What is materials handling?

Materials handling covers anything that involves the movement of product or materials from A to B. That covers the entire supply chain, with a focus on manufacturing, transport, logistics and warehousing.

How is the industry doing?

Materials handling is largely correlated to economic output. However, it’s also strongly affected by other factors – currently two big drivers are the growth in online shopping and just-in-time supply chains. Taking a bricks and mortar retailer as an example; that business might decide to carry less stock in store and also to encourage online sales versus in-store purchases.

They’ll do that by relying more on logistics and improvements to their supply chain, driving an increase in the services that materials handling companies provide.

Consolidation

In the background, we’re also seeing a significant move towards consolidation – businesses are acquiring and combining smaller players.

Why? Whether materials handlers are manufacturers, distributors or wholesalers,  an increase in input costs – mainly input costs and labour – is putting the squeeze on margins. At the same time, there’s more competition in the industry and clients are putting downward pressure on prices.

This drives consolidation in two ways: firstly there’s a belief that larger companies might be able to withstand that pressure better than smaller ones, but also there’s a drive towards taking cost out and adding adjacent value add services, becoming more embedded in the supply chain.

A hard Brexit means potential holdups in the supply chain. There may also be a requirement for more warehouse space, so in one sense that’s a positive driver for the industry. 

There are some very well-established third party logistics companies (3PLs) in the market, but mid-sized consolidators are hoping that they’ll be able to scale up while keeping the flexibility and high-touch service that the really large firms can’t offer as easily. EV Cargo (see box out) is a good example of that.

What does the future hold?

Clearly a big factor is Brexit, still looming on the horizon, and a lot rests on how that plays out. In practical terms for materials handling, a hard Brexit means potential holdups in the supply chain. There may also be a requirement for more warehouse space, so in one sense that’s a positive driver for the industry.

However, that could be a spike which then dissipates when things settle. So materials handling companies will have some big decisions to make regarding capacity and whether they scale up in order to meet what could turn out to be a short-lived increase in demand.

The other challenge ahead is around skills shortages – to give just one example, EU nationals make up 14 per cent of HGV drivers, 25 per cent of warehouse drivers and 22 per cent of forklift truck drivers, according to the CBI.

It’ll be a challenging year but the materials handing industry is resilient.

At the corporate level we offer a mix of asset based and cash flow lending to growing materials handling companies, backing strong management teams in often tough sectors.

How is Investec involved?

In two ways: firstly, we have a dedicated and highly experienced materials handling team, which provides asset finance packages for materials handling equipment, such as forklift trucks, for suppliers and their customers.

They provided over £83m of financing in 2018 alone. In addition to that, at the corporate level we offer a mix of asset based and cash flow lending to growing materials handling companies, backing strong management teams in often tough sectors – an example of which is the funding we were able to offer to the companies that now make up EV Cargo.

We’re proud of our work partnering with their teams, and are actively looking to support similar UK-based supply chain, logistics and warehousing businesses.