Transport & logistics sector

6 min read

Transport & Logistics

This is the latest update from Santander’s transport & logistics team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Transport & Logistics

Keeping the UK moving

Our partners and clients across the transport and logistics sector continue to do a remarkable job in keeping the country moving, making sure key workers can get around and that vital supplies are distributed efficiently and effectively amid the coronavirus pandemic.

New measures from the Department for Transport (DfT) will help here: after lobbying from several industry bodies, the Government has agreed to relax the rules requiring medical exam reports (signed by a doctor) during the licence renewal process. Usually, drivers of public service vehicles and large goods vehicles must renew their licences at age 45 and every five years thereafter (from 65 they must renew annually). With doctors unable to carry out these medical exam reports in the current environment, the DfT has announced that for 12 months, licences expiring after 1 January 2020 can be renewed without a report. More information is available here.

 

Managing warehouse capacity

With more non-essential goods arriving into the UK, spare capacity in warehouses is falling rapidly. A UK Warehousing Association (UKWA) survey suggests just 10% of overall capacity is available, which could cause significant problems for importers. Storage costs may rise and finding suitable space may become more challenging.

One initiative to help is the UKWA’s Emergency Space Register. It aims to help shippers identify suitable warehouse space for goods, with the UKWA asking its members to keep it updated on what they have available.

Shipping lines may also be able to offer support, with a number offering storage in their portside properties to reduce the potential for demurrage costs and fines. One line, MSC, is also offering the opportunity to suspend the transit of goods at a point when they reach a range of key transit hubs, with ongoing shipment then scheduled at the client’s request. The service could reduce cost and help shippers mitigate the shortfalls in space in the UK.

 

Freight costs under review 

Despite falling demand from locked down Western economies, spot rates on the key Asia to North Europe trade routes have remained relatively stable as supply has been reduced. Shipping lines have cancelled sailings to reflect slower demand and it is likely there will be 250 blank sailings on Asia to Europe routes during the second quarter of the year, the equivalent of 3 million containers’ worth of capacity.

The fact that some shippers are switching from air freight to sea freight has also sustained prices. Air freight capacity is much reduced as airlines cancel flights – though some scheduled services have been re-designated as freight only - and rates have hit record highs. New statistics show that cargo hubs, such as Leipzig and East Midlands airports, are now amongst the busiest in Europe.

Last week alone saw an 18% week-on-week increase in the cost of the average rate on air freight routes between Shanghai and Europe, to around $9 per kg. Rates on Hong Kong to Europe fell slightly to around $5 per kg. The cost of Europe to the US remains elevated, at around $10 per kg; with limited demand, it’s not likely to fall in the short term.

The situation is fluid. Virgin Atlantic, for example, has now resumed scheduled services to China from the UK, with three flights a week from Heathrow to Shanghai. These are freight-only services and are primarily being used by the government to secure essential personal protective equipment; there is some additional capacity, but essential goods are being prioritised.

Businesses using air freight may also face additional charges from freight handlers, introduced to mitigate the effects of the irregular peaks in activity and the cancellation of scheduled services.

Elsewhere, as shippers consider alternative supply chains, the rail freight sector may benefit, particularly on Asia to Europe and cross Europe routes. Rail is an increasingly viable solution. Demand has increased in recent weeks. For shippers interested in exploring rail, Santander works with a number of logistics providers that can provide prices per kilogramme.

 

Rethinking the supply chain

The coronavirus pandemic has underlined the need for operators and shippers to embrace new technologies, particularly in areas such as supply chain visibility and real-time information. Research from Shipping & Freight Resource suggests 67% now plan to invest in new technologies to drive supply chain efficiency.

As part of its coronavirus support for members, the Freight Transport Association is offering strategic supply chain reviews, carried out by its supply chain consultancy team over Skype. The reviews focus on areas such as continuity of service and contingency planning. See here for more details.

More broadly, Santander works with a range of logistics businesses that offer expertise in particular sectors and markets. They may be well placed to help other clients find solutions to specific problems and we’d be delighted to help facilitate that process.

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