly people. Nearly a quarter of over 55s now buys food and essentials on the web, compared to just 8% in 2019.

As a result of this sea-change, Waitrose is investing £100m in developing its online service, which it predicts will soon account for 20% of its total business – up from 5% before the pandemic. Waitrose is not alone is reassessing and restructuring its business model, as figures from the real estate sector testify.

The impacts on our sector of this massive change include a ‘bumper’ year for uptake of warehousing space. By the end of Q3 2020 warehouse take-up reached 38.6m sq ft, beating the previous annual record set in 2016 ft by 3.6%, with vacancy rates down to just over 6%.

As retailers adjust to the ‘new normal’ and gear up to serve the rapidly expanding number of customers abandoning stores in favour of home delivery, those already dominating the online delivery market remain a step ahead. No surprises, for example, that in 2020 36% of all space transacted has been by online retailers, with a staggering 29% of the total take-up from Amazon.

The pandemic has also raised the topic of supply chain resilience, with businesses stocking up and adopting a less ‘just-in-time’ and more ‘just-in-case’ approach. This, say the real estate pundits, may result in diversifying suppliers and sourcing locally to minimise disruptions. We expect demand for logistics space supporting online growth, including micro-fulfilment urban centres and cold storage, to continue well into next year and long after the Covid crisis is over.

From a Health & Safety point of view, Covid-19 has had a huge effect too. With the lifting of lockdown and the end of furlough, those warehousing and logistics businesses that had been in hibernation (notably those serving the ‘non-essential’ sectors like fashion) or operating at less than full capacity, were brought back on stream, but in a new and challenging environment. To ensure the safety of workers, all warehouse operators have not only had to invest substantially in creating Covid-secure workplaces, but have also been required to implement social distancing rules, split shifts and other measures that, while necessary, have inevitably undermined productivity and increased lead times. 

UKWA has been vocal in telling retailers and manufacturers – as well as government – that for an industry where margins are often less than 1%, these costs are too much for us to bear alone.

The Association has been – and continues – to lobby government for additional financial support for the sector in the form of a business rates holiday to help mitigate serious cashflow challenges; meanwhile we are calling on our customers (and consumers) for a fairer deal.

We have long argued that the culture of providing free deliveries and returns to compete for market share is a dangerous ‘race to the bottom’ that will ultimately prove unsustainable. The explosion of online shopping this year has brought this into sharp focus. The days of bricks and mortar subsidising online channels are clearly numbered. As the balance tips rapidly and permanently towards online, retailers can no longer afford to deliver for free – and neither can we.

Consumers, who have been led by online retailers (and Amazon in particular) to expect home delivery (and returns) to be free, are arguably ready to accept that change. Along with clapping for health workers and the NHS, the public came out onto their doorsteps to acknowledge other ‘key’ workers, including the warehouse operatives and delivery drivers who were keeping supermarket shelves stocked and bringing essential supplies to their homes during the crisis. Surely, we should seize this moment of national recognition to highlight the costs associated with that service and push for changed expectations.

Indeed, until we address the issue of margins and profitability in our industry, we will never resolve the other long-running issue for the sector – labour shortages. In a recent meeting between the heads of industry trade associations and leading logistics companies with The Rt. Hon. Michael Gove MP, Mr.Gove referenced the rising availability of ‘home-grown’ workers as COVID-19 restrictions took its toll on jobs. UKWA has strongly supported the government’s new ‘Kickstart’ scheme, designed to help young people by providing funding to employers to create job placements for 16 to 24-year olds.

This is a great opportunity for our sector to attract young talent into the industry. It gives us chance to showcase warehousing and logistics as a fast-paced, IT driven environment with clear career paths, and to recruit the young employees we need as rapid online retail growth brings increased demand for our services.

However, the fact remains that if we are unable to afford fair wages and the benefits young workers expect, we will continue to be unable to compete with other sectors for the best talent. 

The other great driver of change for 2021 of course is the UK’s departure from the EU on January 1st.

It is no secret that all the trade associations share grave concerns about the readiness of both government and our industry for the likely 200 million additional customs declarations that will need to be processed and the inevitable supply chain interruptions as a consequence. The view from UKWA is that things are likely to get worse before they get better – but we see reasons to be positive in the longer term, not least that the expected interruption in flows after January will almost certainly be mitigated by increased inventory in the supply chain. 

Other good news includes the government’s commitment to developing ‘multi-purpose inland customs facilities’ before July 2021. Our message is that there are plenty of warehouse operators, UKWA members and non-members alike, who have existing capacity along with the appetite to develop new services, making costly new infrastructure unnecessary – our industry is ready and more than willing to take the strain! 

The government has also finally acknowledged the formidable scale of the task ahead and has pledged to grow the customs intermediary sector to help meet the increased demand. Accordingly, a further £50 million grant scheme has been made available to help train staff in customs skills and pay for IT upgrades. This is in addition to the £34 million already made available to the sector in the planning for the UK’s exit from the EU. 

This grant will offer financial support for customs brokers, freight forwarders and logistics service providers – providing businesses with further support ahead of the new processes taking effect in July 2021. This opportunity will be of significant interest to UKWA members and others in the sector, who should be planning to develop existing or new Customs Warehousing services. There will be considerable demand for such services as the transition period expires and many importers seek solutions to defer and/or minimise exposure to import duties in the new post-Brexit world.

2020 has changed everything and 2021 offers our industry the chance to capitalise on those changes to improve – a ‘supply chain reaction’ if you will. Let’s call time on the unsustainable practices holding back our industry and seize the opportunities ahead!

For more information, visit www.ukwa.org.uk

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