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Insights

A perfect storm in the logistics and distribution industry

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Paragon SME Lending examines recent events that have impacted the logistics and distribution sector, including Brexit and the global pandemic, and how that is affecting SMEs in the industry. Head of Transportation Finance, Dale Trenam, reveals more.

Almost every industry has been challenged by recent global events, with the Covid-19 pandemic at the heart of many business struggles, resulting in a significant shift in the SME landscape. 

The logistics and distribution industry has been uniquely affected by a perfect storm of complex and entirely unforeseen circumstances layered on top of the pandemic.

This report explores some of these trends in the logistics and distribution sector, with a focus on the impact of the issues and how they might influence SMEs in the short, medium and long-term. 

Whilst business boomed in home delivery - with home delivery up 49% on the previous year at the start of the pandemic - the infamous 2021 Suez Canal blockage compounded an already flailing supply chain.  

It’s estimated that US$9.6 billion worth of trade between Europe, Asia and the Middle East was prevented, with at least 369 ships queuing to pass through the canal. 

Whilst the Government announced new measures to support business investment – with schemes such as the super-deduction, announced in March 2021, allowing companies to cut their tax bill by up to 25p for every £1 they invest – the HGV driver shortage and crisis in late 2021 required SMEs in the logistics and distribution industry to take a more balanced approach to investment to protect working capital and help deliver efficient operations. 

Download the report - A perfect storm in the logistics and distribution industry

Immediately before the pandemic, Brexit had already caused significant disruption to companies trading within the EU, with the driver crisis coming to a head in August 2021. 

All this against a backdrop of rising inflation, increased cost of living and soaring energy prices, which will be an ongoing challenge for all SMEs well into 2022. As I write this, the challenging geopolitical situation is creating further pressure on the sector through soaring fuel costs.

The immediate impact on the logistics and distribution industry – and in particular SME lending – was a shift in the volume and types of investment companies were able to make. Commercial vehicle production was brought almost to a complete halt at the start of the Covid-19 pandemic and, despite recovering within 12 months, production levels remain lower now than before the pandemic. 

This shift in buying behaviour has continued throughout the pandemic – impacted by volatile supply and demand – and the industry's performance will be heavily dependent on UK road freight volumes and on the state of the overall economy.

There are also long-term factors to consider, with the Government’s commitment to cutting transport pollution to help the UK reach net zero carbon emissions by 2050 likely to impact the logistics and distribution industry more than any other. 

Download the report - A perfect storm in the logistics and distribution industry

Dale Trenam 
Head of Transportation Finance 
Paragon Bank SME Lending