THE OPINION: Budget’s ‘super-deduction’ capital allowance offers logistics sector a golden opportunity

Chancellor Rishi Sunak's budget announcement of a capital allowance super-deduction could be a game-changer for many warehouse owners and operators.

It will apply for two years and allows firms to claim 130% of their expenditure on approved plant and machinery against their tax liability. The Chancellor's aim, beyond kick-starting the post-Covid-19 recovery, is to address the UK's chronic underperformance in productivity growth, which was less than stellar even before the 2008/09 financial crisis (2.3% a year), and since then has essentially flatlined at 0.4% a year.

The elephant in the room is the inexorable rise of e-commerce, currently representing 30% or more of trade in many retail sectors, and with similar expectations for on-demand fulfilment of orders increasingly seen in business and industrial purchasing. E-commerce has also driven up product variety, and, critically, the volume of returns to be handled, yet comes at a time when securing and deploying warehouse staff is becoming increasingly problematic. Many businesses have been heavily dependent on European labour, which is unlikely to be earning enough to qualify to work in the UK post-Brexit, while creating Covid-19-safe working in labour-intensive areas is a major challenge. Along with rises in the minimum wage, this is pushing up labour rates.

In addition, increasing capacity by adding more space is not an easy option; e-commerce operators and businesses hedging against supply chain disruption are snapping up all the available space in what is generally agreed to be an under-warehoused country. These challenges, although increasing, are not new and nor is the obvious solution, automation; but apart from the marquee brands such as Amazon and Ocado, who have been able to invest large sums in greenfield developments, the warehousing sector has been slow to adopt automation.

For real productivity improvement, a warehouse or fulfilment centre needs to address all its many interdependent activities simultaneously. This means a complete rethink of how it operates. A particular focus will be a move towards goods-to-person operations, rather than having people spending most of their time walking unproductively between locations.

It is easy to understand why many businesses have been reluctant to commit to change. Until quite recently, warehouse automation not involved major investment all in one go, but also installation caused disruption, even complete shutdown, and was considered inflexible.

Happily, these constraints no longer apply. The development of autonomous mobile robots (AMRs) in particular has been a game-changer.

Such solutions are scalable and can be introduced flexibly, as funds allow. What is more, they can be readily reconfigured to integrate with subsequent investments, largely off-line through the software, rather than by disruptive re-engineering that requires shutdown. They are also genuinely scalable - in many cases, simply adding more AMRs to the system can accommodate future growth or extension.

Rishi Sunak's super-deduction capital allowance offers the logistics sector a golden opportunity to invest in performance enhancing automation, giving fulfilment operations the boost to productivity needed to cope with the surge in ecommerce orders.

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