What you need to know
MBD believes that the value of the UK logistical services industry has risen by 12% over the last five years - from £72.7 billion in 2015 to £81.4 billion in 2019.
The industry has warned that any forward momentum in the market could be lost without the government providing definitive plans for the UK’s future trading relationships with Europe - which it has failed to explicitly provide despite having an exit agreement finalised to pass after the general election which will have an impact both domestically and internationally.
Covered in this Report
The industry revolves around four main components: 1PL, 2PL, 3PL and 4PL. Some industry experts argue that a fifth component has also emerged: 5PL, which involves broadening operators’ scope to e-business.
First Party Logistics (1PL) concerns beneficial cargo owners, which can be the shipper (such as a manufacturing firm delivering to customers) or the consignee (such as a retailer picking up cargo from a supplier). They dictate the origin (supply) and the destination (demand) of the cargo, with distribution an entirely internal process assumed by the firm. With globalisation and the outsourcing and offshoring of manufacturing, distribution services that used to be assumed internally tend be contracted to external service providers.
The logistical services market has a number of distinct business models. The simplest common form is generally referred to as ‘hire and reward’, or sometimes ‘second-party logistics’ or ‘2PL’. This involves providing a one-off transport and/or storage service to a manufacturer or retailer - collecting and delivering specified goods and moving them to a specified location for an agreed price. Single purchases of courier services are also included in this definition.
When a long-term contract for such services is placed with a logistics company, this is generally called ‘third-party logistics’ or ‘3PL’, and is essentially the outsourcing of the transport and logistics function. Typically, this involves the logistics company being integrated into the client business, assisting in the planning and scheduling of goods movements, sometimes basing their staff within the client business, and having dedicated vehicles decorated in the client’s company colours.
The majority of retail logistics services are provided by 3PL companies operating warehouses and vehicles on behalf of retailers - typically with contracts of three to five years. This provides powerful incentives to the 3PL to reduce costs and improve service during the contract. The nature of contacts varies, but many involve a high level of information and risk sharing, enabling rapid response to evolving or new customer requirements and external factors, such as the cost of fuel. When contracts change from one 3PL provider to another, staff often transfer to the new provider under TUPE rules.
The planning and supply chain management skills needed to provide these services have led to the development of ‘fourth-party logistics’ providers, or ‘4PLs’. These businesses have no transport assets or warehouse capacity, but have an overview of the entire logistics market, enabling them to choose the ideal 3PL for their client’s logistic activities. The ability to offer these services and the quality of said services has risen with the development of IT systems.
Other relevant industry terms are defined below:
Dry cargo ships: These are used to carry solid dry goods that have a higher tolerance to heat and cold, such as metal ores, coal, steel products, forest products and grains. The vessels are equipped with on-deck cranes and other mechanisms for loading and unloading goods.
E-commerce: Commercial transactions conducted electronically on the internet.
Freight transport: The physical process of transporting commodities and merchandise goods and cargo.
Fully-cellular container ships: These are designed to efficiently store stacked containers, equipped with uniform restraints to secure cargo units.
Heavy Goods Vehicle (HGV): A large truck used for transporting goods.
Named-day delivery: Delivery on a date of the customer’s choice.
Passenger ships: These are primarily used for carrying passengers. The category includes ferries, yachts, ocean liners and cruise ships. The category may also include cargo ships with adequate facilities to carry a substantial number of passengers. Cargo ships often act as freighter cruises.
Roll-on/Roll-off (Ro-Ro) ships: These are designed to carry wheeled cargo, such as automobiles, trucks, semi-trailer trucks, trailers and railroad cars, which are driven on and off ships on their own wheels or using a platform vehicle, such as a self-propelled modular transporter.
Standard containers: Standard containers are also known as general purpose containers. They are containers that are closed on all sides. Standard containers are mainly 20ft and 40ft in size, with smaller dimensions very seldom used.
Supply chain: The sequence of processes involved in the production and distribution of a commodity.
Warehousing: The act of storing goods that will be sold or distributed later. Larger businesses typically own or rent space in a building that is specifically designed for storage. This differs from a distribution centre as they store products and fulfil orders.
