Asset Finance – A Reliable ‘Driver’ for the Logistics Industry

In 2024 it appears confidence is returning to the UK, whilst the global economy is predicted to perform much better than many analysts previously expected. This is hugely comforting for many sectors, but especially for logistics firms, for whom the pandemic memory perhaps still feels fresh. Unsurprising given the detrimental effects associated with covid which included labour shortages, fragmented supply lines, unscheduled closures of manufacturing and distribution facilities, bottlenecks at borders and restrictions on travel. Unforeseen consumer behaviour also left their mark on the industry, however, if were needed, the pandemic also highlighted the huge importance of this critical sector. Many companies stepped up, often altruistically, to ensure continuous supply of essential goods, such as food and PPE.

Inflation has also been a major concern for the logistics sector, with the rising price of goods and services affecting supply chains, and profits hit by increasing wage bills, raw materials, and of course fuel costs. In this article we explore ways that asset finance can help logistics companies weather the uncertain economic climate to build a more secure, stable and hopefully profitable future.

Driving linear growth

Asset finance can help businesses to grow their operations, ultimately increasing their capacity to handle more orders, by providing the necessary capital to acquire assets such as vehicles, equipment, and property, including new distribution centres and warehouses. It can also be used for upgrading, modernising or expanding existing offices and facilities, and for funding better or more modern equipment to increase efficiencies as companies scale.

Mitigating Brexit related challenges

Brexit has brought unintended, as well as unprecedented hardships to the logistics industry in the UK. One of the biggest challenges has been an increase in transport times due to more involved customs and paperwork requirements (not to mention increased customs charges) for freight moving between the UK and the EU. This is particularly significant for the transport of goods between the UK and Ireland, which enjoyed free movement before Brexit without any customs or tariffs.

As a result, many logistics companies are using asset finance to set up hubs or distribution centers across Europe, find new suppliers, or overstock raw materials to help manage lengthening supply chains and stock shortages. Investing in better systems and processes can also help streamline operations and reduce reliance on human capital, critical at a time of labour shortages.

Fuelling diversification

Many logistics companies are diversifying their offerings to overcome changing market conditions. Asset finance can provide capital to help businesses expand their supplier base through multisourcing (sourcing goods and services from multiple suppliers within the same country rather than a single source) or multishoring (using multiple suppliers from different countries) to mitigate the risk of supply chain disruptions. It can also provide financing for new product lines or ranges, and diversification of the workforce where skilled labour is in short supply.

The pandemic has also accelerate the shift towards e-commerce logistics, as businesses adapt to changing consumer behaviours, with more people than ever shopping online. E-commerce will continue to change the future of logistics, and companies should be ready to meet the needs of this growing industry.

Steering digitalisation

Digitalisation offers the chance for logistics companies to modernise and capitalise on efficiencies which will stand them in good stead for the long term, such as automating their order processing, inventory management and shipment tracking, all of which will ultimately lead to faster turnaround times. It also provides real-time visibility throughout the supply chain from point of origin to point of delivery, allowing greater system interoperability and can even help with the optimization of transport routes.

The shipping industry is a great example of how digitalisation can help businesses stay ‘afloat’ of market changes such as restricted profit margins and increasing freight rates. New advancements in cloud technology and big data are helping to reduce time-consuming manual activities, automate complex documentation and cargo management, provide real time vessel tracking, and embed intelligent capacity management. 

In short, asset finance can be used to acquire the hardware and software needed for logistics companies to upgrade their technology without the need for large amounts of available cash. By embracing digital transformation, logistics companies can stay ahead of the competition, become more efficient and improve customer satisfaction.

Encouraging sustainability

The UK government's commitment to achieving net-zero carbon emissions by 2050 has spurred the development and adoption of eco-friendly technologies in transport. According to an article by Logistics Magazine logistics companies are likely to increasingly invest in electric and hydrogen-powered vehicles, as well as explore innovative last-mile delivery solutions (such as localised storage and route optimisation) to minimise environmental impact. Asset finance can also help companies who want to invest in energy technologies for their physical facilities such as solar, wind and hydro.

87% of consumers will have a more positive image of, and 88% will be more loyal to, a company that supports social or environmental issues, so going greener will also have a positive impact on your brand and help build your customer base for the longer term.

Helping manage cashflow tomorrow, whilst providing benefits today

Asset finance allows logistics companies to spread the cost of equipment over a set period of time while benefitting from its use straight away, helping them maintain cash flow by avoiding unexpected expenses. This frees up working capital and cash reserves for more pressing matters such as marketing and paying suppliers and staff. Of course, like other forms of business finance there will be associated fees and interest payments, but used strategically it can provide invaluable long-term benefits whilst protecting your current financial obligations.

With a range of finance options available, including operating and finance lease, hire purchase, asset refinance and contract hire, asset finance gives business owners access to flexible solutions for acquiring both the soft and hard assets needed to experience sustained growth. This might seem like a challenge, given inflation is at a 40 year high, but having access to capital can help logistics companies create the building blocks to emerge from this period of economic uncertainty in a more stable position.

 

At Enness we work with companies to understand their needs and their potential, working with them to unlock the finance they need to capture opportunities, such as those referenced above. This is especially important as there appears to be good news ahead for both consumers and supply chains as the Bank of England expects inflation to be back at 2% later this year.