Logistical Services: Inc Impact of COVID-19 - UK - November 2020
Overview
 
What you need to know 
Nearly two-thirds (62%) of global supply chain managers said they will be seeking new or alternative suppliers to rebuild their supply chains in the wake of the COVID-19 disruption, a recent survey by the CIPS found.

Moreover, nearly a third (31%) of respondents said they will re-shore their operations to limit further international disruption and find new suppliers.

Despite the struggles in 2019 and 2020 to date, MBD believes that the UK logistical services market is currently worth some £82.9 billion – a 2% rise on 2019.

Logistical services industry leaders have also warned that any momentum in the market could be lost without a smooth exit from the UK’s transition period with the EU at the end of the year.

In November 2020, news broke about the first potential effective COVID-19 vaccines, which were found and developed by Pfizer and BioNTech, and Moderna.

DHL says that to provide global coverage of COVID-19 vaccines, up to some 200,000 pallet shipments and approximately 15 million deliveries in cooling boxes, as well as some 15,000 flights, will be required across the various supply chain set-ups.

In a survey conducted by pharma.aero (the cross-industry collaboration for Pharma Shippers, CEIV certified cargo communities, airport operators and other air cargo industry stakeholders) and The International Air Cargo Association, only 15% of respondents said they could handle vaccines that require -80C storage, while fewer than half of those who said they could handle minus-zero said they could do so in all their locations.

Key issues covered in this Report
●	The impact of COVID-19 on logistical services and how providers will react to the new market conditions.
●	How the logistical services market will adapt to the post-COVID-19 environment.
●	The value of individual segments of the market in 2020.

COVID-19: market context
This update on the impact that COVID-19 is having on the logistical services industry was prepared on 13 November 2020.

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case level rose, the government ordered the closure of non-essential stores on 20 March. 

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks. 

The Health Protections Regulations 2020 came into effect on 15 June allowing the reopening of all non-essential stores in England as well as the mandatory use of face coverings on public transport. Pubs, restaurants, hotels and hairdressers were able to reopen on 4 July, with many beauty businesses following on 13 July.

From 24 July, it became mandatory to wear face coverings in shops and supermarkets. Rules on travel remain fluid: from 10 July, travellers from more than 50 “low risk” countries no longer had to self-isolate for 14 days, but on 28 July the removal of Spain from this list of low-risk countries dominated headlines in the UK, and by August further countries (including France) had been removed.

On 12 October, the Prime Minister announced new local COVID alert levels for England. Each area of England was assigned an ‘alert level’ – medium, high, or very high (otherwise known as ‘the three tiers’). People living within high or very high tiers were not allowed to socialise with anyone outside of their household or support bubble in any indoor setting.

On 5 November 2020, these tiers were replaced with a nationwide lockdown in England, which is in place until at least 2 December. This includes restrictions on domestic and overseas travel, except for essential work purposes. As of 1 November 2020, Scotland had its own five-tier system of restrictions but no national lockdown had been introduced, whilst Wales introduced a short ‘firebreak’ lockdown from 23 October to 9 November. 

Economic and other assumptions
Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its July 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP could fall by 12.4% in 2020, recovering by 8.7% in 2021, and that unemployment will reach 11.9% by the end of 2020, falling to 8.8% by the end of 2021. 

The current uncertainty, however, means there is wide variation on the range of forecasts, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q1 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

Mintel are working on the assumption that a vaccine will be available by mid-2021, but that there will be continued disruption to both domestic and global markets for some time after.

With a second wave of infections emerging since mid-September 2020, social distancing measures will remain in place over the rest of 2020 and into 2021, whilst we also do not expect industries such as hospitality, travel and live entertainment to return to any kind of normality until a vaccine is introduced.

Products 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.