Brian Foster, head of industry finance at Siemens Financial Services in the UK, examines how flexible finance can help logistics providers meet the changing needs of retailers and consumers.
The upward trend of online shopping shows no sign of abating; research forecasts a 69% increase in parcel volume in Europe by 2021.[1] UK consumers that utilise online shopping currently make 87% of their retail purchases online, up from 80% in 2017.[2] Apart from the continued increase in volume, the nature of online retail is also evolving. Convenience of delivery is an important factor for consumers choosing where to shop. A PricewaterhouseCoopers (PwC) report shows that fast and reliable delivery would influence where almost a quarter of consumers choose to shop. Additionally, 40% of shoppers are willing to pay an extra charge for same-day delivery.[3]
As consumers expect more from retailers, retailers will expect more from their logistics operators. Retailers that can offer speed and flexibility will win the customers and, therefore, the logistics companies that can facilitate that speed and flexibility will win the retailers. Consequently, logistics providers need to be ready to continually adapt and modernise to maximise cost efficiency and asset productivity,[4] enabling their clients to meet consumers’ delivery expectations cost effectively.
Investing in new technology is key to achieving this.[5] ‘The Internet of Things’ (IoT) offers future potential and creates opportunities for a connected transport system, where vehicles, goods and infrastructure communicate with each other. For example, “radio-frequency identification” (RFID) tagging can provide fleets with GPS and location data informing them of factors such as bad weather that might delay deliveries. Planning for these factors will enable carriers to deliver more goods on time.[6] Similarly, data can be analysed to identify areas where efficiency can be improved; for example, identifying efficient drivers and routes.[7] Smart location management systems can enable companies to easily track driver activities, vehicle location, and delivery status with real-time information, meaning that business processes can be streamlined.[8]
Looking further ahead, the very assets which transport goods are also likely to change radically. Self-driving vehicles continue to be tested and could produce significant benefits for the logistics industry. Many companies are faced with massive driver shortages and the drivers make up about 30% of the road transport costs. Driverless vehicles can increase speed and flexibility of freight flows and, unlike drivers, can operate 24/7. [9]
Implementing new technology, however, takes time and investments in new vehicles and technology requires considerable capital expenditure. Tailor-made financing packages for the acquisition of a variety of new truck and trailer models are gaining popularity as a cost-effective investment-enabler. Asset finance can help logistics operators embrace new technology. Pay-to-use or access financing techniques such as leasing, and pay-for-outcomes agreements whereby the savings or gains made possible by a given technology fund monthly payments, are effective, alternative methods of funding equipment and technology investments and upgrades. Such financing techniques spread the cost of machinery over an agreed financing period, with monthly finance payments arranged to align with expected benefits gained over time from new/retrofitted equipment, such as improved productivity, operating cost savings, energy efficiency and access to new markets. This removes the need for a large initial outlay, thereby increasing the funds available for other expenditures. In other words, asset finance allows manufacturers access to the latest technologies, without having to commit scarce capital or use traditional lines of credit. Financing arrangements can cover other costs such as installation, as well as providing the flexibility to upgrade technology in line with technology developments.
Unlike traditional, generalist financiers that might lack comprehensive technical knowledge to fully evaluate the impact a potential investment can bring to a logistics operator, specialist financiers active in the transport arena understand the technology, its potential future value and its practical application. This comprehensive understanding of the financed equipment and technology enables specialist financiers to determine appropriate and tailored financing solutions that meet the company’s specific needs. Their expertise in equipment and technology and finance makes it possible for specialist financiers to assess the cost savings and/or expected benefits for the term of the agreement and factor that into the financing arrangement. Specialist financiers, moreover, can devise financing plans that cover a broad range of costs associated with using the equipment and technology, not just the cost of acquisition, meaning greater transparency regarding the expected operating costs for the customer. By using flexible financing, logistics companies have the opportunity to benefit from the investment in equipment and technology straight away rather than delaying their acquisition, and through that timely investment gain an important competitive advantage.
Internet shopping continues to become more popular and consumers are becoming increasingly demanding. Logistics companies need to be ready to help retailers meet these demands by investing in technology that enables them to be more efficient. Technology is developing rapidly and holds many exciting possibilities for the industry. But the transport sector operates under tight margins and investments must be made sustainably. Operators that don’t meet this challenge risk being left behind.
[1] Logistics Manager, ’Huge growth in urban logistics space vital to meet online demand’, 18 October 2017 https://www.logisticsmanager.com/huge-growth-urban-logistics-space-vital-meet-online-demand/
[2] Net Imperative, ’Online shopping in the UK up 9% in a year’, 11 September 2018 http://www.netimperative.com/2018/09/online-shopping-in-the-uk-up-9-in-a-year/
[3] PricewaterhouseCoopers, ’Signed, sealed, delivered (and regularly returned)’, 2018 https://www.pwc.com/gx/en/industries/consumer-markets/consumer-insights-survey/delivery-expectation.html
[4] Ibid
[5] Indigo, ’How are logistics operations adapting to the increased popularity of Internet shopping?’, 24 January 2018 http://www.indigo.co.uk/article/2018/1/24/how-are-logistics-operations-adapting-to-the-increased-popularity-of-internet-shopping
[6] Iot for all, ’What’s Ahead for IoT and Logistics in 2018’, https://www.iotforall.com/logistics-and-iot-trends-2018/
[7] Ibid
[8] Innovation Enterprise Channels, ’The top six IoT applications in logistics’, 13 July 2018 https://channels.theinnovationenterprise.com/articles/how-the-internet-of-things-will-revolutionize-the-logistics-industry
[9] Sabinext, ’Self-Driving Vehicles: The New Reality for Logistics?’, 17 June 2018, https://sabinext.com/self-driving-vehicles-new-reality-logistics