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Margin improvement key to UK logistics upturn

LONDON: There has been a drop in confidence among UK logistics managers in the past six months to 69.2 from 71.4 at the end of 2014, according to the latest Barclays/Moore Stephens survey, as many operators contend with maintaining margins despite intense price competition.

According to report authors Rob Riddleston, head of Transport and Logistics for Barclays Corporate Banking and Philip Bird, senior director Corporate Finance at Moore Stephens, improving margins is ranked as the most critical factor for logistics operators over the next six months.

Logistics Confidence Index"Our survey results suggest that major retailers and manufacturers are increasingly prone to shop around to meet their price and service expectations, rather than renewing contracts automatically," the two men noted. "Many respondents say that customers' pricing expectations are increasingly demanding and, in some cases, unrealistic. [They] also cite pressure from customers for longer payment terms and the increasing prevalence of late delivery fines."

Some 37 percent of the respondents indicated "somewhat more favorable" business conditions compared to the previous six months – an increase of 25 percent since the first Barclays survey at the beginning of 2012. Slightly more respondents (41 percent) suggested the business climate has stayed the same, while 19 percent thought it had worsened.

Noting 53 percent of respondents said the most important source of new business has been from shippers switching providers, the authors said many of them also cited market over-capacity which, combined with price-cutting by larger multinationals, is driving smaller competitors out of the sector.

Nearly a third of those surveyed said they planned to make an acquisition by the end of the year. Notable examples of mergers in the past six months include Clipper Logistics' acquisition of Servicecare Support Services, Alliance Boots taking over full ownership of UniDrug Distribution, Connect Group's purchase of Tuffnells Parcel Express and CitySprint's acquisition of CYC Logistics.

Responding to a question about the free movement of EU labor, 66 percent of respondents said there should be some restriction to and from the UK - arguing Europe is both a source of competition and a difficult market with few current growth opportunities because of the financial uncertainty in the Eurozone.

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