The Logistics Industry – Opportunities & Challenges in 2025

In our last holistic report on the state of the logistics industry [1] we commented on the interesting disparity between reported industry confidence metrics (as per Barclays’ Logistics Confidence Index) and CapEx forecasts from some of the industry’s leading logistics leaders. While the Logistics Confidence Index 2023 report shared a disconcertingly low index score of 47.3 for the year (the second lowest score since 2012), respondents in the report also expressed confidence in commercial growth prospects for the 12 months to follow and broadly indicated an increase in CapEx spend to drive that very same growth. [2] Confidence levels at the time weren’t particularly clear or uniform across the board, and yet we did identify a real sense of importance being instilled in the UK Logistics sector as the key for broader economic growth.

Now well into the Golden Quarter of 2024, we’re amidst a real return to form in traditional seasonal peaks and associated economic activity levels – something we predicted in our Golden Quarter forecast. [3] According to insights from Experian, online spending has increased by over 5% compared to 2023 and it’s estimated that online sales retailers with a strong online presence could generate a total of £28bn in revenue from this year’s Golden Quarter; this would constitute a colossal £1.1bn increase over the same period last year. [4]

Similarly, NielsenIQ (NIQ) reported an up-tick in FMCG spending in its NIQ Retail Spend Barometer, with UK shoppers spending a total of £53.7bn in Q3 (a 3.7% increase on the same quarter last year). According to NIQ, the growth in FMCG spending was driven by growth in specific segments of the industry: personal care (10.7%), homecare (8.7%), fresh food (5.8%), snacking (5.1%), and beverages (2.1%). The picture isn’t entirely spotless however, with declines reported across tobacco (7.9%), paper products (4.1%), and broadly across the tech and durables market as well – though this decline is reportedly now slowing. [5] And while Overall growth for the final quarter is at a slower pace thus far (merely a 0.6% increase year-on-year for October), experts at the British Retail Consortium do predict a more significant boost for November. [6]

Industry confidence is also growing as a result of Artificial Intelligence (AI) and machine learning. Within the logistics function itself, AI is already contributing to improved operational efficiencies, market analysis, and even in terms of leveraging the technology towards PR and marketing efforts. [7] In a survey by Netradyne at the Gartner Supply Chain Planning Summit, while only 33% of respondents indicated that they are actively using AI to assess and monitor fleet safety performance, 81% stated that they plan to adopt AI platforms within the next year – primarily to mitigate risk and enhance safety for improved operational performance. [8] This follows research by Gartner which forecast that 25% of KPI reporting within the supply chain will be powered by GenAI models by the year 2028 and that 95% of data-driven decisions are expected to be at least partially automated come next year. [9]

Yet, it’s not just about what AI is doing for logistics, but also interactions between the logistics sector and data centre sector more broadly. Designated as Critical National Infrastructure (CNI) by the government alongside the likes of the space and defence sectors [10], data centres have become a focal point for the UK’s push towards digital infrastructure and a key part of the UK’s strategic mission to become a hub for technological innovation. Already, the new Labour government has reversed steps halting the construction of data centres in Hertfordshire (set to be the largest data centre in Europe) [11] and Buckinghamshire [12], with predictions already rolling in that the data centre market has the potential to contribute an additional £44bn to the UK economy by 2035. [13]

But how does all of this tie in with the logistics industry? The answer is ultimately two-fold. From the perspective of industrial and logistics development, increased competition over suitable land is actively limiting the potential of over-supply, as evidenced by an estimated 415 acres of land that has already been shifted towards data centre projects instead of industrial and logistics development this year alone. [14] It’s expected that this tightening of the development pipeline will drive higher than anticipated rental growth, but it’s reasonable to predict that it may increase the demand for, and value of, logistics operators with spare capacity as the development pipeline slows.

As for the second tie-in with the logistics industry, both data centre deployment and relocation come with significant complexities demanding specialist solutions for the dismantling, transportation, and assembly of costly equipment. It’s an area that hyperscalers have traditionally struggled with, but one where logistics organisations are rather well positioned to help. Already, logistics organisations are accurately identifying the market as an area where a more expanded service can be offered, primarily to streamline sustainability and the efficiency of such projects while hyperscalers ramp up development activity across the UK and Europe.

Returning to activity within the logistics property market, CBRE has reported a Q3 decrease in the amount of stock available in the market across a number of regions [15], while Savills has commented specifically on reduced construction activity compared to prior years and the emergence of reduced build costs. [16] That said, Savills did also comment on impressive growth in take-up for Q2 (44% YoY), with CBRE similarly reporting a 28% increase in take-up for its Q3. All of this speaks to continued confidence levels coming out of the logistics industry, but does raise concerns over long-term stock availability, whether this may be restrictive of growth in the long-term, and ultimately how cost-conscious organisations may have become.

So, while opportunities may not be emerging uniformly across all areas of the economy, the overarching outlook for logistics is certainly more positive than at the close of 2023. This renewed positivity is reflected in the IMF lifting its forecasts for GDP growth for 2024 from 0.7% to 1.3% [17] and, in terms of the logistics industry specifically, we can see a significant increase in logistics industry confidence from a score of 47.3 in 2023 to 57.6 for 2024. Importantly, this paints a clear picture of growing industry confidence, with 2024’s confidence metric being among the stronger scores of the last 10 years (following 71.4 in 2014, 62.5 in 2021, and 61.9 in 2015). [18]

Research published by Logistics UK echoes this sense of renewed confidence, with 38% of respondents to the organisation’s industry survey stating that they are anticipating economic improvement this year, compared to last. What’s more, this comes at a time when organisations have not been overwhelmingly driving growth as the primary KPI, but instead consolidating and laying the foundations for the years to come. [19] In essence, the industry may not have changed dramatically since our last update, but there is a stark difference in the level of opportunity and the perception of it going forward, and organisations are increasingly getting ready for it.

International Trade & Foreign Markets

Logistics Technology Stock photos by Vecteezy}

As the cornerstone for international commerce, we’ve previously highlighted the logistics industry as the key to creating opportunities within the global market, but it’s certainly not a one-way relationship. In the same sense that international trade opportunities are underpinned by the performance of the logistics industry, opportunities within the UK logistics industry are similarly underpinned by the volume (and indeed, value) of UK import and export activity. This brings us to perhaps one of the most significant changes in the pipeline: the re-election of Donald Trump as President of the United States in the 2024 presidential election (winning 312 electoral votes and 50.4% of the general vote). [20]

From the perspective of UK industry, the headline topic coming out of the presidential election is that of international trade and the proposal of significant trade tariffs on US imports. Although a number of figures have been bounced around to-date [21], more recent statements by Donald Trump have suggested blanket trade tariffs of up to 20% on US imports, with harsher tariffs placed on China (as high as 60%) [22], and Mexico (up to 25% in the short term and 75% in the long term) [23]. Should the proposals come to fruition, the competitiveness of exporters into the US market would be hindered significantly.

As of 2024, the UK is currently the world’s fourth largest exporter [24] and manufactured goods account for roughly 45% of the UK’s total exports [25]; moreover, the US is currently the UK’s largest export destination for manufactured goods. Accounting for 15.4% of total UK goods exports, approximately £53.8bn of goods were exported to the US market in the 12 months up to August, representing almost double that our second largest export market for goods – Germany, at 8.6% and £32.3bn respectively. In terms of the specific types of goods exported to the US market, it’s also critical to note that its many of our heaviest manufacturing and engineering industries that dominate in terms of total value exported [26]:

– Mechanical Power Generators (intermediate): £36.1bn

– Cars: £34.4bn

– Medicinal and Pharmaceutical Products: £24.8bn

– Crude Oil: £17.6bn

– Aircraft: £12.6bn

– Refined Oil: £12.5bn

– Scientific Instruments (Capital): £11.7bn

– Unspecified Goods: £11.6bn

– Non-Ferrous Metals: £11.2bn

– General Industrial Machinery (Capital): £10.3bn

With all of this in mind, it’s impossible to understate the potential impact that proposed tariffs could have on the balance of trade between the UK and US, with industry research published by the Centre for Inclusive Trade Policy (CITP) indicating that UK trade exports could fall by a staggering £22bn (estimated based off a 20% tariffs on all imports and a 60% tariffs on imports from China) should the proposed tariffs come into force. Of those industries that would suffer from the tariffs, a number of disconcertingly similar industries were highlighted: [27]

– Coke and Refined Petroleum: -20.9%

– Mining: -20.4%

– Pharmaceuticals: -16.4%

– Computer and Electronics: -11.4%

– Electrical Equipment: -9.8%

– Fabricated Metal Products: -9.7%

– Basic Metals: -9.2%

– Machineries: -2.6%

– Motor Vehicles: -0.6%

Undeniably CITP’s analysis predicts a damning effect on British industry should significant tariffs come into force. Yet, herein lie the most important questions of all:

– What opportunities could US trade tariffs on China create for UK industry?

– Will the UK be subject to a 20% trade tariff?

Addressing the first question, the proposed tariffs might not be universally bad for all British industries. Although the impact would be overwhelmingly negative for many, it is important to recognise that the disparity between the proposed tariffs for all trade partners and those specific to China does leave room for opportunity for those countries on a lower tariff. This is particularly evident in the textiles and clothing market, where the reduced competitiveness of goods manufactured in China potentially may create some room for other prominent manufacturing companies to compete more effectively.

As for the second question, for anyone following the presidential election and the statements made across it, one would certainly assume that yes, Donald Trump’s plans for sweeping trade tariffs would include the UK (in the proposed 10-20% range). Yet, more recent statements made across the pond indicate that might not actually be the case, with Duncan Edwards, Chief Executive of BritishAmerican Business suggesting that the UK is not explicitly the target of proposed trade tariffs [28], and Phil Murphy, Governor of New Jersey, indicating his belief that Donald Trump may consider excluding the UK from the tariff plans, in part due to its departure from the EU. [29]

Reportedly, Donald Trump is considering offering the UK a special deal that would exempt British exports from the proposed tariffs. [30] Such proposals come off the back of similar talks under the previous Trump administration, which ultimately stalled four years ago. As for the specific terms and details of any such deal, only time will tell, but it has been suggested that the opportunity may very well be one more accessible to the UK than EU member states. [31] And while we cannot speculate terribly further on the impact or specifics of such a deal, what is almost certain is that any such deal could lead to both an increase (rather than decrease) in trade volumes and a surge in supporting logistics industry activity between the UK and US markets.

Broadly speaking, the picture on international trade is quite straight-forward. Should harsh tariffs be placed on imports coming into the US market from the UK, the impact on both the manufacturing and logistics industry would be overwhelmingly negative. Of course, should a US-UK trade deal lay the foundations for avoiding tariffs applied elsewhere then there’s certainly reason to be optimistic for growth as economic thought-leaders call on the Labour government to use this moment to show that the UK is open for business when others may instead be looking inwards. [32]

Worth noting is also the fact that, while a key part of Donald Trump’s messaging on trade tariffs (both in severity and in application), the tariffs proposed are by no means guaranteed at this stage, but would continue on from the prior application of tariffs in 2018 and the Biden administration’s later expansion of tariff utilisation. [33] Conversely, Sam Stovall, Chief Investment Strategist of CFRA Research has suggested that the proposed tariffs may actually form the basis of bargaining tools rather than actual policy plans. [34]

Preparing for 2025: Creating a Robust & Resilient Logistics Supply Chain

Summarising much of the previously discussed information, the UK continues on an upwards trend of improved logistics industry confidence, recovering economic activity, and at the same time faces a level of unpredictability in how the new Trump administration may impact the British manufacturing and logistics industries (by association). With this in mind, there are a number of key priority areas that must be addressed both to unlock emerging opportunities and also to ensure a level of agility in regard to those issues that are somewhat out of our control.

One of the most significant challenges holding back the logistics industry today is still the issue of ensuring access to skilled talent. Although the number of HGV vacancies has stabilised in recent years (dropping from a staggeringly high 43% at the start of Q1, 2021, to roughly 20% since Q4 2022), statistics from Q1 of 2024 indicate driver retirement as the most frequent reason for vacancies (35%) [35]; this continues a trend of concern over the ageing nature of the workforce compounded by a lack of young talent coming into the industry. Unfortunately, it’s an issue in no-way relegated to HGV drivers either, with the industry typically struggling to access talent across the majority of logistics disciplines.

As for how we can come together and address the issue, it’s important to consider that the solution does depend on the driving force behind the reality we all now face. While we have talked extensively about some of the misconceptions that aspiring professionals have of the industry and some of the “hidden” logistics career paths [36], awareness and cultural trends aren’t the only factors contributing to the shortage. Indeed, as evidenced in research conducted by SNAP, there’s a growing discussion that the driver shortage is not solely due to people overlooking logistics careers, and instead that there are misconceptions around what working in the industry entails. [37]

Overall, greater efforts need to made in not only attracting aspiring talent into the logistics industry, but also in creating a environment within which people can see themselves prospering. Already, organisations like Generation Logistics are making impressive progress in raising awareness of logistics careers and providing valuable insight into what the industry is actually like – particularly through sharing insight and logistics stories from experts across the field [38]. But organisations must do more, both in terms of helping to cast aside industry misconceptions and also in providing a workplace that people want to be a part of. Only then will the logistics industry have access to the talent that it will need for 2025 and beyond.

Aside from skill shortages, the unpredictability of economic conditions is perhaps the biggest challenge facing organisations today. Yes, we’re seeing a positive shift towards more traditional seasonal peaks and improved industry confidence, but we’re a nation that is still recovering from the immediate impacts of Brexit, part of a world in the midst of significant geopolitical turmoil, and many other factors rather out of the control of UK businesses. As such, it’s more important than ever to build agility into the logistics supply chain, both as a logistics operator protecting yourself from fluctuating work levels within your client base and also as an organisation depending on a resilient logistics supply chain that can scale upwards or downwards as the wind changes.

With agility in mind, it’s unsurprising to see Fourth Party Logistics (4PL) becoming the answer for many. As laid out rather eloquently by Gartner, organisations have become acutely aware of the connectivity, visibility, and control that they have lost over their supply chains. As such, many organisations now look towards 4PL as a way to address the shortcomings over 3PL solutions and further support KPIs across: customer satisfaction, disruption and risk management, logistics cost pressures, talent and worker capability, e-commerce last mile, supply chain integration, and the important issue of sustainability. [39]

Ian Cramb, Managing Director of X2 (UK), said: “Increased industry confidence is always a good sign and while we can’t predict the future, there’s certainly a great deal of opportunity and optimism for 2025. There are however some hurdles for the industry to overcome if we’re to access those opportunities though. It’s more important than ever to take a critical look at the logistics supply chain to ensure: efficient logistics spending, data-driven and AI-backed decision making, access to quality talent across all logistics professions (not just in terms of drivers), and a high level of agility as we recover from what have been a number of turbulent years.”

Vic Faulkner, Operations Director for X2 (UK), added: “The usual combination of industry challenges and considerations are as present today as they have been in recent years, but changes in the geopolitical environment have created some additional influences that are rather out of the logistics industry’s control. Issues like the war in Ukraine, the conflict in the Middle East, and the US presidential elections do create some instability in the market and that’s why it’s more important than ever to ensure a logistics function that is designed specifically for flexibility, agility, and responsiveness to supply and demand fluctuations.

“While there are many solutions to deliver that risk mitigation package, partnership with a Fourth Party Logistics (4PL) specialist is possibly the most easily accessible and integrable answer out there. At X2 (UK), we not only understand the critical importance of risk mitigation for 2025 and beyond, but we also know how to roll out bespoke logistics solutions that aren’t going to complicate or challenge existing business activities. We can be the fail-safe for unforeseen issues as they arise, but also be the fast-track for growth on the other side of the coin.”

To learn more about how Fourth Party Logistics (4PL) can mitigate risk within your business and how accessible these solutions can be, get in touch with a member of the X2 (UK) team.