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Are couriers at risk of insolvency due to online shopping habits?

We have recently been appointed as administrators of a local logistics company, which found itself unable to continue trading in a very competitive industry.

This company joins the growing list of recent courier and haulage insolvencies. New figures released have confirmed that 2014 was a poor year for the industry with 221 insolvencies in the sector. Compare this figure to 2010, when we were deep into the recession, and the number has doubled.

It is not only the small firms who are finding trading difficult, it is also affecting the big players in the market with the well-publicised administration of City Link at Christmas. The UK's second-largest parcel delivery business, Yodel, has also recently reported trading concerns. After the most recent Black Friday shopping event, Yodel had to suspend deliveries in the lead up to Christmas which has resulted in a “very big financial loss” according to their executive chairman. It would appear that despite the resounding success Black Friday had for UK retailers the logistics sector was unable to profit and even suffered as a result of it.

So what’s causing the problem and why have insolvencies increased?

Consumer shopping habits have dramatically changed over the last few years with customers demanding/expecting quicker delivery of their purchases. This is no more evident than the service Argos now offers where from certain stores you have the option of same day delivery. Previous overcapacity in sector has driven down prices as a large number of firms competed for customers.

As customers we can now expect to place our orders, log on to a website/app and track our parcels by the hour. An attractive solution for consumers and retailers alike but the systems behind this are very sophisticated.

Although some newer firms seem to be thriving, a number of more established firms have found that their outdated IT & internal systems are bottlenecking operations. There is now a greater need to operate effectively and for some the introduction of these sophisticated systems will be at a considerable cost. This could push the smaller companies out of the market.

Historically the rising fuel prices have been blamed for crippling the industry so could the recent drop in prices now be the saviour? No, probably not. Variable fuel surcharges introduced by most firms now pass these price drops directly on to the customer.

The industry is made of sterner stuff and some might say that change is necessary to keep up with the change in the online environment. This may be true and most will adapt but there is a bigger problem on the horizon which has nothing to do with IT or procedures……a severe lack of drivers.

It is anticipated that as a nation we are currently 60,000 drivers short and firms may find that the rise in demand will increase driver wages, placing further strain on overheads and in turn lead to more firms facing cash flow problems and in need of financial advice, which could ultimately lead to liquidation or administration. If this need for drivers cannot be contained there is the real prospect that in less than 10 years an extra 250,000 will be required. Haulage is known to be ageing workforce and there are few new recruits to replenish it, let alone keep up with growth in the sector over the coming years.

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