The consequences of Covid-19 for UK warehousing and logistics. By Peter Ward
Warehousing and logistics operators have been under extreme pressure since the Covid-19 crisis took hold and national lockdown was announced by the government. Those serving the food and ‘essential’ supplies sector have struggled to maintain a ‘business as usual’ service in the face of a massive spike in demand, while also having to observe government guidelines on social distancing to keep their workforces safe.
Implementing safe-working practices has been critical, but this too presented obvious practical challenges – such as ensuring access to necessary PPE and hand sanitizers, introducing different shift patterns and coping with critical labor shortages as rising numbers of employees self-isolated or stayed home to care for children.
Many parts of the industry have a high dependency on temporary staff, for whom there has been little or no government protection. Outside of PAYE, these workers are not eligible for sick pay, nor furloughing, nor can they be treated as self-employed. Consequently, many continue to work to maintain an income, regardless of whether they are ill and a risk to fellow workers.
Meantime, those operating in the so-called ‘non-essential’ space have been feeling another kind of pain. With outbound flows severely reduced or stopped altogether when stores closed, inbound flows became literally a mounting problem. Inbound supply chains cannot simply be turned off, orders placed and dispatched before the lock down continued towards destination, arriving at ports, requiring receipt, handling, onward distribution and storage.
Clearly, warehouses in this situation quickly reach capacity, and the specter of full warehouses, blockages upstream in the supply chain, fully loaded containers and trucks unable to discharge, ports unable to cope with the backlog and ultimately prevention of the flow of essential supplies such as food and pharmaceuticals became a real possibility.
Consequently, UKWA set up an Emergency Space Register, updated on a weekly basis, to enable members to list available capacity and cargo owners to identify space in appropriate locations. The association also worked with the port authorities to understand the potential scale of the problem and with logistics consultant Bis Hendersen to develop a viable off-dock solution for cargo owners, should the worst scenario be realized.
Then of course, there has been the financial impact for the sector. As a comprehensive Covid impact survey of our members revealed, the vast majority of warehouses do not make their money on storage – certainly not on storage alone. Over 70 per cent of respondents said that storage charges represented 40 per cent or less of their income. In a modern warehouse, money is made from moving and managing stock, so when outbound flows cease or slow and inbound flows continue, warehouses become full and cannot function other than as storage hubs, yielding only a fraction of expected income. Yet overheads must still be met, while 
customers have been slow to pay and the sector has to date received no special assistance from the government.
Hence our call on government for additional support measures, such as a six-month business rates holiday to help our members ride out this storm and survive the crisis. UKWA has a primary duty of care to members and the wider logistics industry through these unprecedented and challenging times.
On the positive side, longer term prospects for warehousing and logistics businesses look rosy as the Covid lockdown has sharply steepened the growth curve of online shopping. At UKWA’s National Conference in March, we highlighted the latest report by the British Property Foundation, ‘Delivering The Goods in 2020’, which predicted online spending would double by 2040, driving requirement for 21m sq ft of extra warehousing every year for the next 20 years.
According to the BPF report, published in February this year, online spend was expected to grow from the then current 11 pence or so in every retail pound to 19 pence in every pound by 2028.
Post lockdown, research firm GlobalData forecasts that the online grocery market alone is expected to grow 25.5 per cent in 2020 – significantly ahead of the 8.5 per cent previously anticipated. Add this to the likely demand for additional space for inventory as the threat of a hard or no-deal Brexit brings risk of supply chain interruption, and the future picture is one of warehouse expansion and acquisition of new premises.
As we emerge from lockdown and return to work, clearly significant changes have already taken place, with profound effects in both social and working environments.
Most warehouses have continued to operate throughout lockdown at some level and so social distancing, using PPE and working split shift patterns is already the new ‘normal’, but as customers come back on stream, they will face having to gear up to manage increased volumes, while observing required health and safety guidelines.
Businesses reopening will release much needed warehousing space as outbound flows resume, restoring revenue streams for hardest hit operators. However, social distancing will undoubtedly have a negative effect on productivity, with longer processing times and longer lead times. This situation is likely to prevail for the foreseeable future and everyone along the supply chain will have to adjust expectations accordingly in the new ‘normal’ world in which we find ourselves.
Customers must recognize that reduced productivity will not mean reduced costs, if anything end-users will have to absorb the costs of the new ways of working. Margins are already cut to the bone in our industry and ensuring the safety of workers to keep customers’ supply chains flowing should not be a cost laid at the door of logistics and warehouse operators.
For too long retailers have been driven by consumer expectations to deliver anything and everything next or same day, free of charge. Perhaps one of the silver linings of this Covid-19 dark cloud will be a collective recalibration of priorities, a better understanding by consumers of the essential work carried out by this industry and an appreciation that excellent service must be paid for.
Peter Ward is CEO of UKWA. The UK Warehousing Association (UKWA) is a leading trade organisation representing the warehousing and third-party logistics (3PL) sector, with 800+ member companies operating some 12 million square metres of warehousing from around 2000 depots across the UK. The association provides a voice for the industry, promotes industry standards and supports member businesses in operating safely, ethically and profitably.
www.ukwa.org.uk