The food and drinks supply chain has been under the spotlight recently and the sector is facing a testing time going forwards
The debate sparked by the possible impact of Brexit on food and drink supply chains prompted a surge in demand for warehouse space across the UK. However, long before the ‘B’ word was on everyone’s lips, UKWA was warning of a critical shortage of warehousing space and in a detailed report – ‘Feeding London 2030: Meeting the logistical challenge’ – the association highlighted the mounting threats to urban distribution in the food and beverage sector. At the recent UKWA Feeding Cities Summit, UKWA CEO, Peter Ward, interviewed Stephen Lawrence, CEO of iSec and asked him about some of the challenges facing the sector.
PW: Can you outline for us what is currently happening in the food logistics chain in terms of goods coming into the UK through sea ports and air ports?
SL: Dover handles 17 per cent of the UK’s entire trade in goods, worth up to an estimated £122 billion last year. As Europe’s busiest ferry port, there remains no substitutable capacity elsewhere in the UK to handle these trade volumes.
Currently, product is shipped from manufacturers into port or by air, depending on product and next destination, goods are then cleared through veterinary and customs controlled and either stored at the port or transported for processing to a factory or inland storage facility until required for further processing/consolidation, or to be shipped directly to a retail distribution centre or to a foodservice distributor.
Although the food supply chain is constantly evolving to become more efficient, the existing routes to market for both retail and foodservice do mean that costs are involved in terms of double handling, road miles and time taken for the goods to reach their final destination, thereby reducing shelf life.
PW: Is the current infrastructure capable of handling today’s and future volumes?
SL: In simple terms, no, the changes in population and consumer requirements combined with the lack of high quality, well located and fit for purpose type of warehousing available in the UK is a big problem.
According to the IGD, £46.2 billion worth of food is currently imported with £220 billion spent on food overall. The UK food and grocery market is forecast to grow by 15 per cent between now and 2022, so it is essential to constantly review, evaluate demand and make plans to accommodate future volumes.
One example in the temperature controlled area is the acquisition of Yearsley by Lineage Logistics (an American company), which now makes them number one in the temperature-controlled storage sector with 520,000 pallet spaces and depots nationwide.
As prices increase throughout the food industry, such as feed prices, transportation costs, energy rates and legislation, manufacturers will need to find alternative ways to reduce costs as their customers – retailers and foodservice operators – will not accept price increases. The only way to achieve this is to reduce the number of ‘touches’ to a product as it passes along the supply chain. This means that the existing supply chain and its infrastructure will need to change and change quite drastically.
In my opinion, the industry must review the existing infrastructure, looking at new and innovative ways to supply food to retail, manufacturing and foodservice in the future rather than follow existing routes to market. Supply chains must be as effective and efficient as possible, taking into account new technologies and making much more use of automation end-to-end.
PW: How have you seen the supply chain changing in logistics, specifically for food and particularly for London?
SL: There have been changes but these are generally tweaks to the existing structure. Going forward I believe we will see major change driven by market forces and increasing consumer demands.
Supply chains for supermarkets were established in the 80s/90s and the food sector has been growing at huge rates, which the industry is unable to handle efficiently and currently there is no clear solution to fulfilling London’s needs.
The key drivers for change include manufacturers wanting to own their supply chain just as they do in the non-food sector and not be dominated by the supermarkets, as we saw last year with the Unilever and Marmite situation. The supermarkets are in disarray as a result of changing consumer habits – online shopping, eating out, and the growth of convenience stores. Logistics providers are striving to achieve more efficient distribution and reduce costs, despite restrictive legislation for delivery into London, 450,000 food outlets to service and, of course, the Brexit effect.
We have a new deep-water port at DP World London Gateway which opened in 2016, with capacity to handle over four million TEU per annum and an adjacent site able to accommodate a new food cluster of 45 m automated buildings. The port is already at 1.5 million TEU per annum, with most of this volume being food. Volumes are continuing to grow and I believe that within ten years London Gateway will be more significant than Felixstowe. More importantly, I see it becoming the main port for food imports; with the changes to chill and Ro Ro and the issues facing Dover, London Gateway is likely to develop further to help overcome issues of cost, delivery and food security.
PW: What other changes can you foresee in the food logistics sector?
SL: I believe we will see the supply chain changing in the food sector to echo the non-food supply chain. For example, all major brands such as Proctor +Gamble, Unilever, McCains, Birds Eye, will supply direct. Therefore, they will manage their own their supply chains, rather than delivering into the supermarket chains and being at the mercy of retailers.
The supermarkets are dinosaurs. They have a broken model, as most of them sold off their real estate for 25 years in the early 2000s. This gave big returns at the time, but now they have big problems which they don’t seem to be addressing and are hoping they can ride out until leases end. The big supermarkets are under pressure from the discounters, operating outdated logistics models and online.
Why online? Sales to food services keep up prices to the supermarkets and keep down costs by clustering. The current per cent of online is limited to six per cent and is expected to rise by two per cent within five years. Although this seems small it is 33 per cent growth – the biggest issues are more about final delivery but with the development of a cluster and changes in delivery then this is set to grow dramatically.
At present, retailers are pressuring their suppliers, but with the issues of Brexit and its possible impact on supply chains, I see a potential catastrophe; with exchange rates and harvest of 2018, prices on many goods could jump by up to 20 per cent, which would play into the hands of the discounters, online and manufacturers.
The area of food services I think will be one of the quickest areas to change as their commitments are to 3Pls and not to the infrastructure of the retailers – the growth of the eating out experience in London since the early 90s is substantial. I see this area working within the cluster model.
The situation with automation is changing too. Previously it has been challenging to introduce automation into developments and delivery reliability and ROI, but this is now changing with the cost of labour increasing by around 30 per cent for warehouse workers and 80 per cent for drivers in the last three years. Automation has become more reliable as well as more relevant with the move away from traditional supermarkets. We have seen the impact of technology with Ocado at item level, but links to pallets and cases is now a ‘no brainer’.
UKWA’s Feeding London 2030 report provides a detailed analysis of many of the challenges discussed by Stephen Lawrence, to request your copy visit the UKWA website or email:
Stephen Lawrence has worked in industrial /logistics real estate for over 20 years, both in the UK and Europe. Today he is CEO of iSec, which manages and owns real estate worth £750 million and has a gross development value of £1.25 billion. Since iSec ventured directly into the logistics industry in 2011 the company has built up an operating business with over 195,000 pallets and 2.25 million square feet of frozen pallet spaces in the UK. iSec is the largest frozen provider to the food manufacturing sector and is no. three overall.