Logistics: extreme weather and supply chain strain impacting delivery
Extreme weather events and tensions in Taiwan threaten freight shipping routes and are piling further pressure on supply chains.
3 minutes to read
Whilst manufacturers are building new factories in the UK, upcoming changes to tax relief may weaken the incentive to invest in developing more manufacturing bases and logistics capacity.
It seems that high-impact, low-probability events are becoming more frequent. From Covid-induced lockdowns, to the Suez Canal blockage, the ongoing Russia-Ukraine conflict and now droughts are impacting river freight routes and geo-political tensions in Taiwan causing concern.
Weather events impacting trade
Global supply chains continue to be tested, with far-reaching consequences for businesses and households across the globe. With more opportunity for disruption, long and lean supply chains are particularly at risk.
The heatwave and prolonged dry spell this summer has meant river levels are at an all-time low. The Rhine, Europe’s second largest river which carries 200m tons of goods each year, was closed to freight traffic in Germany this month.
Higher costs, bottlenecks and backlogs have resulted, with the German automotive industry particularly impacted.
It’s not just the Rhine. The Yangtze, China’s third largest waterway is also drying up, impacting shipping routes. As well as being a key shipping route, the river is also important for the generation of hydropower. It has meant that some factories (including Tesla and Toyota) and shipping companies have had to suspend operations.
Difficulty traversing these rivers has pushed up freight costs for alternative modes of transport, with increased competition for trucks and railway deliveries.
Logistics costs have been further inflated due to heightened fuel costs. Though availability of stock has generally been improving this year, motor trade distributors reported a worsening in July (CBI survey) and expect a further decline in August.
There are ambitions to increase river freight in order to reduce road traffic and emissions. Though with droughts expected to increase in frequency, significant investment is required to ensure the Rhine and other rivers remain viable freight routes.
River freight volumes are relatively low in the UK, though there is a desire to encourage more and to develop multi-modal logistics as a way to reduce freight on UK roads.
Last year, DHL started a riverboat service on the Thames (between Wandsworth and Bankside) operated by Clipper Logistics. There are further plans afoot, or rather afloat. Yet, to fully exploit the river network, infrastructure changes are needed and this requires investment to facilitate dredging, straightening of river bends and the building inland river ports.
Boosting manufacturing growth
A robust infrastructure and logistics is becoming more and more crucial in supporting modern lifestyles, developing a thriving business ecosystem, and growing the UK’s manufacturing sector and exports.
A number of manufacturers (including Aston Martin, Britishvolt, Siemens, Crown, and Rolls-Royce) are building new factories in the UK. Strengthening supply chains and supporting the growth of UK manufacturing requires investment in infrastructure and logistics.
Tax relief
The super-deduction allowance, which gives relief at 130% of the qualifying cost compared to the usual 18% writing down allowance for investment in main pool plant and machinery, was introduced in April 2021. The allowance has benefited and incentivised companies expanding their logistics infrastructure in the UK, though it is due to come to an end in March 2023.
In 2021, Amazon reportedly invested more than £2.3bn and received a £75m discount on their tax bill as they expanded their operations in the UK, opening five new warehouses (Swindon, Dartford, Gateshead, Hinkley and Doncaster) three of which are fitted out with the latest robotics technology.
Liz Truss has now been announced as the UK’s Prime Minister, after winning the contest to replace Boris Johnson as Conservative Party leader. Her Autumn Budget is likely to deliver several tax changes for businesses and will likely enhance the initial capital allowances benefit after the end of the super deduction.
However, the incoming relief is unlikely to be as generous as the super deduction for expenditure on plant and machinery. Her policies will need to ensure that firms have the incentive to develop their UK-based production and build capacity into their supply chains and logistics operations.
Read more or get in contact: Claire Williams, Industrial and Logistics
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