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The Logistics Report 2012

In association with

Delivering safe, efficient, sustainable logistics

Freight Transport Association represents the transport interests of companies moving goods by road, rail, sea and air. FTA members operate more than half the UKs heavy goods vehicles. In addition they consign over 90 per cent of the freight moved by rail and over 70 per cent of sea and air freight. You can nd more information at www.fta.co.uk, follow us on twitter.com/newsfromfta and join us on facebook.com/ftafb

In association with We are again delighted to be supporting FTA in the production of the annual Logistics Report. The transport industry is very much in the public mind both in relation to developing the right infrastructure for the UK economy and facilitating economic growth per se. The report provides stakeholders with an informative and important contribution to facilitate future planning and decision making.

Coolin Desai Logistics Industry Leader PwC UK


PwC rms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in rms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. The PwC Transportation & Logistics practice is composed of a global network of approximately 4,900 industry professionals who support over 93 per cent of the transportation and logistics companies listed in the Fortune 500.

Introduction
Welcome to the Logistics Report 2012, the annual review of logistics challenges, successes and progress over the last 12 months. The report is produced by FTA in association with PwC and brings together research and analysis from both organisations. Using independent and in-house data, it presents a unique picture of a dynamic and responsible industry which has:

delivered customer demands for ever higher service levels at ever lower cost contributed signicantly towards industry and Government reducing their impact on the environment
and meeting emission targets

achieved the safest ever working environment for our employees and the general public
Following a prolonged period of downturn in the economy, and with forecasters telling us there is little prospect of signicant growth in the coming year, we continue to face tough times. Volatility and uncertainty in world markets, especially for our trading partners in Europe, makes for a cautious approach. As the UK looks to do business with emerging, faster growing economies, logistics needs to make its voice heard on the world stage and to spread best practice at a global level. I am condent that the resilience and talent for innovation of UK logistics will enable us to spearhead any recovery and respond to future growth. But success is not just about the bottom line. In difcult times, logistics has maintained its commitment to key principles, ensuring improvements in the safety of its operations and making them less environmentally damaging. Maintaining this progress and achieving recognition for what we do are important goals for the next year. I am immensely proud of the achievements of our industry; we are responsive to changing customer demands, innovative when opportunities arise and accurate when the task is complex. Logistics is the fundamental conduit for future growth. Without world class logistics, the UK would stand still. The Logistics Report 2012 sets out how logistics got the job done in 2011. We hope that you nd this appraisal insightful and useful.

Theo de Pencier Chief Executive Freight Transport Association

Contents
Introduction The logistics dashboard
Chapter 1 3

Economy
Chapter 2

10

Strategies for growth


Chapter 3

24

Safety and environment


Chapter 4

34

Image and reputation


Chapter 5

46

Emerging risks and opportunities Evidence base

54

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The Logistics Report 2012 Freight Transport Association

Chapter 1

The logistics dashboard

The logistics dashboard


Logistics is the key foundation upon which other economic sectors depend and consumer demands are met.The logistics dashboard brings together a range of over 50 indicators (LDIs) that give different perspectives on logistics and the performance of the wider economy.
The data trends evident in the 2012 edition of the Logistics Dashboard highlight the inuence that the prolonged period of recession, followed by weak economic growth, has had on logistics. Inland domestic freight volumes are 11 per cent below their pre-recession level of 2007, new hgv registrations are down 15 per cent. Whilst the hgv driver claimant count has fallen, numbers of drivers employed in the haulage industry are only 14,000 above their long-term low recorded in 2010. Hgv movements to the EU are down to levels last seen in 2002, as a result of economic weakness across the Euro Area.1 Only freight movements by sea and air linked to trade outside Europe have seen growth. Operators have remained focused on achieving logistics efciency and reducing costs. Despite lower business volumes, levels of vehicle lading are improving, and empty running is unchanged. Domestic intermodal rail has increased, reaching 6.2 billion tonne kilometres in 2011, as the rail industry embraces the strong commercial and customer service disciplines offered by road freight carriers. The emphasis on compliance has also remained strong, with hgv rst time test failure rates continuing to reduce, along with workplace accidents in the logistics sector and collisions involving hgvs on the road. Whilst overloading incidences have risen, and drivers hours and tachographs contraventions remain unchanged, this is likely to reect better targeting by the enforcement authorities.

KPI ROAd trANSpOrt iNdUStry 1 2 3 4 5 6 7 8 9 10 Reported prot margin of top 100 road hauliers Number of goods vehicle operator licences Population of hgvs licensed Population of vans licensed Population of hgv trailers (based on number tested) Hgv registrations Van registrations Number of hgv drivers in employment in transport industries (thousands) Claimant count (hgv drivers for December) Hgvs laid up (SORN)

2008

2009

2010

2011

Year on year change

Page ref

2% 95,436 416,328 3,253,416 240,094 57,410 289,463 320 8,880 63,390

1% 91,200 397,160 3,241,047 230,966 34,746 186,386 309 10,665 64,109

4% 87,747 389,761 3,258,445 227,043 34,458 222,915 285 6,550 60,709

4%

21 15 15

15 42,944 260,153 299 5,870 21 21 20 20

SAFEty 11 12 13 14 15 16 17 Hgv motor vehicle test pass rate initial (>3.5tonnes gvw) Van test pass rate initial (Class 7) Hgv roadside encounter prohibition rate percentage roadworthiness Hgv roadside encounter failure rate percentage drivers hours and tacho Hgv roadside encounter failure rate percentage overloading RIDDOR reportable workplace accidents for transport Road casualties linked to hgvs (number killed or seriously injured) 68% 51% 33% 17% 31% 21,905 1,712 73% 50% 32% 15% 38% 19,222 1,439 75% 51% 30% 17% 58% 16,810 1,379 38 36 36

1 Euro Area is the ofcial term for the group of countries that have adopted the Euro as their single currency.

The Logistics Report 2012 Freight Transport Association

The logistics dashboard

KPI EFFiciENcy 18 19 20 21 22 23 Percentage of hgvs empty running Percentage of inland freight moved by rail (billion net tonne kilometres) Lading factor percentage (by weight) for hgvs (>3.5 tonnes gvw) Hgv fuel consumption (mpg) (articulated vehicles) Use of alternative fuels in hgvs Average hgv payload capacity (tonnes)

2008

2009

2010

2011

Year on year change

Page ref

29% 9% 58% 7.7 0.8mt of oil equivalent 7.2

28% 9% 57% 7.7 1.0mt of oil equivalent 6.9

29% 9%
2

39 17 39 39

59% 7.6 1.1mt of oil equivalent 7.4

TrAFFic FlOWS 24 25 26 27 28 29 30 31 32 33 34 35 Containers handled by major UK ports (thousand TEUs) Freight handled by air (tonnes) Goods moved by hgvs (>3.5 tonnes gvw) (billion tonne kilometres) Van kilometres (billion vehicle kilometres) Cabotage within the UK (million tonne kilometres) Goods moved by rail (billion tonne kilometres) Goods moved by domestic intermodal rail (billion tonne kilometres) Channel Tunnel rail freight volumes (tonnes) Number of rail freight train movements Percentage penetration of cross Channel market by UK hgvs Hgv movements to mainland Europe (unaccompanied trailers only) Hgv movements to mainland Europe (all powered vehicles) 8,714 2,282,153 146 68.1 1,712 21.1 5.3 1,239,445 316,684 19% 709,000 2,060,000 7,373 2,047,861 125 66.6 1,231 19.2 5.3 1,181,089 278,431 20% 611,000 1,764,000 8,222 2,324,822 139 67.2 1,224 18.6 5.6 1,128,079 265,127 21% 673,000 1,794,000 20% 660,000 1,812,000 16 16 21.0 6.2 1,324,673 17 17 16 16

EcONOMic iNdicAtOrS UK economic activity 36 37 38 GDP (Q4 annual percentage change) Volume of goods exported to the EU (annual percentage change) Volume of goods exported to the rest of the world (annual percentage change) Volume of goods imported from the EU (annual percentage change) Volume of goods imported from the rest of the world (annual percentage change) Retail Prices Index (annual ination in December) Consumer Prices Index (annual ination in December) /$ exchange rate (average for December) /e exchange rate (average for December) Wage settlements (annual change in basic pay) Total hgv operating costs (annual change for 44t gvw artic) Bulk diesel (average pence per litre in December ex VAT) Gas oil (average pence per litre in December ex VAT) Rotterdam diesel (average per tonne in December) Brent blend (dated) (average per barrel in December) Jet fuel (Rotterdam kerosene) (average per tonne in December) Rotterdam gas oil (average per tonne in December) -5.4% -2.5% +7.1% -0.8% -15.9% -10.9% 1.7% +10.9% +15.8% 0.7% +4.1% +10.5% 14 16 16 UK exports

UK imports 39 40 -2.9% +2.0% -14.2% -12.9% +11.1% +16.4% +2.1% -1.0% 15 16

UK ination and currency 41 42 43 44 Costs 45 46 Fuel 47 48 49 50 51 52 82.35 39.01 $479.78 $40.26 $482.64 $457.73 89.99 44.05 $624.50 $74.52 $663.11 $610.95 103.30 55.11 $797.65 $91.78 $831.09 $761.87 112.05 64.92 $948.10 $108.19 $987.35 $926.87 19 19 19 19 19 19 +2.7% -1.4% +0.1% +5.4% +2.1% +7.0% +2.6% +4.0% 20 19 0.9% 3.1% $1.4854 e1.1070 2.4% 2.9% $1.6242 e1.1115 4.8% 3.7% $1.5588 e1.1791 4.8% 4.2% $1.5614 e1.1849 16 20

Figures are included up to 2011 only. There is a delay of up to one year in the release of many ofcial statistics.

2 FTA estimate

The Logistics Report 2012 Freight Transport Association

Chapter 1

Economy

Economy
2011 was widely expected to be the year when the economic tide nally turned. But while there were many indications of improvement, continuing uncertainty both at home and abroad meant that 2011 did not deliver the kind of recovery logistics had been hoping for. The global economy
The past three years have seen the global economy recovering from a nancial crisis. The co-ordinated worldwide response in 2009 is credited with helping to stabilise the economy at that time. However, the escalating Euro Area crisis, and continued weak growth in other advanced economies, has meant that forecast levels of growth for the world economy in 2012 have been pared back. A year ago, growth of 4.2 per cent was anticipated. Most recent forecasts put 2012 growth at 3.5 per cent.1 PwC expects the US economy to grow at 2 per cent next year2, below its 200207 trend rate of 2.6 per cent. Growth is also expected to be signicantly below trend rate in China, India and many emerging economies, while it is anticipated that there will be a mild recession in the Euro Area in the rst half of the year. The weakness of the Euro Area economies is the most signicant reason for the current world economic slowdown being greater and more prolonged. Recent agreement among Euro Area leaders to move to a stronger economic union, provide additional support to weaker economies and introduce new measures to support bank lending, have yet to restore the condence of nancial markets in the ability of some Euro Area governments to repay their debts. PwCs 15th Global CEO Survey results reect the drop in wider business condence. In 2010, chief executives in logistics were far more upbeat than the overall sample, with 60 per cent very condent of revenue growth over the next 12 months. The percentage dropped sharply in 2011, with only 36 per cent of logistics CEOs feeling very condent (graph 1.1). Graph 1.1 Logistics CEOs condence levels
How condent are you about your companys prospects for revenue growth over the next 12 months? 100 90 Percentage of respondents 80 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 Total sample
50 48 25 31 21 40 36 60

1 National Institute Economic Review, National Institute of Economic and Social Research 2 Economic Views: Global, PwC, December 2011

44

Transportation and logistics

Source: 15th Annual CEO Survey, PwC, 2012

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Economy

13

Graph 1.2 Threats to business growth


How concerned are you about the following potential economic and policy threats to your business growth prospects? Uncertain or volatile economic growth 74 80 72 64 68 66 56 56 51 58 42 44 40 42 23 34 0 10 20 30 40 50 60 70 80 90 Transportation and logistics Total sample

Lack of stability in capital markets

Government responses to fiscal deficit and debt burden

Over-regulation

Exchange rate volatility

Protectionist tendencies of national governments

Inflation

Bribery and corruption

Percentage of respondents Source: 15th Annual CEO Survey, PwC, 2012

This lack of condence, and a sense that European policy makers are muddling their way through, breeds volatility in the markets and causes households and businesses to delay investment and expenditure decisions until they are more certain about the future. These factors hold back economic growth and are a particular cause for concern for CEOs in logistics, who ranked the uncertainty and volatility of economic growth as the biggest threat to business prospects in PwCs most recent Global CEO Survey (graph 1.2).

the US Dollar since the second quarter of 2011. This is detrimental for the global economy, as the Euro Area will not contribute to global growth during 2012, and is particularly adverse for countries that export to it. However, it is not all bad news. PwCs Global Outlook for 2012 (gure 1.1) predicts that signicant business and trade opportunities will arise in emerging markets for European businesses (even at below trend levels of economic growth). Slower growth will also remove upward pressure on world oil prices. Having risen from $79 per barrel in 2010 to $109 per barrel in 2011, as a result of supply demand balances and the Libyan crisis, prices are expected to remain broadly stable at $111 per

Euro Area economy


Prospects for all Euro Area members have worsened in the last year, with the crisis developing from a problem in a few geographically peripheral countries, to a full blown nancial and sovereign debt crisis engulng core European economies like Italy. At the beginning of 2011, output growth (as measured by gross domestic product) was expected to be 2 per cent in 2012. Currently it is expected to decline by 0.2 per cent in 2012, reecting an expected sharp tightening in bank lending, uncertainty regarding the single currency, and scal austerity measures introduced in most economies. As a result of this weakness, its exchange rate has depreciated by more than 10 per cent against

In the past, recovering from a downturn was a more predictable process; businesses could look forward to studying the trends and the competition, and planning how to respond.Those days are long gone.Three years into the nancial crisis, uncertainty and volatility have become the baseline expectation
Coolin Desai Logistics Industry Leader, PwC UK

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Economy

Figure 1.1 Global outlook for 2012


Signicant business and trade opportunities will arise in emerging markets

Graph 1.3 UK economic outlook


Growth likely to remain fragile in 2012

KEY OPPORTUNITIES
Emerging market economic growth Affluent consumers in developing economies Stable oil prices Trade opportunities in China, India, South Korea and other stable emerging economies A Eurozone break-up Heightened market volatility Policy uncertainty Capital outflow from risky emerging economies and vulnerable European countries

4 2 0 Year-on-year growth 2 4 6 8 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1

KEY THREATS

Strong recovery

Main scenario

Double dip

Source: Economic Views: Global, PwC, December 2011

Source: Quarterly UK Economic Outlook March 2012, PwC

barrel in 2012. However, signicant risks are attached to this forecast. In particular, if tensions with Iran intensify, there could be a large temporary spike in the oil price.

domestic economy shrank by 0.5 per cent over the year3. A double dip recession is not ruled out but PwC and most forecasters anticipate that the economy will be broadly at in 2012. Although business investment increased in 2011, growth was subdued at 1.3 per cent per annum; this was from a very low base following falls of 13 per cent in 2009 and 2 per cent in 20104. Business investment is expected to fall in 2012, as a result of weak prospects for domestic and foreign demand. Most UK exports remain heavily focused on slow growing economies in Europe (57 per cent of total UK exports in 2009) and North America (16 per cent), with only about 7 per cent of exports going to faster growing economies. Despite this, PwCs main forecast is for very modest growth in the UK economy over the next year, although there will be many obstacles to negotiate along what is likely to be a long and bumpy road to recovery.

UK economy
In 2011, the UK economic recovery became more sluggish, growing by 0.7 per cent, less than half the rate of 2010. Growth was strongest in the rst half of 2011 but later fell away, with the result that the economy shrank by 0.3 per cent in the nal quarter (graph 1.3). This weak growth over the year as a whole was upheld by a strong export performance; the latest trade data suggests that export volumes expanded by 4.3 per cent in the last three months of the year compared to a year earlier. However, domestic demand was disappointing, as consumer spending reduced, especially over the Christmas period; the UK

To achieve sustainable growth in the medium to long-term, the economy has to become more driven by investment and exports, while allowing the burdens of both Government and consumer debt to subside. Failing to rebalance alongside debt reduction would leave the economy struggling to grow
John Cridland Director General, CBI

3&4 National Institute Economic Review: National Institute of Economic and Social Research

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Economy

15

Graph 1.4 Number of goods vehicle operator licences in Great Britain 20002010
Economic downturn leads to an acceleration of long-term trend of reducing numbers of transport businesses 120,000 Number of goods vehicle operator licences

100,000

80,000

60,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Trafc Commissioners Annual Reports Note: gures are for tax years, eg 2010 gures relate to April 2010 to March 2011

UK logistics market
Logistics faced a particularly challenging business environment in 2011, with businesses having to contend with weak levels of commercial activity as the economy saw only meagre growth after the recession, and rapidly rising fuel prices. The recession resulted in a sharp reduction in the number of businesses operating hgvs as measured by goods vehicle operator licences (Logistics Dashboard Indicator LDI 2). Numbers of operator licences were already falling as a result of business consolidation, and the sluggish state of the economy has accelerated this process (graph 1.4). The number of commercial vehicles in use has shown a similar pattern, with falls in the number of hgvs (graph 1.5) and trailers (LDI 3 and 5).

Graph 1.5 Number of heavy goods vehicles in use 20002010


Hgv numbers fall as businesses adjust to lower activity volumes 440,000 430,000 Number of hgvs taxed 420,000 410,000 400,000 390,000 380,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Business volumes
In FTAs 2011 Logistics Industry Survey, members reported that business condence within the domestic road freight sector remained comparatively weak, with outturn levels of activity for 2011 well below those anticipated at the end of 2010, and no improvement in market conditions expected in 2012 (graph 1.6). The subdued market for domestic road freight is reected in the principal activity measure for hgvs (goods moved), and vans (vehicle kilometres). On these measures, work done in 2010 (graph 1.7), whilst up on 2009, was below pre-recession levels in 2007 (LDI 26 and 27).

Sources: Table VEH103 Road Freight Statistics 2010 and Transport Statistics Great Britain 2011 Licensed vehicles by tax class Great Britain (goods vehicles only)

Within logistics, there are wide variations in business optimism. Operators involved in international freight movement express widespread condence that freight volumes will rise during 2012. For retail and manufacturing, expectations of growth are more muted, whilst for wholesale, construction and public authorities, a contraction in business

The Logistics Report 2012 Freight Transport Association

2010

16

Economy

Graph 1.6 UK domestic road freight activity sentiment


Activity outturn for 2011 was well below expectation 30 Percentage balance of respondents 20 10 0 10 20 30 40

Graph 1.7 Goods moved by hgvs and van kilometres 20002010


Freight activity remains well below pre-recession levels 160 155 150 Hgv goods moved 145 140 135 130 125 70 68 66 64 62 60 58 56 54 52 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Recycling, waste disposal Parcels, integrator Van kilometres

Expectation

2005

2006

2007

2008

2009

2010

2011

Sources: FTA Quarterly Transport Activity Survey FTA Logistics Industry Survey 2010/11 FTA Logistics Industry Survey 2011/12

2012

120

Source: Table RFS0109 Vehicle kilometres by vehicle type, annual 2000-2010 Road Freight Statistics 2010

volumes is expected. When taken together, overall levels of business sentiment reect wider economic expectations that domestic demand may contract further in 2012, with any overall economic growth coming from net trade growth, as was the case in 2011 (graph 1.8). The scale of the sovereign debt crisis in the Euro Area has created a similarly muted picture for international road freight movements. At the end of 2010, businesses were expecting to see strong trade growth with the Euro Area, with the extent of growth much more widespread than domestic markets continuing a trend evident in 2010. In the event, growth in 2011 was weaker in Euro Area countries than it was for domestic markets. Accompanied hgv activity to mainland Europe rose by just 1 per cent in 2011 (LDI 35) and remains 15 per cent down on its pre-recession peak of 2007. Unaccompanied trailer movements fell in 2011 by 2 per cent (LDI 34) and are 16 per cent down on their pre-recession peak. The extent of freight growth in 2012 for Euro Area markets is expected to be broadly in line with freight activity within the UK (graph 1.9). Optimism among businesses involved in international export movements beyond the Euro Area is generally much stronger. Although there is signicant variation in the extent of growth between trade lanes, the overall picture is one of exporters benetting from Sterlings relative weakness against the US Dollar, which makes UK manufactured goods more price competitive. Export

Graph 1.8 Business expectation by sector for 2012 compared to 2011


Activity growth muted in principal domestic freight sectors, whilst prospects for international freight activity are robust

60 50 Percentage balance of respondents 40 30 20 10 0 10 20 30 40 Agriculture Wholesale Retail Manufacturing Construction Utilities Distribution, haulage Public authority

Source: FTA Logistics Industry Survey 2011/12

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Economy

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volumes to countries outside the EU rose by 9 per cent in 2011 (LDI 38), compared to 4.3 per cent growth to countries within the Euro Area (LDI 37).

Graph 1.9 UK international road freight activity sentiment


Euro Area sovereign debt crisis leads to stagnant market conditions 30 25 Percentage balance of respondents 20 15 10 5 0 5 10 15 20 25 2005 2006 2007 2008 2009 2010 2011 2012 Expectation

In the case of deepsea freight movements and aircargo, the trade lanes that have seen strongest growth have been the Far East, Indian Sub-continent and Middle East regions which have been less affected by the global recession and whose lower labour costs make their exports attractive. Activity growth with North America, on the other hand, has been much more subdued (graphs 1.10 and 1.11). The central role of trade to the UKs economic recovery reinforces the need for shippers to have a coherent voice, to ensure that deepsea and airfreight services offer competitive freight rates and service levels which support wider market reach. The establishment of the Global Shippers Forum in 2011 is an important step in that process. The strength of freight ows linked to international markets outside the EU is highlighted by rail freight activity. Bulk rail freight volumes have continued to face tough market conditions, primarily as a result of the displacement of coal by gas for electricity generation, and weak overall levels of construction activity, which is a key customer for rail freight. By contrast, intermodal container services fared far better, seeing strong growth in 2011 and overtaking coal as the largest rail freight market segment for the rst time. Domestic intermodal rail freight activity in 2011 was 11 per cent higher than in 2010 (LDI 30, graph 1.12).

Sources: FTA Quarterly Transport Activity Survey FTA Logistics Industry Survey 2010/11 FTA Logistics Industry Survey 2011/12

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Economy

Graph 1.10 Deep sea shipping market performance in 2011 and expectations for 2012
Export growth concentrated in rapidly industrialising countries5 80 70 60 50 40 30 20 10 0 10 20 30 40 50 60 Western Europe North America South America Africa Middle East Indian Subcontinent Far East Australia Western Europe

Percentage balance of respondents

UK exports 2011

UK exports 2012

UK imports 2011

UK imports 2012 Source: FTA Logistics Industry Survey 2011/12

5 China, India, Russia, Brazil

Graph 1.11 Air freight market performance in 2011 and expectations for 2012
UK export volumes by air generally more buoyant than import volumes 50 Percentage balance of respondents 40 30 20 10 0 10 20 30 40 50 North Atlantic South America Southern Africa Far East including Japan Middle East Australia UK exports 2012 60

UK exports 2011

UK imports 2011

UK imports 20126 Source: FTA Logistics Industry Survey 2011/12

6 The balance of respondents anticipated that UK imports would be broadly unchanged in 2012, compared to 2011.

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Graph 1.12 Rail freight moved by market segment 20022003 to 20102011


Intermodal rail freight sees strong growth continue while key conventional, bulk markets contract 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

Graph 1.13 Bulk diesel prices and price expectations for 2012
No let-up anticipated in high diesel prices which remain close to all-time highs

120 115 Pence per litre (ppl) excluding VAT 200203 200304 200405 200506 200607 200708 200809 200910 201011 110 105 100 95 90 85 80 75 January 2009 April 2009 July 2009 October 2009 January 2010 April 2010 July 2010 October 2010 January 2011 April 2011 July 2011 October 2011 January 2012 April 2012 July 2012 October 2012 January 2013 Source: EnergyQuote JHA

Billion tonne kilometres

Bulk or semi-bulk, ie conventional services Intermodal services


Source: Ofce for Rail Regulation (ORR)

Fuel prices
A rise in world oil prices from $95 per barrel (bbl) at the beginning of 2011 to $110 bbl in December, combined with a steady decline in Sterlings value against the US Dollar over the last six months, has had a signicant impact on the price of diesel and other fuel products. At 112.1 pence per litre (ppl), bulk diesel prices in December 2011 were 8.5 per cent higher than a year previously (LDI 47), and bulk gas oil prices were 17.8 per cent higher (LDI 48) the higher percentage increase reecting the much lower proportion of fuel duty in gas oil prices, the absolute level of which fell in Table 1.1 Changes in principal transport fuel costs in 2011
All transport modes face rapidly rising fuel costs Product Diesel Gas oil Marine bunker fuel7 Jet kerosene Application hgvs, vans rail freight deep sea shipping air freight

2011. In the case of road freight, fuel now represents around 40 per cent of hgv operating costs, up from 33 per cent only two years ago. The increase in fuel costs in 2011 alone has added 31,580 to the cost of operating a eet of 10 x 44 tonne articulated trucks in the UK (graph 1.13). However, all modes of transport rely on conventional hydrocarbon oils, either directly through marine bunkers in the case of shipping, kerosene for aircraft or gas oil for freight locomotives, or indirectly where locomotives use electricity as their power source (table 1.1). Alternatives such as biogas and biodiesel come at a signicant price

December 2010 price 103.3ppl 55.1ppl 1164 (index) $831/tonne

December 2011 price 112.1ppl 64.9ppl 1509 (index) $987/tonne

% change + 8.5 +17.8 +29.6 +18.8

7 Bunker World Index

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Economy

premium around 20 pence per litre in the case of biodiesel, and are not available in sufcient quantities to offer an alternative to mainstream fuels.

Labour costs
With the price of fuel outside the control of carriers, businesses have remained proactive in managing other signicant cost areas such as labour. The focus of these cost-cutting measures includes: pegging wage settlements to below ination. Basic pay for transport staff rose by 2.6 per cent in 2011 (LDI 45) compared to an ination rate of 4.8 per cent (LDI 41) reductions in overtime use of temporary staff to cover peaks, rather than relying on agency drivers which come at a cost premium Even after the deep cuts in driving staff at the beginning of the recession (LDI 9), 1 in 3 companies surveyed in the FTA Logistics Survey 2011/2012 still continue to consider reducing their driver workforce to reect lower business volumes.

Graph 1.14 HR priorities for transport-related staff 20112012


Carriers continue to focus on labour as an opportunity for cost control 55 50 Percentage of respondents 45 40 35 30 25 20 15 10 5 0 Stood staff down for a period Reduced overtime Increased overtime Cut back on training Cut back on agency drivers Used more agency drivers Made redundancies Cut back on temporary staff Used more temporary staff Employed more staff Increased training

2011

2012 Source: FTA Logistics Industry Survey 2011/12

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Despite the focus on reducing costs, the extent of driver training continues to increase. In part this may reect the requirement for all existing hgv drivers to have received 35 hours of training by 2015 to full their Driver CPC (Certicate of Professional Competence) requirements. However, it also highlights the important role training itself plays in cost management including fuel efcient driving, reduced engine wear and lower levels of accidents (graph 1.14).

Graph 1.15 Trends in operating costs and haulage rates 20052011


Rising fuel costs and tough market conditions mean hgv operating costs rises outstrip increases in haulage rates 140 138 136 134 132 130 128 126 124 122 120 118 116 114 112 110 108 106 104 102 100

With pressure on margins as a result of weak business volumes and higher input costs, many operators have scaled back investment plans. The extent of this pressure is evident from FTAs Managers Guide to Distribution Costs which shows that in the year to October 2011, whilst operating costs rose by 7.0 per cent (LDI 46), typical haulage rates rose by just 4.6 per cent. This erosion of operating margins leaves businesses with little choice but to scale back capital investment plans to rebuild prot margins (LDI 1) (graph 1.15). Amongst businesses responding to the Logistics Industry Survey 2011/12, only 24 per cent of operators expanded their hgv eet in 2011 and 23 per cent of van operators. Whilst registrations of hgvs and vans rose in 2011 (graph 1.16), both vehicle categories remain well below prerecession levels of 2007 (LDIs 6 and 7).

Index January 2005 =100

Investment intentions

2008

2009

2010 360,000 340,000 320,000 300,000 280,000 260,000

2005

2006

Hgv operating costs Haulage trends RPI Source: FTA Managers Guide to Distribution Costs

Graph 1.16 Registrations of hgvs and vans 20002011


Goods vehicle registrations grow in 2011, but remain well below pre-recession levels 60000 55000 50000 45000 40000 35000 30000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Hgv registrations

2007

240,000 220,000 200,000 180,000

Hgv registrations Van registrations Source: Table RFS0109 Vehicle kilometres by vehicle type, annual 20002011 Road Freight Statistics

The Logistics Report 2012 Freight Transport Association

Van registrations

2011

22

Economy

Graph 1.17 Fleet investment intentions in 2011 and expectations for 2012
Little sign of upturn in commercial vehicle and trailer market

Prospects for 2012 suggest little improvement.Twenty nine per cent of operators expect to expand their hgv eets and 22 per cent of van operators. The short-term trailer market is poorer still, with just 20 per cent planning to expand eets (graph 1.17). The squeeze on credit evident during the recession continues to exert an important inuence over business investment plans. However, operators are also wary of committing to investment in new vehicles whilst business prospects remain fragile. Eighty six per cent of operators cited reduced levels of business activity as governing investment decisions. Equally important though was the lack of availability of funding for nancing investment plans. These factors outweigh positive reasons to invest, such as improved fuel efciency of newer vehicles and opportunities to increase vehicle ll through high capacity trailer designs (graph 1.18). Carriers caution over the pace of the economic recovery in the UK, and the levels of growth in their own businesses, is also reected in their unwillingness to commit to largescale capital investment. The likelihood of acquiring new businesses in the next 12 months is much lower than a year ago. Fewer businesses are expecting to rent additional business premises or commit to relocation (graph 1.19).

16 14
Percentage balance of respondents

12 10 8 6 4 2 0 2 4 6 Hgv fleet
2011

Lcv fleet
2012

Trailer fleet

Source: FTA Logistics Industry Survey 2011/12

Graph 1.18 Main factors inuencing capital investment decisions in 2012


Risk aversion by lenders and weak business volumes predominate eet investment plans 100 90 80 70 Percentage of respondents 60 50 40 30 20 10 0 Changes in business activity levels Compliance pressure linked to existing/planned Low Emission Zones Increasing vehicle/ trailer fill Availability of funds Current and future new vehicle prices Deterioration in fuel efficiency in older vehicles Delivery lead-times from manufacturers Attractiveness of lease extensions

Source: FTA Logistics Industry Survey 2011/12

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Economy

23

Graph 1.19 Large-scale business investment plans in 2011 and 2012


Caution over the strength of recovery in domestic demand means fewer businesses are willing to commit to long-term investment 30 25 Percentage of respondents 20 15 10 5 0 Purchased additional distribution premises Rented additional distribution premises Relocated business premises Acquired another business

There is no doubt that the high oil price driven both by real demand and the Iranian situation is of great concern across the world
George Osborne Chancellor for the Exchequer, Budget Statement, 21 March 2012

Challenges for 2012


In the opening months of 2012 the turmoil that characterised the Euro Area at the end of 2011 appeared to have settled to some degree. Nonetheless, the Ofce of Budgetary Responsibility (OBR) forecast, ahead of Budget 2012, identies that the Euro Area will continue to represent a signicant threat to UK economic growth. In addition, the OBR identied high oil prices as posing a considerable risk. Growth for the UK has been revised upwards slightly by OBR, to 0.8 per cent, reecting the fact that the economy carried a little more momentum into the New Year than previously anticipated. However, the recovery is not robust and will be very vulnerable to downward revision later in 2012, as a result of the risks identied by OBR.

2011

2012

Source: FTA Logistics Industry Survey 2011/12

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Chapter 2

Strategies for growth

Strategies for growth


With the economy remaining weak in 2011 and divergence of opinion within the Coalition on key policy areas, the Governments growth agenda proved a unifying theme. Promising substantial restructuring, the Growth Review entails scrutiny of all aspects of the economy. When combined with the series of Red Tape Challenges including one focused on road transport Government is aiming to create the conditions in which businesses are able to recover and thrive. Government growth policy
Following the 2010 General Election, the Coalition Government announced that its key economic policy objective was to achieve strong, sustainable and balanced growth.The Growth Review, launched in November 2010, sought to undertake a thorough assessment of how Government can help create the conditions for growth. As a rolling programme, which will last for the duration of the Parliament, it is focused on four overarching ambitions for the UK economy.

actions taken previously, the Governments assessment was that it needed to step up a gear, and logistics was identied for study during phase 2. As a designated sector champion, FTA played a crucial role in the review process, both by challenging some misconceptions for example, the suggestion that UK logistics was less efcient than its competitors elsewhere and, with the help of members, providing hard evidence of the barriers to growth which the industry faces. The culmination of this effort was a response to Government which set out a clear programme of actions for the short (12 years) and medium (3+ years) terms against each of the four economic ambitions. At the end of November 2011, Government published the Logistics Growth Review: Connecting People with Goods and the National Infrastructure Plan 2011. These demonstrated that many of FTAs recommendations had been accepted, including the need to tackle congestion across the UKs infrastructure networks.

To create the most competitive tax system in the G20 To make the UK the best place in Europe to start,
nance and grow a business

To encourage investment and exports as a route to


a more balanced economy

To create a more educated workforce that is the


most exible in Europe Phase one of the review focused on a number of key business sectors, including construction and retail, with the results and associated action plans being published as part of the Plan For Growth at Budget 2011. But despite the

Logistics Growth Review and Red Tape Challenge


The Logistics Growth Review presented a wide-ranging package of measures to target some of the principal barriers to growth identied by the logistics industry and its users. It entailed a fundamental examination of the conditions for logistics success, and identied the actions Government can take to promote growth (table 2.1). In November 2011, Government announced progress in a number of areas, including the launch of a task force to broker successful engagement between industry and other parties

The logistics sector has a key role in supporting economic recovery and growth so Government should always look at where regulation is imposing extra costs on business and seek alternative ways to achieve its goals
Ray Ashworth Managing Director, DAF Trucks Ltd

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in trialling and implementing low emission technologies and behaviours, as well as making a commitment to consider the need for further planning guidance on night time deliveries. FTAs lobbying efforts were rewarded in terms of deregulation as well. For example, Government said it would review the Habitats and Wild Birds Directives, which impact ports and shipping; there was also a commitment to review the speed limit for lorries on single carriageway roads and the intention to move towards a new risk-based regime for aviation security. A signicant number of further changes, for example a proposal to scrap the regulation requiring drivers to hold a paper counterpart to their driver licence by 2015, have also been promised as a result of the Red Tape Challenge conducted at around the same time. Logistics is one of the most heavily regulated sectors of industry and this can impose signicant costs on businesses. Table 2.1 Logistics Growth Review and Red Tape Challenge outputs
Subject Major rail freight terminals SRFIs: Network Rail support Strategic Rail Freight Network (SRFN) Aviation strategy Long-duration incidents and delays Semi-trailers Operator licensing regime Fuel efciency technologies for the logistics industry Hgvs: low emission technology Quiet night time deliveries Inclement weather conditions preparation Skills for Logistics Driving licences Vehicle registration Drivers hours/working time Roads Motorways and trunk roads Parking charges and enforcement Speed limits Vehicle standards Roadworthiness testing Enforcement Driver CPC

The Logistics Growth Review and Red Tape Challenge outputs offer considerable potential benets for logistics, if Government stays true to its word. In 2012, FTA will concentrate efforts on ensuring that the demonstrable improvement in Governments understanding of the role of logistics is followed through by tangible actions.

Infrastructure investment
Congestion particularly on the road network costs industry billions of pounds each year. It makes logistics operations less efcient through longer journey times and unforeseen delays and, as a result, increases carbon and other harmful emissions. At a time when the economy

Network Rail charged with supporting the development of a network of SRFIs 55 million of investment in the SRFN to remove bottlenecks and improve connectivity to the UKs major ports Government to publish aviation policy framework in spring 2012 Implement the recommendations from the Motorway Incidents Review to reduce long-duration incidents 3 million fund to assist police forces to purchase laser scanning equipment 10 year trial of longer semi-trailers commencing January 2012 Explore potential for changes to the operator licensing regime to support the use of green tech nologies task force established to promote use of fuel efcient, low emission road freight tech Industry-led nologies million to pump prime the procurement of low emission hgv technologies and supporting 8 infrastructure Consider the need for further planning guidance on quiet night time deliveries Noise Abatement Society and FTA to develop toolkit that includes standards for quiet night time
Government statement of support for development of, and investment in, Strategic Rail Freight Interchanges (SRFI)

Commitment

Trial the temporary use of snowploughs attached to certain types of heavy duty vehicles 4 million to Skills for Logistics to improve training approaches in logistics Scrap paper counterpart by 2015 Remove the need to apply for SORN every year Remove need to hold V5C (registration certicate) for every vehicle Examine scope for simplication of drivers hours and working time rules Consult on changing the digital tachograph download requirements from every 56 days to 90 days Introduce lane rental pioneers Re-examine off-side lane lorry restrictions on M42, A1M and (proposed) M11. If justied, will wrap into one regulation Scrap minimum rate for penalty charges Consult on raising national speed on motorways and some dual carriageways from 70mph to 80mph on raising the speed limit on single carriageways for goods vehicles over 7.5 tonnes Consult Streamline vehicle standard regulations (type approval, construction and use regulations etc) Review MOT regime Simplify regulations on dynamic axle weighing for overloading enforcement Review of exemptions
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Strategies for growth

This whole process [the Red Tape Challenge] just proves that theres so much sitting on our statute books that, at the very least, needs a good spring clean or can be scrapped entirely
Justine Greening Secretary of State for Transport

remains subdued, targeted additional capital spending on the road and rail network provides an important growth stimulus. The Government has announced that it will be targeting over 1bn investment in the most growth-critical roads. It will also use a pinch point fund to deliver technology improvements on a number of key routes, such as the M5, M40, M3 and M54. However, increasing the long-term capacity of routes such as the A14, and the M4 in South Wales, remains in the balance. Congestion on these routes will not go away by Government announcing studies, and industry will be looking for early, tangible progress in providing it with the journey time reliability it needs. For rail, Government will make available funding for an investment of 55m in the Strategic Rail Freight Network to remove bottlenecks and improve connectivity to the UKs major ports. Network Rail has been asked to work with the private sector to support a network of Strategic Rail Freight Interchanges. The changes the Government is introducing to the planning system will be essential if this is to progress smoothly. The Government has also announced the go-ahead for High Speed 2; this will involve the construction of a new railway line which should release capacity for freight on the existing network between London and the Midlands and, eventually, the North of England. However, representations from the aviation sector and wider industry show that Government also urgently needs to make a decision on increasing airport capacity in the South East of England. Failure to do so would put UK logistics global competitiveness at risk.

Achieving a fair cost base


The price of fuel consistently tops the poll of issues of most concern to FTA members and is the major challenge to the protability and success of the sector. The primary cause of recent increases in costs has been the relentless rise in world oil prices, partly due to supply disruptions but mainly as a consequence of increasing demand from emerging economies such as India and China. This is compounded by the UK having the highest fuel taxes in Europe and every attempt by the Treasury to worsen the situation for operators has met with strong opposition from FTA for over 15 years. This sustained campaigning has kept fuel duty increases below ination (graph 2.1). The squeeze on business protability and household incomes led to FTAs decision to ght the fuel tax increases proposed for April 2011 through a public campaign, rather than one based purely on the business issues. FairFuelUK has combined FTAs fuel campaigning activities with those of other associations to present a united voice against Governments proposed increases in fuel tax. The campaign raised the prole of the impending hike in fuel duty during the rst quarter of 2011, with all efforts focused on persuading the Chancellor to cancel the proposed increase in his Budget speech scheduled for 29 March. A succession of events was organised to highlight the impact of high fuel costs not only on commercial vehicle operators but also on the general public (gure 2.1), including a banner showing how much of the fuel price is tax displayed outside the Treasury. A donated tractor unit was (literally) hauled up Whitehall, individually addressed letters to every MP in the House of Commons were handed over to a group of supportive MPs and a petition containing over 70,000 signatures was delivered to the front door of 10 Downing Street. As a result, the Chancellor dropped the planned increase of 4 pence per litre (ppl) and reduced fuel duty by a further penny; he also announced the creation of a fair fuel stabiliser.

The Government has three levers at its disposal to get the best out of logistics; regulating less, investing in alleviating congestion on key parts of the transport network and reducing tax. Reducing tax through a cut in fuel duty has the most immediate effect on stimulating the economy and increasing industry competitiveness
Simon Chapman Chief Economist, Freight Transport Association

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A key feature of the campaign was the successful recruitment of a large number of supporters through the use of social media. The ability to obtain and respond to individual stories of hardship and frustration through the campaigns Facebook pages and Twitter brought a powerful human dimension to the otherwise impersonal economic arguments.The campaign also received a further boost when the Conservative MP for Harlow, Robert Halfon, stepped up as the leading backbench MP, ready to co-ordinate debates and questions on fuel prices in the House of Commons. During the summer, when the Government promised to allow a debate in the House of Commons on any issue that successfully recruited 100,000 signatures though its ofcial e-Petition website, FairFuelUK launched its own petition. The required number of signatures was reached by 30 September. FTA also included the subject at each of its fringe meetings during the party conferences in September and early October.These attracted high prole political speakers and signicant numbers of delegates, meaning that the range of generally supportive views could be shared and noted by policy advisers and party

Fuel prices debate motion 15 November 2011


That this House welcomes the 1p cut in fuel duty at the 2011 Budget, the abolition of the fuel tax escalator, the establishment of a fair fuel stabiliser and the Governments acknowledgement that high petrol and diesel prices are a serious problem; notes that in the context of the Governments efforts to tackle the decit and put the public nances on a sustainable path, ensuring stable tax revenues is vital for sustainable growth; however, believes that high fuel prices are causing immense difculties for small and medium sized enterprises vital to economic recovery. Robert Halfon, MP

strategists. The House of Commons debate was held on 15 November and the strength of feeling expressed almost certainly contributed to the Chancellors decision to again abandon the planned 3ppl increase in fuel duty from 1 January 2012 in his Autumn Statement on 29 November. Twice, in the space of eight months, George Osborne abandoned his ambitions to increase fuel duty in the face of a high prole, professionally organised, media intensive

Graph 2.1 Fuel duty and ination trends 20002012


Sustained campaigning has continued to keep fuel duty increases below ination 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 01/09/2000 01/01/2001 01/05/2001

Duty inflated by RPI (ppl) Actual duty rate (ppl) 11ppl

Fuel duty (pence per litre)

12ppl

11ppl

10ppl

01/09/2001

01/01/2002

01/05/2002

01/09/2002

01/01/2003

01/05/2003

01/09/2003

01/01/2004

01/05/2004

01/09/2004

01/01/2005

01/05/2005

01/09/2005

01/01/2006

01/05/2006

01/09/2006

01/01/2007

01/05/2007

01/09/2007

01/01/2008

01/05/2008

01/09/2008

01/01/2009

01/05/2009

01/09/2009

01/01/2010

01/05/2010

01/09/2010

01/01/2011

01/05/2011

01/09/2011

Sources: FTA, Ofce for National Statistics

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01/01/2012

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Strategies for growth

Figure 2.1 The FairFuelUK campaign started in January 2011

FEBRUARY 2011
Banner displaying how big a slice of the fuel price is tax displayed outside the Treasury

MARCH 2011
26.2 billion cheque handed to the Treasury

MArch 2011
Tractor unit hauled up Whitehall to highlight the effects of the high price of fuel

APRIL 2011
4ppl fuel duty increase postponed

JUNE 2011
Individually addressed letters to every MP in the House of Commons handed over to a group of supportive MPs

JULY 2011
70,000 signature petition delivered to Number 10

NOvEMbEr 2011
135,000 signature e-petition triggered a parliamentary debate on the impact of high fuel prices

3ppl fuel duty increase planned for January 2012 postponed

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public campaign. In fact, fuel duty stands at 1 pence per litre (ppl) lower today than it did 12 months ago, thanks to FairFuelUK successfully linking the high price of fuel, of which 60 per cent is tax, with suppressed consumer demand in the economy and sluggish recovery from the recession. Without this campaign fuel duty would now be 70ppl and the retail price of diesel closer to 160ppl. The Chancellors decision in November provided a much needed lifeline to many businesses as the price of diesel had risen by over 13ppl (13.9 per cent) in the last year, representing an extra 1.4 billion cost to road freight operators. However, FTA contended that the Chancellor had not been bold enough, failing to rule out the planned 3ppl duty rise in August 2012 as, if world oil prices remain high and above $100 per barrel into next year, this will still hit industry hard. Therefore, the FairFuelUK campaign continues in 2012, starting with the rst National FairFuel Day on 7 March.

This morning I met with representatives of the Freight Transport Association.They told me that high fuel prices have had a crippling effect on the logistics industry, whose business viability is determined by the price of fuel
Caroline Nokes Conservative, MP for Romsey and Southampton North Fuel duty debate, 15 November 2011

Survey1 clearly demonstrate how poorly thought out policies can impact on freight operators. Under the old planning regime, where there was greater centralised power in the decision making process, all these areas suffered setbacks in the planning process. In some cases investors walked away from projects due the time taken by the planning process, often as the result of very small interest groups using stalling tactics to delay schemes. In 2011, FTA played an important role in shaping planning policy by inuencing the Localism Act in its passage through Parliament and continues to do so, informing prospective changes to the planning system in order to ensure that national interests are protected and the case for a streamlined planning approval process is heard. The Governments desire to empower local communities within the planning system, through local referendums and other local authority processes, raised a number of

The localism agenda


The Government also continues with its desire to cascade power to local communities, in the belief that this will be effective in improving economic conditions at a local level. Logistics generally organises itself along national or even global lines, and views with concern developments that fail to take account of the wider national interest. At its most extreme, increasing power to local communities could result in a bewildering and unhelpful array of differing local weight limits and other measures to restrict freight movements. Such an approach would be wholly against the interests of competitive, efcient logistics. Indeed, the results of FTAs most recent PCN (Penalty Charge Notice)

1 FTAs PCN Survey published March 2012

FTA Penalty Charge Notice Survey 2011


Delivering in London poses a signicant challenge for freight operators especially nding somewhere to unload without attracting PCNs.The PCN Survey 2011 was commissioned by FTA to explore trends in PCNs in relation to ve key areas: issuing authorities; PCN hotspots (street/location); types of contravention; appeals and costs. Twenty six FTA member companies that deliver in London who between them attracted over 80,000 PCNs participated in the survey, submitting data from 2009 to 2011. Key ndings The 26 companies paid 3.86 million in PCN nes for the period Nearly all PCNs were issued by only 30 per cent of London boroughs (and Transport for London) London Borough of Westminster, London Borough of Camden, the City of London and Transport for London were more likely to issue PCNs than other authorities There was an overall rise in the number of PCNs issued to companies over the two and a half year period covered by the survey PCN hotspots for each issuing authority remained fairly consistent Rates of appeal declined More than 50 per cent of appeals were successful overall a proportional rise in success rates

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Strategies for growth

Local authorities play a key role in determining policies in their areas but they are not always best placed to see the bigger picture. Logistics does not work to local boundaries. Infrastructure, policies and strategies are needed in the right places to meet national needs
Christopher Snelling Head of Supply Chain Policy, Freight Transport Association

Graph 2.2 Impact on UK Governments net scal position after one year
Cutting fuel duty by 2.5 pence per litre would be revenue neutral for the Treasury in 2012/13 1,000 500 0 500 1.0p 2.0p 2.5p 3.0p 4.0p 5.0p

concerns for logistics, as infrastructure issues have always suffered when dealt with by the local planning system. Given the opportunity, many communities will take the not in my back yard approach in their views on whether or not sites for logistics schemes get the go-ahead. FTA identied three key areas which would be under threat from local planning regimes if the localism agenda were to be pursued without the right checks and balances: port developments and infrastructure that creates the access to ports, intermodal rail freight interchanges and lorry parks. This infrastructure is essential if UK logistics is to continue to be a world player.

million

1,000 1,500 2,000 2,500 3,000 3,500 Gross tax loss Net impact on public finances

Source: CEBR report: The impact on the UK economy of a reduction in fuel duty, March 2012

As the new system was being developed, FTA communicated industrys concerns over the effect of interference at a very local level in infrastructure projects of strategic national interest. FTAs role was to lessen the potential effect of local referendums in the wide-ranging areas that were originally proposed; this would have had a negative effect on logistics infrastructure projects. FTA also ensured that access to ports and intermodal terminals was considered in a strategic, rather than local, context. Logistics concerns were recognised by Government, which accepted that without adequate infrastructure provision,

completed in a timely and cost effective way, our national interest in the efcient distribution of goods would be affected and that would not help economic recovery. The strategic areas of concern were incorporated in the National Planning Policy Framework and key powers were retained as a matter for central Government policy. While the Localism Act abolishes the Infrastructure Planning Commission, its functions are transferred to the Secretary of State which is a welcome protection for important, strategic developments.

Centre for Economics and Business Research report: The impact on the UK economy of a reduction in fuel duty
FairFuelUK asked CEBR to model the effects on the wider economy of a cut in fuel duty. The rationale for this work is that such a move would act in the same way as a reduction in the basic rate of income tax, or a cut in VAT, by increasing consumer disposable income and boosting domestic demand. The initial ndings of this work were presented to Chloe Smith, MP, Economic Secretary at a meeting on 28 February 2012. CEBR found that an immediate cut of 2.5 pence per litre in fuel duty would be cash neutral to HM Treasury over the 2012/13 nancial year. Economic growth would be boosted by 0.3 per cent and 180,000 additional jobs would be created. FTAs pre-Budget 2012 submission reinforced the messages of the FairFuelUK campaign, pressing for a 5 pence per litre cut on road fuel duty. Other key features of the submission included making the case for the Chancellor to: reassure industry that plans for a UK vignette will be tax neutral by conrming the offset mechanism used will be vehicle excise duty support freight industry actions to reduce its environmental footprint by retaining the current used cooking oil fuel duty differential stimulate investment in low-carbon fuels by freezing fuel duty rates for road fuel gas and biomethane for at least ve years

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The Chancellor failed to grasp the benets that a fuel duty cut could have delivered.Talking about growth is not enough, lowering fuel duty would boost the economy and generate jobs
Theo de Pencier Chief Executive, Freight Transport Association

Challenges for 2012


The Government must now maintain its focus on addressing the economy and the decit, while delivering on its positive statements in the Logistics Growth Review. The Chancellor had a crucial decision to make in the run-up to Budget 2012 as to whether to go ahead with the 3ppl increase in fuel duty planned for August. FTA, and its other FairFuelUK partners, pressed the case for the increase to be abandoned, using independent analysis undertaken by the Centre for Economic and Business Research (CEBR). This showed that the Chancellor could cut fuel duty by up to 2.5 pence per litre and achieve scal stability through the stimulus this would give to the economy and job growth (graph 2.2). In the event, whilst recognising that high oil prices have put real pressure on household budgets and on businesses, the Chancellor did not make any further changes to the fuel duty plans already set out. FTA believes that, at the very least, the Chancellor will need to keep this decision under review. If world oil prices do spike, he will need to ex fuel duty downwards to counteract upward pressure on pump prices.

Elections for the devolved governments


Nowadays, political power does not only rest with Westminster; devolved governments in Northern Ireland, Scotland and Wales are able to make important decisions that will affect those that operate beyond their boundaries. In preparation for the elections in May 2011, FTA prepared its manifestos for campaigning in the devolved administrations. Issues identied ranged from helping politicians understand the impact of the Severn Tolls in Wales to prioritisation of goods vehicle operator licensing legislation in Northern Ireland and the need for reinstatement of the Freight Facilities Grant in Scotland.

The Logistics Report 2012 Freight Transport Association

Chapter 3

Safety and environment

Safety and environment


In spite of businesses need to focus on achieving greater efciency and deliver prots during the downturn, the emphasis on responsibility and compliance has remained strong. Logistics has continued to operate in a way that has seen improvements maintained in key safety indicators; companies have also embraced voluntary initiatives that will secure further safety improvements, as well as working to ensure the UK honours its environmental commitments.
Logistics safety remains a concern in the boardroom, both in terms of reducing accidents and increasing safety for staff (graph 3.1). In the face of the commercial pressures resulting from the economic downturn, key indicators show that hgv rst time test failure rates continue to fall (LDI 11) as do numbers of logistics workplace accidents (LD1 16) and collisions involving hgvs on the road (LDI 17).

Raising safety standards


The most visible aspect of logistics for the general public is the operation of goods vehicles on the roads. However, the industrys safety record belies its poor public perception. In reality, the number of collisions has fallen consistently over many years and technical innovations and an emphasis on safe and efcient driving, continue to offer new opportunities for further improvement. The number of hgvs involved in accidents is generally falling; 2,991 vehicles were involved in fatal accidents in 2010,

Graph 3.1 Board priorities linked to transport and logistics 2012


Businesses remain focused on safety of their staff and the public Site safety Reducing accidents on the road Staff security Reducing carbon dioxide Ethical trading Reducing air pollution Reducing noise pollution 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1 = Not a priority 3 = High priority

Source: FTA Logistics Industry Survey 2011/12

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compared to 5,282 in 2000. When the distance travelled is taken into account, the involvement rate is showing a clear, downward trend (graph 3.2). In recent years, vehicle design and standards of operation have been the focus of safety improvements and real advances have been achieved. Improvements in vehicle safety standards are one of the reasons for the continued decline in the accident rate.These advances can be expected

I welcome the commitments made by the freight industry, including the Freight Transport Association, regarding cycle safety to encourage all drivers of large vehicles to become more cycle aware
Norman Baker, MP Transport Minister Early-day motion 2689 debate, Westminster Hall The Times Cities t for cycling campaign, is relevant, 23 February 2012

Graph 3.2 Hgv accident rate per billion vehicle miles


The involvement rate of hgvs in accidents is falling 1,000
Accident involvement rate per billion vehicle rules

800 600 400 200 0

to continue; the European General Safety Regulation, which will be fully implemented by November 2015, is introducing a range of advanced safety features in new vehicles, such as Advanced Emergency Braking Systems, Electronic Stability Control and mandatory requirements for lane departure warning systems. The EU Whole Vehicle Type Approval Directive will also introduce up to 58 pieces of legislation (where previously there were six), many of which cover safety and environmental requirements. Whilst the statistics on the number of road deaths involving hgvs are showing a welcome decline, an increase in cycling, possibly in response to the economic downturn and campaigns encouraging it, has also, sadly, been accompanied by a rise in the number of cyclists being killed in collisions

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

All severities Fatal or serious

Fatal accidents

Cycling Code
With an increasing number of road users and a growing proportion of these being cyclists, the risk of collisions is greater than ever. Indeed, 2011 was a bad year, with 13 fatal collisions between hgvs and cyclists in London alone. To take the initiative in promoting safety, FTA signed an agreement with Transport for London that set out how the two organisations would co-operate to reduce the number of cyclists killed or seriously injured. In 2011, FTA built on this agreement by working with the cycling community, the police and a range of FTA members to produce the Cycling Code. The code is designed to promote better understanding of the needs of all road users; it sets out measures for cyclists and drivers as well as for operators.These include actions around training for drivers and cyclists; potential improvements to bikes and hgvs to reduce the likelihood of a collision; and steps that highway authorities can take to make roads safer for all users. The code is managed by the companies that have signed up to it, making a commitment to their drivers and to other road users. It is a living document and is reviewed regularly to make sure that the advice given remains timely and appropriate. Working with the police and cycling community also makes sure that the advice that is given is consistent with what cyclists are being told by their own associations.

Source: DfT STATS19, DfT National Road Trafc Survey

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Safety and environment

Safety is an integral part of our culture. Our approach focuses on improving driver behaviour and knowledge, as well as introducing additional safety features to our eet and working with members of the public, particularly vulnerable road users and cycling organisations, to raise the awareness of safe cycling
Julie Welch Logistics Health and Safety Manager, CEMEX

with goods vehicles. In London alone, 13 out of the 16 cyclist fatalities in 2011 involved a lorry. In the course of last year, FTA built on its previous work with concerned members, the police and cycling groups, culminating in the launch of the Cycling Code. Following this launch a number of initiatives are now being developed. Human factors remain the most important inuence on safety standards in the sector and, despite a fall in the number of incidents of all severities, it remains a hazardous place in which to work (table 3.1). There were 16,810 reported workplace incidents for the transport and communications sector in 2010/11, 13 per cent fewer than in 2009/10 (LDI 16). Table 3.1 Trends in logistics workplace accidents
Reportable incidents to HSE maintain their downward trend Fatal injuries Non-fatal major injuries Over 3-day injuries 2004 22 3,618 21,576 2010 12 2,725 14,073

Logistics Safety Working Group


FTAs Logistics Safety Working Group (LSWG) has made good progress in identifying the real world safety issues and identifying best practice in 2011. This has been achieved by working with transport and safety professionals from a diverse range of sectors, including retail, third party logistics, parcels and couriers, waste and utilities. The group also includes member representatives from the Institute of Occupational Safety and Health (IOSH) Retail and Distribution Group, the Institute of Road Transport Engineers and the Parcel Carriers Safety Association. Its objective is to reduce the number of work-related deaths, injuries and ill-health in logistics. Over 2011, the group actively fed into the Health and Safety Executives (HSE) work, including the Red Tape Challenge, review of fork-lift truck guidance and proposals to introduce cost recovery for enforcement, as well as helping to shape the content and direction of the emerging HSE ports and logistics strategy. FTA also held its Safety in Transport Conference, in June 2011. Work has also been carried out to identify, measure and benchmark safety performance within logistics.The key performance indicators that have been developed look at both on-road and off-road safety performance, including measures such as the number of road trafc collisions per million miles by vehicle type and the number of reportable (RIDDOR) incidents per 1,000 employees by type of employee (such as driver, loader etc). An initial pilot using 2010 data will be supplemented by data for 2011 early in 2012, with the aim of offering a safety performance measuring tool to all FTA members and providing a condential benchmarking service in the rst half of 2012. It is believed that having a better understanding of logistics safety performance will help direct future activities of the group and inform the wider debate with HSE and other stakeholders. Other outputs include the sharing of best practice on issues such as lone working, load security, loading dock safety and delivery point risk assessment. Guidance publications on all these areas will be published in 2012.

Source: Health and Safety Executive Statistics, table RID3

Of the main industrial sectors, construction and agriculture have the highest rates of fatal injuries. These sectors accounted for 50 and 34 fatal injuries respectively in 2010. Within the gures for all the main industry sectors, logistics related fatalities accounted for 12 deaths (reported by employers). Of the non-fatal logistics injuries, 40 per cent involved slipping or tripping and 16 per cent were as a result of falls from height. Of those injuries that resulted in an absence from work of over three days, 36 per cent were caused by handling, lifting or carrying injuries and 23

Safety in operation is at the core of everything we do in Suttons. Protecting the public, our employees, our customers and the environment, through continuing investment in training, equipment and risk management is fundamental to ensure the continuing success of our business across the world
Andrew J Palmer Group Managing Director, Suttons Group

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per cent by slipping or tripping. Compared to other sectors, in terms of self reported injuries (as opposed to illness), transport and storage, construction, manufacturing and human health and social work had statistically higher rates than for all industry1. In order to examine and implement ways to address the safety of those who work in logistics, FTA established the Logistics Safety Working Group.

The O licensing system in Great Britain has proven that, as well as increasing safety standards, hgvs are more reliable and cost-effective to operate over the vehicle lifetime if preventative maintenance procedures are employed.These practices will ultimately increase professionalism across the Northern Ireland transport industry
John Jenkins Managing Director, Dennison Commercials Ltd

Better regulation of road logistics


The operator licensing system, supported by the seven independent Trafc Commissioners, has evolved with the input of trade bodies as an example of international best practice originating in Great Britain. It is an achievement of which the industry is justly very proud. The system is respected and valued by road operators and some key elements of it are now, nally, being implemented across the European Union. Industry and Government alike had to work to a tight deadline to have the European Regulation on Access to the Occupation implemented by 4 December 2011. In many respects, the regulation represented the export of Great Britains best practice to the rest of Europe although some amendments were needed, for example, due to changes in arrangements for transport managers and Grandfather Rights. Industry also values the independence of the Trafc Commissioners and welcomed the announcement that two longstanding Trafc Commissioners, Philip Brown and Tom Macartney, who were retiring would be replaced, as it provided reassurance that the vital contribution the Commissioners make to road safety is recognised. The Trafc Commissioners have shown signicant awareness of issues facing the industry, compared to other public bodies, by recognising the potential impact the London 2012 Olympic Games will have on logistics. The Trafc Commissioner for the South West, Sarah Bell, has been working closely with industry in its preparations for maintaining supply chains during the event. However, the Senior Trafc Commissioners Statutory Guidance and Directions, which were changed following consultation in 2011, still need further work if they are to recognise the nature of logistics in the 21st century, particularly for large, multi-centred, nationally managed eets.

Operator licensing changes in Northern Ireland


Not all campaigns can be measured in months or years, some take decades to come to fruition. In addition to the extension of elements of operator licensing to mainland Europe, industry has campaigned for its extension to the own account sector in Northern Ireland where it has been the overriding priority for FTA for a number of years. FTA has resolutely pursued this policy, through painstaking negotiations with a number of administrations and is now, nally, on the verge of seeing it introduced in 2012. The Department of the Environment for Northern Ireland is about to implement new legislation on operator licensing; primary legislation has already been enacted and secondary legislation is expected to be completed by April 2012. This will bring regulations for all goods vehicles in Northern Ireland over 3.5 tonnes into line with the rest of the UK. The change will affect some 7,500 vehicles (over 70 per cent of goods vehicles in Northern Ireland) and is primarily designed to improve road safety by raising standards, as well as enhancing and promoting the image of logistics.

Reducing emissions from logistics


The emphasis on reducing a businesss harmful emissions can be the catalyst for improvements in the way that logistics is managed. Pursuing sustainable principles means transport units, be they trucks, containers or wagons, operating at full capacity, improving fuel efciency and using fuels with lower carbon intensity, as well as use of less polluting modes. With the rising cost of conventional fuels, these measures make sense in terms of the environment, as well as making for sound nancial management. Despite lower business volumes, logistics is still working efciently, with levels of vehicle lading continuing to improve (LDI 20) and empty running unchanged (LDI 18). Use of alternative fuels in hgvs is also increasing, with 1.1 million tonnes of oil equivalent used in 2010 (LDI 22).

Health and Safety Executive Annual Statistics Report, 2010/11

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Even in these tough times, moving to a low carbon economy is the right thing to do, for our economy, our society and the planet
David Cameron, Prime Minister and Nick Clegg, Deputy Prime Minister Foreword from Carbon Plan

the UK to a low carbon economy. In so doing, it sets out the next steps to meeting the fourth carbon budget, equivalent to a 50 per cent cut in greenhouse gas emissions by the mid 2020s. The Carbon Plan asserts that businesses will need to act to meet these aspirations.

The intense focus of politicians and Government on the economy has led some commentators to question whether the Coalition remains as committed to carbon reduction as it had previously suggested. However, through its public statements Government has sought to reafrm the need for action.

The role of voluntary schemes


Transport represents about a quarter of total UK greenhouse gas emissions, with a third of these emissions coming from freight. In the case of freight, industrys measures to reduce carbon dioxide emissions are grounded in sound business practice focused on reducing cost and improving efciency. Industry has already made substantial progress to improve efciency through measures such as driver training, better vehicle specication, utilising alternative fuels and technologies, enhanced routeing and scheduling, sharing loads, reducing empty miles and modal shift. The extent to which Government needs to create policies and regulations to curb emissions from business is therefore limited. Rather, Governments role is to encourage innovative low carbon practices and, where necessary, provide the conditions necessary for businesses to move from low carbon trials to mainstream operational use. Joined up thinking on carbon policy between Government departments is also important. For instance, Department for Environment, Food and Rural Affairs (Defra), greenhouse gas reporting guidelines embrace a basket of gases that contribute to climate change, whereas the Carbon Reduction Commitment Energy Efciency Scheme focuses purely on carbon emissions. Equally, carbon policy and air quality should not be viewed in isolation. Rather, decarbonisation measures could achieve improvements that contribute towards both goals.

Carbon policy
Whilst international progress in securing a global deal on climate change remains slow, the UK has set a challenging trajectory to reduce greenhouse gas emissions which is inuencing the way businesses operate. Under the Climate Change Act, the UK must reduce greenhouse gas emissions by 80 per cent by 2050 against 1990 levels. There is also a short-term target to reduce greenhouse gas emissions by 34 per cent by 2020 against a 1990 baseline, backed up by a series of ve-year carbon budgets which map out how interim progress will be achieved. To date, no targets have been set for individual sectors.The Governments Carbon Plan, published in December 2011, commits the Coalition to move

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Logistics Carbon Reduction Scheme


Despite the challenging economic and commercial environment in 2011 which persists in 2012, industry has further built on its commitments to lead the way in reducing its carbon emissions. LCRS, which was set up and is managed by FTA, has established a framework to monitor how industry can decarbonise. It is now in its third year of operation. The scheme is free to join and open to all commercial vehicle operators. Scheme participants provide vehicle numbers and simple fuel usage and activity data to FTA which is then converted into carbon dioxide equivalent (CO2e) emissions, using Government approved conversion factors. FTA aggregates data from participants, reports totals and tracks improvements in emissions and fuel efciency over time. The scheme allows the UK logistics sector to publicly report, for the rst time, its contribution towards national targets to cut emissions and provides evidence to Government about the advantages of industry voluntarily achieving emissions reductions, rather than seeking to do this through regulation, additional tax and articial targets. As well as recording and reporting carbon emissions, scheme participants are collectively committed to an eight per cent reduction in the intensity of CO2e emissions by 2015, compared to a 2010 baseline. The second LCRS annual report (published in January 2012) describes how: CO2e emissions are reducing reductions are on course to meet the scheme target baseline emission levels have been established scheme coverage has grown to over 56,000 vehicles carbon reduction strategies have been modelled the scheme has been endorsed by DfT During 2012, LCRS will focus on reducing Scope 3 emissions (indirect emissions) for companies who use sub-contractors for distribution and on encouraging those businesses with smaller eets to sign up. The recent Logistics Growth Reviews announcement of funding for low carbon freight vehicles represents an opportunity for a step change in the use of alternative fuels.

Graph 3.3 Emissions per vehicle km for freight industry vs LCRS participants
When compared to the industry as a whole, scheme participants are making better progress in reducing emissions
0.95

The 2012 Review will look at measures currently in place to reduce fuel consumption and emissions, as well as potential future progress that the freight industry is likely to make towards the UKs climate targets.The success of the Logistics Carbon Reduction Scheme gives me condence that the industry is taking its responsibilities seriously
Mike Penning, MP Logistics Minister, Department for Transport

kilogrammes CO2e per vehicle km

0.90

0.85

0.80

0.75

0.70 2005 2006 2007 2008 2009 2010

Government has welcomed industrys proactive approach to reducing emissions, as evidenced by the endorsement of the Logistics Carbon Reduction Scheme (LCRS) by Mike Penning, Logistics Minister, in April 2011, following the publication of the schemes rst annual report.The scheme has played a signicant role in persuading Government to refrain from setting additional regulatory requirements, so far. When compared to the freight industry as a whole, scheme participants are making better progress in reducing emissions (graph 3.3). In 2011, LCRS participants were surveyed for the rst time to establish quantitative data on the extent to which carbon saving interventions are in place, undergoing trials, or

kg of CO2e per vehicle km by freight industry kg of CO2e per vehicle km by LCRS participants
Source: LCRS Second Annual Report

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Safety and environment

One of the biggest costs in our business is road transport fuel. Our GoGreen programme, an internal carbon management plan, sets out a clear carbon reduction strategy, incorporating initiatives and technical solutions that achieve both environmental and commercial objectives
Jim York VP GoGreen, DHL Supply Chain, EMEA Region

planned for 2012.The survey revealed that interventions that improve fuel efciency are already widely adopted by scheme participants. However, other forms of intervention, such as use of alternative fuels, are less mature in terms of take-up, and offer further carbon saving potential (graph 3.4). The scheme shows that there is strong will within the freight industry to voluntarily reduce emissions but the Governments commitment to a voluntary approach will be tested with

Graph 3.4 What carbon saving interventions have had the most widespread take-up since 2010?
Measures to improve fuel efciency are widely adopted by scheme participants 80 Percentage of respondents who have introduced interventions 70 60 50 40 30 20 10 0 Driver fuel performance Eco-driver training Adopt vehicles Reduce engine Improve vehicle Increase the with automated idling fill on laden proportion of manual transmission trips (by weight off-peak, and/or volume) evening and night-time deliveries Mode transfer Make greater use of double deck vehicles (or high cube vehicles) Accelerate turnaround times at collection and delivery points Introduce computerised vehicle routing and scheduling

Source: LCRS Second Annual Report

Mode Shift Centre


The Mode Shift Centre, managed by FTA, provides a one-stop-shop for businesses looking to make use of rail and evaluate the opportunities and benets that rail freight could provide for them. Intermodal rail freight services are managed and provided through a series of commercial relationships between logistics providers, freight train operators and Network Rail. DfT continues to support some ows through capital and revenue grant funding, with separate provision made by the Scottish Government. The occasional complexity of these arrangements should not deter serious efforts to exploit the commercial and environmental benets that rail freight offers. The Mode Shift Centre demysties rail freight for potential users and supplies reliable and accurate information for logistics managers wanting to answer the question: What can rail freight do for us? Staffed by experts with a wide network of industry and Government contacts and information sources, the Mode Shift Centre can equip prospective users with a working knowledge of current rail freight ows and spare capacity, identify terminal locations and capabilities, service and equipment providers, and potential contractors and operators. The Mode Shift Centre can also advise on the use of short-sea and coastal shipping services and inland waterway transport in conjunction with Freight by Water, the UKs representative body for waterborne transport, also managed by FTA. To help launch the new service, FTA has produced On Track a paper which documents the successful use retailers are making of rail freight today and explores why it works for them.

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this summers DfT Freight Review which will assess whether the sector is making a sufcient contribution to national greenhouse gas reduction targets. It is therefore essential that the scheme continues to grow in membership in order to signicantly contribute to DfTs Freight Review and to communicate to Government that industry is best placed to voluntarily report emissions and incorporate decarbonisation measures that make commercial sense. The mode shift initiative is a further example of logistics taking positive action in support of Government objectives; it is part of logistics commitment to promoting modal shift, where this is possible.

Graph 3.5 Reduction in permitted emissions of particulates and oxides of nitrogen from heavy duty diesel engines 19892013
Engine design improvements deliver a 98 per cent reduction in key air quality pollutants
1989

EURO 0

1994

EURO I

Particulate (g/kWh)

EURO 2

However, while industry has made signicant advances in the proactive, voluntary approach it has taken to reduce carbon emissions, it is also important that Government is willing and able to support these efforts and ensure that their effectiveness is maximised. Following signicant involvement in development of the proposals themselves, FTA welcomed Governments decision to undertake a 10-year trial of high volume semitrailers, which are up to two metres longer than standard trailers. Research suggests that there can be signicant environmental and efciency benets as a result of using these vehicles, as they offer a 15 per cent payload increase over standard vehicles. Although they are not suited to every sector or type of goods, high volume semi-trailers, as part of the overall UK eet, will enable reductions in the number of vehicles on the road. However, other legislative proposals are less welcome. As recognised in the Logistics Growth Review, FTA persuaded Government of the need to strongly resist draft European Union plans to impose a 4 metre height limit on trailers. If enacted, these plans would have increased the number of hgvs on the roads, causing extra congestion and emissions. The impact would be signicant, around 80 per cent of UK trailers are single deck and over 4 metres (the standard UK specication typically being around 4.24.3 metres). In terms of maritime emissions, at a worldwide level, the Global Shippers Forum (GSF) has published an authoritative

2013

2006/2009

The role of Government

EURO 3

% 8 9
1989 1994 1997

2001

1997

EURO 6

EURO 5

EURO 4

2001 2006 2009 2013

NOX (g/kWh)

maritime emissions brieng paper, analysing the impacts of the various market-based measures to inuence the International Maritime Organizations debate on the subject. The paper reinforces the need for co-ordinated action focusing on carbon reduction resources, rather than additional taxes and charges aimed at internalising the cost of emissions without a pathway to reduction.

Improving air quality


By the end of 2011, Air Quality Management Areas (AQMAs) had been set up in over 70 towns and cities in the UK. Even though signicant progress has been made in some locations, the impact of the EU Air Quality Directive is beginning to bite. The NOx limits set within

Rail clearly delivers signicant environmental benets and it has the potential to offer cost savings.We aim to exploit it as much as possible
Simon Polmear Strategic Transport Development Manager, Sainsburys

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Safety and environment

We believe that having an ambitious and positive future looking approach is the only way to ensure we have a long-term, sustainable way of mitigating the ever-growing challenges presented by increasing operating costs, and to address the important environmental obligation we all share
Geoff Wright Head of Corporate Services, AAH Pharmaceuticals Ltd

and fuel quality improvements that has brought about a dramatic reduction in the amount of these pollutants emitted by new engines. Parallel developments have taken place in reducing pollutant emission from rail freight rolling stock, with reductions in the sulphur content of gas oil and leaner burning locomotive engines. In the case of diesel, the fuels sulphur content, which has a direct impact on emissions of SOx, has been reduced by a factor of 200, from 2,000 parts per million (ppm) in 1992 to just 10ppm from 2009. A series of phased reductions in the remaining four pollutants has been achieved by progressive reductions in the maximum amount of each of the pollutants that new vehicles can emit. Following the establishment of a baseline level of emissions in 1990, successive, ever more demanding Euro standards have been introduced; the latest being Euro V which was introduced for new hgvs in 2009. A further tightening of standards for emissions from hgvs will take place from 2013, when Euro VI becomes mandatory. As each new Euro standard has been introduced, there has been a step change in the emissions of pollutants that affect air quality, to the extent that the newest Euro V truck emits just a fth of the particulate matter of the ve year old truck it replaces (graph 3.5). However, measures to improve air quality have come at a price. As each new Euro standard has been introduced, engine fuel efciency has been reduced. Vehicle manufacturers will only achieve comparable levels of fuel efciency on Euro VI vehicles with Euro V by exploiting every opportunity for vehicle body and transmissionrelated measures to save fuel. Without these, operators would face a fuel consumption penalty. The case for future Euro standards linked to air quality is therefore nely balanced with the need to reduce carbon dioxide emissions, which the European Commission also has set a target for member states to achieve. As a result of improvements in engine design, the UK is now meeting the binding targets set by the European Commission on atmospheric levels of PM. However, it still has some way to go if it is to achieve targets linked to NOx by 2015. The UK Government is currently looking at measures at a local level to accelerate compliance with NOx levels. Some measures under consideration, such as anti-idling zones and tment of anti-idling technology to vehicles, are business sympathetic as they have the dual benets of reducing fuel use and improving air quality. Other measures, such as the introduction of LEZs, have the potential, if poorly conceived, to add cost to business and achieve little in the way of improvement. An LEZ is already

the directive are being exceeded in a number of AQMAs and will not be acheived by the 2015 deadline. While the precise implications for the freight industry remain unclear, the potential for the introduction of new low emission zones (LEZs), or other forms of restrictive measures, is a signicant cause for concern. Improving local air quality through targeting pollution from vehicles has been a key priority for regulators at European and national level for over 20 years as a means of improving health, particularly in heavily trafcked towns and cities. This focus has centred on fuel quality in particular, reducing the levels of sulphur, lead and aromatics in hydrocarbon fuels, and improving vehicle engine technology. The goal of regulatory action has been to achieve reductions in the key air quality pollutants, namely carbon monoxide (CO), hydrocarbons (HC), oxides of nitrogen (NOx), sulphur oxides (SOx) and particulate matter (PM). Working in partnership with vehicle and engine manufacturers and fuel producers, the European Commission established the Auto-Oil Programme in 1987, this agreed a long-term programme of engine development

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in place in London, and standards were tightened for hgvs and introduced for vans in January 2012. But FTA is concerned that other local authorities may consider such schemes, as pressure to improve air quality increases. FTA believes that LEZs should be considered as the policy of last resort and will encourage local authorities to ensure that their policies focus on those road users that are the principal cause of poor air quality excedences and to develop solutions which minimise the costs imposed on businesses.

The Department for Transports Freight Industry Review, in summer 2012, will scrutinise the measures taken so far by logistics in achieving carbon reduction and identify whether further, mandatory steps need to be taken. The LCRS will be an important part of the industry evidence base for this review. FTAs Mode Shift Centre will be expanded in 2012, to offer advice on water freight, as well as building on its advice service for businesses potentially making the switch to alternative modes. On air quality, it is still not yet clear which policies Government will pursue. However, logistics will need to work with national organisations, as well as Government, to promote the attractiveness and availability of technologies that will help achieve reductions in NOx and PM. As discussions about the establishment of low emission zones become more widespread there will also be a need to urge policy makers to fully exploit logistics-friendly air quality improvement measures rst and ensure any LEZs which are introduced are structured around a consistent, national framework of standards.

Challenges for 2012


In 2012, logistics needs to build on the improvements in safety and emissions achieved to date and focus attention on key issues that emerged during 2011. In particular, the Cycling Code will be developed with the latest advice incorporated. A number of other best practice and information initiatives are also planned. The Logistics Safety Working Group will publish a series of best practice publications in the rst half of 2012, on issues such as lone working, load security, loading dock safety and delivery point risk assessment.

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Chapter 4

Image and reputation

Image and reputation


Economic growth alone will not allow UK logistics to compete successfully on the world stage; innovative policies and approaches will be most effective when complemented by public recognition of our commitment to continuous improvement, delivering on our promises and doing so in a safe and responsible way. Improving the image of logistics
Too often logistics is the unsung hero, battling against the odds to seamlessly deliver the goods that we all rely on, from the food, clothes and furnishings for our comfort at home, to essential supplies for our factories, schools, ofces and hospitals. This is an achievement to which the general public, and even policy makers, often give little recognition. In the FTA Logistics Industry Survey 2011/2012, 78 per cent of respondents said that the public had no understanding or only slight understanding of the role of logistics in the economy (see graph 4.1). These responses are consistent with the ndings of last years industry survey and of FTA-commissioned public attitudes research in 2009; this demonstrates the gulf between the reality of the industrys achievements and the publics lack of understanding of them. The poor public image of the sector is important, as it fosters a climate in which the case for unfriendly and unhelpful regulation of logistics, whether by central or local government, is more readily made and unlikely to be challenged by those other than logistics itself. At any time, challenging peoples apathy, and in some cases antipathy, to the more visible aspects of logistics is a major task. The current economic climate, where concerns over the economy and unemployment predominate, makes this job even more difcult, as families and politicians minds are focused on ever-rising household costs and the consequences of public sector shrinkage and economic uncertainty. However, this is not to say that there is no common ground. In November, the fuel price debate in the House of Commons perhaps signalled the beginnings of awareness of the way in which an issue like rising fuel costs affects the nations well-being at all levels, with MPs speaking on behalf of families and businesses in their constituencies. However, while the support garnered for the cause of reducing the cost of fuel is welcome, it is not enough to counter the trend for policies which make efcient logistics much more difcult. Examples of policies that seek to penalise, constrain and even ban operations can be found throughout the UK, such as restrictive parking

Graph 4.1 Industry perception of public understanding of the role of logistics in the economy 201112, 201011, 200910
Public understanding of logistics is perceived to be poor A very good understanding A good understanding Some understanding A slight understanding No understanding 0 20 40 60

Percentage of respondents Public understanding of the role of logistics in the economy 2010 Report Public understanding of the role of logistics in the economy 2011 Report Public understanding of the role of logistics in the economy 2012 Report Source: FTA Logistics Industry Survey 2011/12, 2010/11 and 2009/10

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policies, night time delivery bans and low emission zones. The task facing logistics is substantial but efforts to change perceptions must be driven by business itself. That is why, alongside its emphasis on working with Government to achieve growth and build on safety and environmental improvements, FTA has maintained its focus on initiatives that project a positive image of logistics during 2011.

Suckling Transport was pleased to launch its new Love Logistics truck livery in April 2012. Acquainting the public and the policy makers with the essential role that logistics providers perform is essential if supply chains are to operate efciently
Peter Larner Managing Director, Suckling Transport Ltd

Love Logistics
The Love Logistics campaign, launched in spring 2010, has at its heart the objective to inform, assist and educate three distinct audiences; members of the general public, politicians and industry. In 2011, FTA continued to raise

the prole of the essential role logistics plays in society and within the economy: the campaign moved into a new phase in the course of the year with the publication of the toolkit to reinforce high level campaigning activities. This aims to raise awareness and understanding of logistics through activities targeted at companies, universities, schools and parents and by promoting the sector as a career. The toolkit was launched at FTAs Love Logistics Showcase event in Birmingham in June and it is hoped industry will use it to help enhance the image of logistics with the public.

Van Excellence
Vans have been the fastest growing sector of the vehicle market in recent years, offering versatility and ease of operation for the service industries. However, the poor image of the van sector, where white van man is demonised as the bane of other road users, runs counter to

Van Excellence
In recognition of the need to improve the image of vans and their drivers, and to support the needs of van eet operators, FTA established and launched Van Excellence, an accreditation scheme that demonstrates compliance with high standards of eet management and operation. The initiative aims to: enhance standards of van operator compliance celebrate operators who demonstrate excellence represent the interests of the van industry Van operators register and seek accreditation to the standards of the Van Excellence Code through an independent chargeable audit. Upon passing the audit, the organisation is enrolled in theVan Excellence scheme. Supported by the Guide to Van Excellence, a comprehensive manual of best practices for van eet operation, the scheme has been enthusiastically adopted by FTA members with 18 eets accredited during 2011.The rst ve successfully accredited eet managers received their certicates from Mike Penning, Logistics Minister, at the Commercial Vehicle Show in April. By the end of the year the number of vans operated by businesses involved with Van Excellence exceeded 80,000.

www.lovelogistics.co.uk

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Image and reputation

Businesses big and small have told me that restrictions, such as restrictions on night time deliveries and noise, are an issue for them trading in town.Too often the voice of the few inhibits the ambitions of our businesses and some small issue can stop a project in its tracks
Mary Portas The Portas Review: an independent review into the future of our high streets

Quiet Deliveries Demonstration Scheme


In 2010, FTA set up the Quiet Deliveries Demonstration Scheme (QDDS) in partnership with the Department for Transport and the Noise Abatement Society (NAS). Over an 18 month period, QDDS, a project managed by consultants Transport and Travel Research (TTR) oversaw a series of night time delivery trials. In summer 2011, The Logistics Minister, Mike Penning launched the ndings, which included seven case studies and two eld guides, one aimed at retailers, the other at local authorities. QDDS involved close collaboration between store managers, distribution managers, local authority environmental health ofcers and residents. Retailers were asked to adopt a consistent methodology, which included engaging with both local authorities and residents, installing noise monitoring equipment, introducing a driver charter and conducting a rigorous site assessment to reduce noise. The ndings before and after each trial were compared and analysed. FTA, NAS and TTR continue to work in partnership to promote and facilitate further night time delivery trials.

its importance to the national economy and the excellent working practices developed by many van operators. The Van Excellence scheme seeks to gain wider recognition of logistics voluntary steps to improve standards in the operation of smaller goods vehicles.

Being a good neighbour


Often, it is the fear of noise and disruption associated with freight operations that concerns neighbours rather than the reality. Past Government policies and guidance have encouraged a one size ts all approach to placing restrictions on the movement and operation of goods vehicles. In 2011, FTA built on previous work to ensure that freight operations are better integrated with the local communities in which they are active and to address the issues through the Quiet Deliveries Demonstration Scheme. Hgv movements in urban areas are often constrained during night time and/or weekend periods by local regulations put in place to avoid noise impacts. Restrictions are imposed by local authorities to protect residents from nuisance during the late evening and early morning. However, shifting deliveries to the night time period or just to the shoulders of the day can have signicant environmental and operational benets. For businesses, it can lead to reductions in round trip journey times, vehicle turnaround times at store and fuel consumption; as well as increased product availability in store. For local communities, moving vehicles out of peak trafc conditions reduces carbon emissions, improves air quality and decreases the road safety risks for vulnerable groups such as school children and cyclists: a genuinely win-win-win situation. The importance of such an initiative is reected by comments made by Mary Portas in The Portas Review: an independent review into the future of our high streets, citing the effect of over-regulation on local retailers. Government has also underlined its willingness and commitment to work with industry to address these issues. The Logistics Growth Review, published in November 2011 cited night time delivery curfews as a long-standing barrier to efcient business operations and impacting on the performance of the local road network by increasing congestion, emissions and road safety risks for vulnerable groups. It stated that stronger support from Government was needed to promote such partnership working on a widespread level. The concept of night time deliveries has also been identied as a major solution for avoiding the stringent daytime road restrictions and congestion likely in London during the Olympics. Transport for London has published a Night Time Deliveries Code of Practice and ve case studies, covering a range of sectors and boroughs, to demonstrate how deliveries can be made quietly at night during the Games.

Attracting and keeping the right people


However, any sector is only as good as the talent that it manages to attract, develop and retain. The recruitment of the right calibre of candidate is essential in improving the reputation and standards of logistics. As businesses prepare for the economic upturn, they will need skilled people in order to respond to demand.

The QDDS trials are a signicant landmark on the journey to achieving the ultimate goal of out-ofhours delivery without disturbance
Gloria Elliott Chief Executive, Noise Abatement Society

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However, compliance with legislative training requirements is also important and the sector needs to ensure that there is increased uptake of the Driver CPC. Working on the assumption that there are around 700,000 active large goods vehicle (lgv) and passenger carrying vehicle (pcv) drivers, the road transport industry should be achieving over 4.9m hours of periodic training for the Driver CPC per year. The way the data is collated and reported makes analysis of the shortfall problematic because gures for bus and truck drivers cannot be separated. However, the amount of training so far undertaken appears to be signicantly less than that required (table 4.1). Responsible businesses are already planning and ensuring compliance with the legislation but concerns remain that other vehicle operators may struggle to secure training for their drivers. As the deadline approaches (2013 for bus drivers and 2014 for lorry drivers), it may prove difcult for the training industry to meet demand, or indeed for companies to release drivers for the required amount of time. The Logistics Growth Review recognised that the skills base was an issue for the industry. The Government announced that it would provide 4m of funding to Skills for Logistics to work with major trade bodies, such as FTA, to establish new and innovative approaches to training to increase the economic competitiveness and subsequent productivity of the sector. This would include the establishment of a UK modern logistics guild-like organisation which will work to promote the image of the sector, attract new entrants and support the development of the current workforce. There will also be the creation of Local Logistics Community Networks, to ensure that training and qualications are relevant, valuable and accessible to all interested individuals and meet the needs of local logistics businesses. Employers will also be encouraged to have greater involvement and ownership of the skills system, through the facilitation of engagement with universities and other training providers to make sure qualications and courses are appropriate and relevant. Skills for Logistics caried out its UK Modern Logistics Guild feasibility study in February, and will launch four projects to support this in April 2012.

There is concern across a number of businesses that a lack of skilled young entrants, a poor sector image and a low uptake of vocational training among SMEs is severely constraining growth of the sector
Logistics Growth Review Connecting People with Goods Department for Transport

TNT has always set great store by attracting talented people into the company and then giving them the opportunity to develop and grow with the business. A high proportion of our senior managers started out in the grass roots of the organisation which I believe is one of our great strengths
Alistair Cochrane Managing Director, UK & Ireland, TNT UK Ltd

Table 4.1 Periodic training for Driver CPC 20082011


2008/09 430,714 2009/10 1,465,725 2010/11 2,830,834 2011/12 (YTD) 2,487,589

Periodic training hours logged1

1 The Driver CPC applies from September 2008 for passenger carrying vehicle drivers and September 2009 for heavy goods vehicle drivers.

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Image and reputation

The Olympic challenge in 2012


One of the biggest challenges for UK logistics is yet to arrive; in summer 2012 the Olympic and Paralympic Games come to London. A great deal of planning has already taken place and logistics will have an enormous task to deliver normal services, as well as ensuring that the additional consumer demand during the Games is met. Logistics will be vital in ensuring that the capital continues to function. The Games will see the sectors reputation stand or fall according to how well transport and distribution networks cope. However, the Olympics are also a substantial commercial opportunity. The VISA report A Golden Opportunity: London 2012 Olympic and Paralympic Games Expenditure and Economic Impact estimates that the Olympics will benet the London

Night time deliveries during the Games


At FTAs Olympic conference, which took place in December and attracted over 250 delegates, Peter Hendy, Commissioner of Transport for London launched a draft code of practice for quiet night time deliveries supported by a number of case studies. As well as curfews at the point of delivery, companies also need to consider any restrictions they might have on their operating centres that could prevent vehicles from leaving the yard at night. Disappointingly, despite calls from FTA and other parts of industry, London Councils has no plans to suspend the London Lorry Control Scheme (LLCS) for the Games. Instead it is planning to offer a light touch approach to enforcement to enable vehicles making deliveries in London to travel off the Exempt Route Network where necessary, whilst continuing to target enforcement at vehicles they believe are contravening the scheme without legitimate business in London.

Graph 4.2 Preparedness for London 2012 Olympics gradually improving


Logistics companies are slowly getting more prepared for the Olympic Games Dialogue with customers on contingencies for potential disruption on the Central London road network Dialogue with customers on contingencies for potential disruption outside the Central London road network Ordered additional vehicles for changes to volumes Contingency for alternative scheduling eg night time deliveries, days to avoid peak Olympic events Planning to hire drivers

economy by some 750m. Businesses involved in logistics, if they get their planning right, can expect to share in this. Throughout the course of 2011, FTA worked to raise awareness of the importance of freight movements in London and the potential consequences both for businesses and for residents of not having in place a credible action plan for facilitating deliveries. Despite FTAs best efforts, it was not until responsibility for the issue transferred to Transport for London that any real progress was made. Since then co-operation and the level of understanding has increased dramatically. A key element of FTAs work has been to identify the information needs, practical help and advice needed by

Planning to hire additional staff Preparedness of your customers for managing deliveries July 2011 October 201 January 2012 0 1 2 3 4

0 = not at all prepared 4 = totally prepared

Source: FTA Quarterly Transport Activity Survey Q3, Q4 2011, Q1 2012

FTA has worked closely with TfL to enable us to deliver a successful Olympic Games and ensure that London keeps working and takes advantage of the business opportunity that the Games presents
Peter Hendy CBE Commissioner, Transport for London

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Information on trafc ows during the Games


Not every day of the Olympic and Paralympic Games will be the same. There will be different events taking place in different parts of London. TfL has published detailed road hotspot maps for each day of the Olympics showing precisely where the hotspots are and what the impact will be.The maps show Londons key road network, including the Olympic and Paralympic Route Network (ORN and PRN) roads and the areas of impact, graduated by the level of that impact. As requested by FTA, TfL has also published a list of postcodes that are affected by the temporary restrictions in place for the Games, such as the ORN and PRN. Late March or early April should also see the launch of TfLs Freight Journey Planner, this will take account of existing delivery and access restrictions such as height, weight and width restrictions, the London Lorry Control Scheme, congestion charge and loading/unloading provisions, as well as Games-specic restrictions. One big area of frustration that FTA has highlighted is the tardy publication of information needed by operators to plan their deliveries, including the Local Area Trafc Management and Parking Plans which are still in draft form with less than six months to go until the Games.

Night time deliveries will be a key solution to cope with the additional daytime access restrictions London will face during the Games, so FTA is working with TfL to seek support of the code of practice both from industry and the boroughs
Natalie Chapman Head of Policy for London, FTA

Consecutive survey results show that levels of preparedness are slowly improving, but many respondents still have a long way to go. A fth of respondents suggested that they were not at all prepared in January 2012, compared to over a quarter in October 2011 (graph 4.2). However, there remain some signicant issues to be addressed particularly the difculty in achieving any meaningful relaxation of the restrictions placed on night time deliveries for the period of the Games; and fullling the industrys need for detailed information about the restrictions that will be in place. The 2012 Olympics provide a unique opportunity to showcase what UK logistics can do. FTA will be working to ensure members are in a position to meet this challenge head on and get the recognition they deserve. And while there is still some ground to cover, one important legacy of the 2012 Olympics will be a much improved understanding within TfL of how the freight industry works and how policy makers can help to ensure that it meets customer requirements in the most efcient manner possible.

companies, as well as supporting those responsible for the running of the Games in putting in place policies and programmes that will allow operators to carry on delivering the goods. In addition, FTA is monitoring operators preparedness to deal with the disruption which will be caused. In FTAs Quarterly Transport Activity Survey, operators have been asked to rate their preparedness in terms of their contingency plans, the provision of additional vehicles and staff, and the preparedness of their customers for managing deliveries.

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Chapter 5

Emerging risks and opportunities

Emerging risks and opportunities


This report focuses on the achievements of logistics over the last year and looks at some of the challenges ahead. However, it is also important to consider the future direction of logistics against the background of wider commercial and political forces. Economy and business
The threat of a much feared recession in the UK receded in the early months of 2012 but the troubled Euro Area economies and high world oil prices still blight mediumterm prospects for UK exports and hopes of a return to pre-recession levels of trade.The slack consumer economy, burdened by high taxation and a second year of public sector expenditure cuts, offers little prospect of recovery in 2012 but growth forecasts improve into 2013 and 2014 as ination reduces and tax cuts in the 2012 Budget feed through to businesses and households. Possible disruptions to oil supplies in the Middle East pose the biggest threat to fuel prices in the short-term, rather than high demand levels from emerging economies. The near collapse of the European Commissions emissions trading scheme and the stalled debates over wider implementation of road user charging, mean the threats and opportunities of carbon trading and road pricing remain long-term prospects.

ramications of making international shipments to and from Scotland.

Operations and technology


The Olympic and Paralympic Games will be logistics biggest operational test in 2012 and, although Londonfocused, the impacts on supply chains will be felt across the country.The results of the London Mayoral elections in May will also decide how much of the high prole achieved for logistics survives as a legacy. The close of 2013 sees the end of the Euro V emissions standard truck, with heavy sales of these models in advance of the introduction of their more expensive and less fuel efcient Euro VI successor from 2014. Integration of drivers hours data from digital tachographs with vehicle management systems will move from novelty to mainstream over the next ve years. Preserving rail freights share of network capacity will be critical to the continued growth of the sector as the railways are progressively reorganised around the interests of the new, longer-term passenger franchise operators that will emerge over the next three years. These logistics issues will play out against the broader commercial and employment challenges that confront all businesses. In early 2012, FTA and PwC convened a round table of members and clients to discuss key emerging topics likely to challenge logistics directors in the near term. Based on current research and ongoing work by PwC, the session explored the implications of the issues around each of them and developed insights and strategies for logistics. The three themes discussed at the round table of FTA members and PwC clients were:

Politics and policy


Having survived the fall-out over the Euro Area treaty negotiations, the Coalition Government seems set to last until the General Election in 2015. Domestic logistics policies will be dominated by delivery of the agenda in the Logistics Growth Review and the Red Tape Challenge. Infrastructure expenditure will be focused on railway projects such as Crossrail, Thameslink and the early stages of High Speed 2. Debate on mid-term airport capacity will dominate the political agenda. Scottish independence will be discussed in 2012, but probably not voted on until 2014. Only then will politicians and logistics managers begin to think through the

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Table 5.1 Risks and opportunities matrix Next 12 months Next 5 years More than 5 years away

Economic stagnation Commodity price


Economy and business ination

Public spending cuts Consumer condence World oil prices Euro Area stability Coalition stability Policy stagnation Scottish independence London Mayoral
election

Low economic growth Interest rates Industrial unrest Consumer spending Business taxation Euro Area recovery Planning reforms and
localism

Uncertain economic
growth rates

Currency exchange Talent recruitment Carbon trading Road pricing UK airport capacity

Politics and policy

Red Tape Challenge Fuel duty EU 4m trailer height limit Logistics Growth
Review goals

New rail franchises EU cabotage reform Infrastructure spending Air quality/low emission
zones

Operations and technology

UK fuel prices Vehicle and driver performance data London 2012 Games integration High volume semi trailer trials Alternative fuels Carbon footprint Euro VI trucks measurement Cyber security Multi-channel retailing

Third generation
tachographs

1 Cyber security
The threat to businesses and organisations highly dependent on the internet and other cyber media from disruptive attacks by hackers, terrorist and criminals. How do you protect yourself whilst maintaining the necessary connectivity with customers, suppliers and staff?

3The talent crunch


Fewer, better educated entrants to the workforce will make the task of attracting the right talent a lot tougher in the next ve years. The next generation will also be more selective and aware of their value in the market place. Businesses will need to understand the millennial generation better in order to recruit them.

2Multi-channel retailing
The growing use of the internet by consumers to purchase goods has disrupted traditional logistics models based on deliveries to high street stores. Logistics needs to encompass the demands of these new channels to market in order that businesses can efciently capture the new opportunities they bring.

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Emerging risks and opportunities

PwC Forward Think 1

Cyber security

In June 2011, Nintendo joined fellow online games company Sony and US-based defence contractor Lockheed Martin in conrming that it was among the latest targets of cyber attacks.The announcement came just days after the UKs Chancellor of the Exchequer, George Osborne, told an international conference that British Government computers are now on the receiving end of over 20,000 malicious email attacks every month.1

Unprecedented opportunities
The growing threat reects the explosion of online services in all sectors.Across the world, more and more private and public sector organisations are capitalising on web, mobile and social media platforms to improve their performance and serve customers more effectively. Online interactions bring a blend of four key benets: lower costs to serve, higher speed to market, greater customer loyalty and, in the case of the private sector, the potential for higher revenue growth. With such a focus on efciency and margin, logistics has been adopting various online tools for years in areas such as freight management and stock control and increasingly into other areas including navigation and the use of social media.

...and growing threats


There are two main reasons why operating in the cyber domain represents such a radical departure from operating in the traditional physical world. First, cyber has no boundaries. Indeed, it has the effect of destroying or dissolving any boundaries that were there before.And second, its opportunities and risks are asymmetric.The cost and effort involved in developing a piece of malware are far below what would be required to develop a physical weapon with the same scale and scope of impact. In combination, the low barriers to entry and absence of boundaries make cyber attacks hugely unpredictable, since they can come from virtually everywhere including from thousands of computers worldwide in a co-ordinated attack on one target. 85 per cent of organisations PwC recently polled2 had suffered a cyber attack of some sort in the past six months. Half of these attacks were nancial in nature, while activism and espionage were also relatively common. In a separate survey PwC asked where the greatest risk of cyber crime threats comes from.
3

Graph 5.1 Has your organisation suffered from any of the following cyber attacks in the last six months?5 Terrorism Warfare Activisim Espionage Financial crime

External fraudsters 46 per cent Both internal and external perpetrators 29 per cent Inside the organisation 13 per cent Dont know 12 per cent The message is clear: no organisation in any sector is safe and the threat is growing. At the heart of a more interconnected world, logistics faces many, often unique, challenges concerning cyber security including: global trades dependency on vital transport hubs ghting remote and fast paced threats, such as piracy threats in the shipping industry freight and passenger transport being a common target for terrorism the need for sharing data with third parties widespread use of hand-held devices and GPS technology in the eld

PwCs taxonomy of attacks5


1 Financial crime this involves criminals, often highly organised and well-funded using technology as a tool to steal money and other assets 2 Espionage theft of intellectual property is a persistent threat, and the victims often do not even know it has happened

But a signicant lack of awareness


However, as panellists at the round table event agreed, awareness of the darker side of cyber and the appropriate responses to the risks remains low in logistics and is seen mainly as a technical issue. A recent report4 by the European Network and Security Agency also highlighted this The awareness on cyber security needs and challenges in the maritime sector is currently low to non-existent.

3 Warfare this may involve states attacking private sector organisations and especially the critical national infrastructure 4 Terrorism this overlaps with warfare but attacks are undertaken by (possibly state-backed) terrorist groups, again attacking either state or private assets

1 http://nakedsecurity.sophos.com/2011/05/16/ uk-government-under-cyber-attack-sayschancellor-george-osborne/ 2 PwC/Information Security Forum Quickpoll 3 Global Economic Crime Survey, PwC, 2011 4 Analysis of cyber security aspects in the maritime sector, European Network and Information Security Agency

Activism this overlaps with other categories, but the attacks are undertaken by proponents of an idealistic cause

5 Delusions of safety. The Cyber Savvy CEO: Getting to grips with todays growing cyber threat, PwC, 2011

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Six steps to the cyber-ready organisation


To address the threats described, many public and private sector organisations will need to transform their mindset towards cyber, as well as their capabilities. There are six steps that organisations can take to reshape themselves for the cyber world.

1 Clarify roles and responsibilities from the top down


The CEO needs to come to grips with the threats from the internet. In the future, we believe that leadership by a CEO who truly understands the risks and opportunities of the cyber world will be a dening characteristic of those organisationswhether public or private sectorthat realise the benets and manage the risks most effectively. While many organisations have historically pursued cyber security in response to regulatory pressures, the real benet lies in enabling the business to seize the opportunities whether these involve driving growth by selling through new channels, or delivering public services at higher quality and lower cost. Leadership by a cyber savvy CEO will enable the organisation to understand these opportunities and realise them securely and sustainably through effective security.

2 Reassess the security functions tness and readiness for the cyber world
Organisations already have IT security functions that may be doing a good job in protecting against traditional threats. As new risks emerge, the focus needs to be on upgrading or transforming the existing capabilities to deal with them. Rather than creating something new from scratch, this means building on the existing base to ensure that the organisations responses to its security needs fully encompass cyber security.

3Achieve 360-degree situational awareness


To align its security function and priorities as closely as possible with the realities of the cyber world, the organisation also needs a clear understanding of its current and emerging cyber environment. This demands situational awareness, which is a pre-requisite for well-informed and prioritised decisions on cyber security actions and processes. Achieving situational awareness can be a particular challenge for large public sector organisations, which may have to scan an economy-wide landscape, and for multi-nationals with global opportunities and exposures. Our research among PwC clients and International Security Forum members indicates that situational awareness is currently being undermined by a lack of measurements and KPIs to support effective management of cyber threats and opportunities.

4 Create a cyber incident response team


Traditional organisational structures may have the unintended effect of hampering the quick and decisive responses needed in the cyber environment. Many organisations will already have an incident response team but the speed and unpredictability of cyber threats mean this may need to be adapted and streamlined, in order to enable information, intelligence and decisions to ow more quickly up, down and across the business, from board level to IT and business operations, and sometimes to and from other organisations. A well-functioning cyber incident response team means an incident spotted anywhere in the business will be tracked, risk-assessed and escalated. Decisions and actions can then be made quickly, and forensic cyber investigations and/or external specialists brought in as necessary. Rather than leaving senior management wondering whether an incident is actually a threat Do we really have a problem? the team will channel the right technical, business and insight quickly to the relevant decision makers.

5Nurture and share skills


To make the most of its situational awareness and information stack, an organisation will also need to invest in cyber skills. However, these are in short supply. Given the restricted supply line of new cyber-savvy talent, it is up to employers to nd new ways of inspiring those with the skills and desire to keep our businesses safe. For example, the most valuable technical expertise and insight may well be found among younger employees at the lower levels of the organisation. Some organisations may even want to consider more radical approaches, such as putting younger employees on a board committee focused on cyber security.

6Take a more active and transparent stance towards threats


The unpredictable and high-prole nature of cyber threats tends to engender a defensive mindset. But a number of cyber-savvy organisations are now getting onto the front foot by adopting a more active stance towards attackers, pursuing them more actively through legal means, and communicating more publicly about their cyber threats, incidents and responses. Clearly, these responses must stay within the lawso it is important to ensure that well-meaning employees do not take things too far by hacking back.The CEO and board should also be clear about the organisations stance on prosecuting or suing attackers, and must be sure the business has the necessary evidence to support any legal action. By taking a more active stance against attacks on its commercial or national interests, the organisation can show that it takes attacks seriously and will strive to bring offenders to justice. To meet the imperatives of the cyber era, PwC believes that most organisations will need to adopt new structures, roles and governance, while also engaging in close and continuing collaboration around the cyber agenda with other organisations.

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Emerging risks and opportunities

PwC Forward Think 2

Multi-channel retailing

The internet has transformed the way we shop, long gone are the days of simply going to a store and buying an item. As the gure shows, the customer purchase journey is now more complex and we have multiple channels through which we can shop.We can now research products and compare prices online, order or buy from websites, mobile apps, catalogues and telesales as well as having items sent to local stores, our homes or secure third parties. However, many retailers are lagging, not leading, the multi-channel trend. Some are more advanced than others and meeting the growing complexity, but there are still some businesses that dene customers as people who are in their physical stores. A consumer brand like Apple, by contrast, is focused ruthlessly on the consumer. They dont mind which route consumers take, as long as they arrive.

Fractured models
Some retailers, particularly those that started life with bricks and mortar, have inherited business models and cultures focusing entirely on running an efcient shop operation. They may not be as exible when the need arises to accommodate new consumer demands. For example, many retailers lack a central database for managing customer information across channels.

Figure 5.1 The new multi-channel customer journey Research Store Catalogue Mobile Website Source: Customers take control, PwC, 2011 Compare Transact Receive Aftersales

As the complexity of managing both digital and traditional operations grows, retailers are relying on logistics as a critical part of delivering the best customer experience. PwC consumer research shows that factors such as fast and reliable delivery, returns, stock availability and visibility and in-store collection were all important drivers of consumer preferences and satisfaction when rating their favourite multi-channel retailers.

Graph 5.2 What attracts you to your favourite multi-channel retailer? Logistics excellence is at the heart of multi-channel retailing I like the products they offer I trust them Easy to use website I know theyre always cheap/reasonably priced Fast/reliable delivery I like the store They always have the items I want in stock Good returns policy I can return items to store Website stores my address and personal information They do free returns I can reserve or purchase items for in-store collection I get points/rewards I like the staff They have innovative products 0 10 20 25 25 24 23 23 30 40 50 60 70 80 30 Multi-channel factors Retail factors Supply chain factors 36 39 37 44 48 53 51 59 63

Source: Customers take control, PwC, 2011

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The multi-channel trend has fractured the traditional logistics model of delivering to high street stores into a complex range of interrelated activities including lower quantity deliveries, single pick capability, managing returns, direct to home deliveries and running multiple warehouse operations. In many instances the speed of change has overtaken the operational systems and capabilities which are causing problems, and high costs for retailers and logistics providers alike. For example the high level of customer no-shows for deliveries; up to 35 per cent of all home deliveries fail on the rst attempt, which creates signicant inefciency. But it is more than the volume of deliveries that create economic strain in the supply chain. Many shoppers in most categories, but particularly for fashion and footwear, routinely return unsuitable items and expect to be able to do so with relative ease. The logistics challenge this creates is formidable. The ability to manage returns effectively is becoming a critical differentiator for online and multi-channel retailers. Some electrical retailers now deploy technical staff within warehouse operations. Many apparently faulty consumer electronic items are returned owing to installation errors by the consumer rather than defects. An in-warehouse technical team is able to test and return goods without the need to transfer back to the manufacturer, saving considerable time. With online volumes expanding fast, and consumer behaviour continuing to evolve, the logistics profession faces a major challenge and opportunity to provide the level of service demanded, at the same time as making an economic return. Rather than making piecemeal changes to operations, both internal logistics operations and third party providers have an opportunity to lead the change and help retailers take a more strategic and integrated approach to meeting the multi-channel challenge.

PwC Forward Think 3

The Talent Crunch

For any organisation, attracting, developing and retaining the best people is tough at the best of times. Faced with a stagnating economy, pay freezes and pressure on budgets, many businesses in the UK and elsewhere are struggling to ensure they can grow their most important asset. This is reected in PwCs 15th Global CEO Survey this year. Despite the challenging economic conditions, 47 per cent of CEOs are condent of growing their businesses over the next three years, but only 30 per cent believe theyll have the right talent in their organisations to achieve this.

Graph 5.3 To what extent do you anticipate changes at your company in any of the following areas over the next 12 months? Talent remains a top priority for CEOs 2012 Strategies for managing talent Organisational structure (including M&A) Approach to managing risk Captial investment decisions Focus on corporate reputation and rebuilding trust Capital structure Engagement with your board of directors 21 55 26 50 32 50 38 42 49 35 55 29 83 27 % No change Some change 19 15 14 8 23 22 27 2011 17 52 25 47 23 54 23 48 36 41 50 34 52 34 % A major change 31 27 23 28 22 15 12

Source: 15th Annual CEO Survey, PwC, 2012 This talent crunch is already affecting growth and prots in logistics; 21 per cent of logistics CEOs believe their company wasnt able to achieve its growth forecasts, both at home and overseas, due to a shortage of skilled people. Looking ahead, only 27 per cent say they are very condent of having the talent they need to execute their companys strategy over the next three years. And its not likely to get any easier, with 40 per cent believing its becoming more difcult to hire qualied workers in their industry.

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Emerging risks and opportunities

A new challenge
Within this war for talent a new battle is brewing. Over the next ve to seven years a major demographic shift will begin as the baby-boomers retire and the millennial generation joins the workforce. The incoming generation (those born after 1986) will require very different approaches from their baby-boomer or Generation X and Y predecessors. Baby-boomers are typically hard-working, materialistic and reward-focused. In contrast, the millennials exhibit quite different characteristics. They nd variety attractive, are less concerned with job security and nancial reward. They believe the world is a much smaller place than their predecessors and want to see as much of it as they can. Millennials have very clear ideas about the type of organisation that they want to work for. In response companies will need to be more aware of what good people look like for them, and what they are going to have to do to attract them. With a different set of motivations and requirements from work, millennials no longer believe that it is their job to sell themselves to an employer; instead, it is the employer who should do the selling. The competition for the best people will become intense, and only increase as the economy improves. While all employers face this challenge, those that start thinking about their strategies today will have a head start, as few have really begun to differentiate themselves to this new generation. As graph 5.4 below shows, its encouraging that logistics businesses are on the front-foot in looking at how they can better incentivise younger staff.

Graph 5.4 To what extent do you plan to change your people strategy over the next 12 months? Logistics CEOs are seeking ways to motivate staff Use more non-financial rewards to motivate staff Deploy more staff on international assignments Work with Government/education systems to improve skills in the talent pool Incentivise younger staff differently than others 0 10 20 30 40 50 60 70

Transport and logistics Total

Source: 15th Annual CEO Survey, PwC, 2012

A compromised position
One reason logistics businesses are more focused on this issue than their peers may be an awareness that the younger generation simply do not nd the industry an exciting or attractive prospect compared with others, such as charities, technology or media. As the graph 5.5 shows, the younger generation feel they have had to make compromises during the economic downturn after graduating, and more so for those who joined logistics. One of the principal requirements that millennials have is the need to feel an emotional engagement with their work and employer that goes beyond the nancial incentives on offer. At the same time, the younger generation expects to change employers much more during their career than previous generations. As one panellist felt, a more realistic approach for the sector going forward is to adopt a more philosophical approach to people coming and going, and stress the sector as a great stepping stone to another career if need be. We need to get the best of people while we have them, but accept that they wont be around forever. The industry will have to ght harder and become more attractive to the younger workforce if it is to remain competitive. The international nature of the industry may help, millennials are more interested in overseas postings than their predecessors, 71 per cent want to work abroad at some point in their careers. Also, promoting other areas which appeal to this generation, such as helping to tackle climate change through improved supply chains and making sure products of major brands reach the shops, may help with engagement.

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Graph 5.5 Did you have to make any of the following when accepting your current job/job you are due to start? Millennials making compromises in logistics Taking a lower salary than expected Fewer additional benefits than hoped for More limited opportunities for advancement than hoped for Working for an organisation that was not my first choice Taking a job for which Im over-qualfied Working outside my preferred sector Working outside my preferred role 0 10 20 30 40 Source: Millennial at work, PwC 2011 Transport and logistics Total

Developing the industrys talent pipeline


In order to attract the best talent, the right skills must exist in the rst place. To ensure a sustainable workforce, many businesses are reaching out beyond their own employees and helping nurture the necessary skills in the education system. Again, as graph 5.5 shows, logistics is working harder than most industries to engage with Government and the education system already. Further statistics from the CEO survey back this up. Nine out of 10 logistics CEOs are already investing directly in workforce development in at least some of the markets where they do business More than two-thirds plan to increase their investment in creating and fostering a skilled workforce over the next three years Three-quarters see such efforts as a way to ensure a future supply of potential employees Overall, panellists agreed that the sector needs to ensure there is a better understanding of what the industry did, and the opportunities it could offer. That could mean more effective liaison with schools and educators in order to drive greater awareness and using campaigns such as the FTAs Love Logistics to help put the industry on the map that young people consider when they think about their future.

Closing the talent gap


Regardless of the demographic or economic changes, businesses must continue to adapt to meet the changing demands of their workforce if theyre going to grow. Whatever the size or shape of your business, PwC believes there are four fundamentals to talent management. 1 Align your business plan and talent strategy make sure every aspect of your talent strategy directly contributes to your overall business plan and to creating value. Change anything that doesnt. Recognise the importance millennials will play in your plans. 2 Face the future look at where your business is heading not where youve been. Keep questioning whether your talent management pipeline will give you what you need when you need it. Consider the part millennials will play in your future talent needs. Do you have a strategic people planning approach in place to help you understand where shortages are likely? 3 Pay attention to pivotal roles get the right talent into the roles which have a disproportionate ability to create (or destroy) business value. Is your succession plan ready to start moving millennials into these vital roles? 4 Focus on the nancials make measurement, benchmarking and analytics part of your plan. Look to your people return on investment (ROI). Track the cost of replacing lost millennial talent. What impact will losing talent have on your strategic priorities?

The Logistics Report 2012 Freight Transport Association

Evidence base

Evidence base
The Logistics Report 2012 draws its evidence from the following sources:
the latest annual FTA Logistics Industry Survey 2011/12 a selection of data and survey results from PwC including the 15th Global CEO Survey 2012 the summaries of a series of round table discussions led by PwC the FTA Quarterly Transport Activity Surveys (QTAS) FTA Managers Guide to Distribution Costs FTA/TNS-BMRB Survey: Public attitudes to the logistics sector, 2009 ofcial statistical publications

FTA Logistics Industry Survey 2011/12


The Logistics Industry Survey 2011/12 FTAs annual poll of members experiences of the freight market and trading environment provides insights into current and future levels of business sentiment1 in relation to logistics activity. The survey was conducted in December 2011 and there were 113 respondents in the sample, spanning over 10 sectors in the UK. Questions in the industry survey centred on economic and political issues that affected the logistics sector in 2011 and expectations for 2012. Overall results indicate that the business environment for the logistics sector remained challenging in 2011. Expectations for 2012 are subdued with the exception of those engaged in export trade who were more positive.

County Council, Palmer and Harvey, PwC,Tate & Lyle,Team Excellence, UPS and Yusen Logistics.The event was focused around a set of topics which are known to be under active consideration by the Department for Transport as well as the European institutions, or have been long-standing challenges for the industry. In this report we summarise the discussion in three PwC Forward Think articles.

FTA Quarterly Transport Activity Survey (QTAS)


FTAs Quarterly Transport Activity Survey (QTAS) is a quarterly survey of business sentiment within the logistics sector, based typically on a sample size of around 120 FTA members. The survey results help to produce an indicator

PwC 15th Annual Global CEO Survey


As part of PwCs 15th Annual Global CEO Survey 2012, more than 1,200 business leaders were asked a series of questions about how their business priorities had changed and what they considered to be the main business risks for the future.

PwC Round table discussions


Coolin Desai, Logistics Industry Leader at PwC UK chaired a round table discussion with participants including FTA, Greater Than, Hellenic Carriers, Inchcape, Maritime Transport, Menzies Distribution, Northamptonshire

1 Business sentiment measures the mood of respondents as positive or negative and is measured using a percentage balance of responses calculated by subtracting all negative responses to a question from all positive responses

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of current and future business conditions in the logistics sector and external factors inuencing efciency.

FTA/TNS-BMRB Survey: Public attitudes to the logistics sector, 2009


In 2009, FTA commissioned a unique qualitative and quantitative research study which investigated public attitudes to the logistics sector. A representative sample of 2,000 adults took part in the quantitative survey. Two key ndings were that few had consciously considered the industry before taking part in the research, and the publics current knowledge and understanding of the logistics industry was at best modest.

FTA Managers Guide to Distribution Costs (MGDC)


This is an annual publication, with three quarterly updates used by the logistics industry to benchmark costs in four key areas. Wages Vehicle operating costs Warehouse costs Haulage trends

The Logistics Report 2012 Freight Transport Association

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