Insights for Jul-24

1. With a new Labour government in the driving seat, what lies ahead for energy transition in the automotive sector??

As a new government takes over in the UK, there are several key choices regarding the automotive energy transition, with no easy answers.

In the campaign, Labour pledged to return the ICE ban to 2030 (after Rishi pushed the ban on full ICE back to 2035) meaning that in just over 5 years any new car will have to either be hybrid or BEV.?However, it looks like OEMs will fail to meet the 22% ZEV mandate for this year on the path to the ICE ban, and Stellantis has suggested reducing UK production to avoid fines, bad news for the economy and availability of cars.

To help on the path to full EV adoption, there are some obvious levers, but all with significant challenges or trade-offs:

1. Chinese EVs – embracing affordable Chinese EVs could really accelerate adoption, but concerns regarding domestic manufacturing capability have led the US to place a 100% tariff and the EU a 27-38% tariff on Chinese EVs. With these other markets closing off access to Chinese OEMs there is the potential for even higher volumes to be sent to the UK market
2. Investing in the charging network – with the growth of EVs and as owners increasingly do not have their own driveway, there is greater requirement for public charging points. Since 2019, growth in EVs has outstripped growth in chargers, increasing the number of EVs per charger from 8 to 17 (the EU recommended ratio is 10).? Expected growth in EVs will require continued significant expansion of charger numbers, but everyone we speak to involved in it emphasises the practical difficulty in getting new chargers set up.? There is also a big cost associated with it. The outgoing government did have schemes to promote local public chargers and at motorway service areas; and Labour pledged during the campaign to ‘accelerate the rollout of new charge points across Britain’.
3. Subsidising used EVs – whilst many new EVs are sold through salary sacrifice schemes, there are fewer tax benefits for buyers of used EVs. Boosting the market for used EVs will help encourage take up in new customer segments and also reduce the higher depreciation new EVs experience

2 and 3 require money, a challenge across the whole government budget, but increasingly a challenge for them in the automotive sector. Currently EVs pay no road tax, are exempt from the congestion charge and obviously do not pay fuel duty (which makes up c.50% of the cost of filling up a petrol or diesel car).

There are plans to introduce road tax for EVs from April 2025, and to pay congestion charge at the end of 2025. A solution to fill the hole left by fuel duty will need to be found (with pay-per-mile road pricing not ruled out during Labour’s campaign) but taxing EVs will slow growth in consumer demand, and put the adoption goals at greater risk.

What do you think are the best choices for them to make? Any predictions for the route they will go down???

Connect with Will Chamberlain ?

2. Speciality Logistics – a new infrastructure class?

Recent interest in cold chain related assets by infrastructure funds, reveal an appetite to invest in new areas of logistics where infra-like characteristics can be demonstrated through serving resilient end markets and managing specialist equipment under strict regulation and guidelines.?

In the search for new infrastructure like assets within Transport and Logistics, we have explored the topic of speciality logistics further, where the principles behind cold chain investments could also apply to other specialist areas.?

Key things to assess:?

• Market – is the end market naturally resilient??

• Goods – do the goods require specialist handling or services? e.g. time sensitive, hazardous, high-value, fragile, regulated, stringent delivery conditions?

• Assets – are the assets required to provide the service capex intensive, specialist in nature or require specialist staff??

Based on this framing, a wider range of potential players can be considered that have resilient businesses and high barriers to entry. In some cases, the services are so specialised that they result in natural, local oligopolies. However, the trade-off is in scale. Niche players are often small and the market fragmented nationally. Building scale requires an appetite for roll-up to build a platform.?

There is then a choice in where to play in the value chain. Within each there are typically three potential types of company to invest in:??

• Capital equipment leasing – the ownership and leasing of specialised vehicles, containers, packaging or other forms of capital intensive assets to the operator??

• Operations – the actual movement of the goods?

• Support services – e.g. maintenance, repair, cleaning, specialised documentation services, specialised packaging etc.??

Each will have their own dynamics and infra-like characteristics to consider.?

For further detail on L.E.K.’s work in this area, please contact us.?

Becrom Basu Andrew Allum ?

3. The Future of Flying?

I was delighted to feature in a recent report, ‘Above The Clouds – The Future of Flying', written by the team at Sifted (in collaboration with Groupe ADP) on how technology is reshaping the future of air travel.?

Pressure is mounting on airports to meet demand and thinking about the passenger experience specifically, the challenge that airports have is that to be commercially successful, they need to throw as many people through the same space as they can. However, that has a negative impact on the experience.??

Read the full report: https://lnkd.in/eSAb_Jyp?

Becrom Basu ?

4. Unlocking the Potential of AI in Logistics: Insights from Multimodal??

In June, I had the pleasure of speaking at the Multimodal Conference at the NEC in Birmingham. The panel discussion on the opportunities offered by AI in logistics was engaging, thanks to the diverse perspectives of my fellow panelists from Maersk, Port Skills & Safety, RailX Digital Solutions, Customaite, and Problems Solved.??

The conversation was rich with insights, free from the typical hype yet not marred by undue pessimism. We all recognised the enormous potential AI holds for the logistics industry, while also being realistic about the challenges that lie ahead.??

Here are the four main takeaways from our discussion:?

1. Enormous and Widespread Potential?

The potential applications of AI in logistics are vast. From greater automation in customs procedures to improved route planning optimisation, AI can revolutionise multiple facets of the industry. Some of the key areas include:?

• Better Utilisation of Capacity: Ensuring resources are used as efficiently as possible.?

• Increased Compliance Accuracy: Reducing human error in regulatory processes.?

• Streamlined Paperwork: Lowering administrative burdens and headcount.?

• Enhanced Demand Forecasting: More accurate predictions to meet market needs.?

• Predictive Maintenance: Preemptively identifying issues to avoid downtime.?

• Market Intelligence: Using data to drive smarter decision-making.?

2. Existing Skills and Capabilities?

The logistics industry already possesses many of the skills and capabilities needed for successful AI deployment. Sophisticated analysis is a core component of logistics, and operational research has long been used to solve industry-specific problems. The challenge lies in evolving these skillsets to keep pace with AI's growing capabilities.?

3. High Cost of Failure?

One of the key points of discussion was the high cost of failure in logistics. Unlike other industries where live experimentation with AI can be relatively low-risk, logistics operations can suffer significant financial impacts when things go wrong. This necessitates a more cautious approach to AI adoption. While this might slow down the pace of adoption compared to other industries, it is essential for mitigating risk.?

4. Cross-Organisational Collaboration?

Unlocking the full potential of AI in logistics will require greater collaboration across organisations. The most significant opportunities often occur at the interfaces between multiple parties—shipping companies, port operators, customs authorities, and hauliers. Improved data sharing and breaking down silos are crucial for realising AI's promise. Enhanced collaboration could lead to more seamless operations and better overall industry performance.?

AI offers a transformative opportunity for the logistics industry. However, realising this potential will require a balanced approach that includes leveraging existing skills, managing risks carefully, and fostering collaboration across organizational boundaries.??

To stay ahead in this rapidly evolving landscape, proactively engaging with AI technologies will be important. The path forward may be complex, but the rewards are well worth the effort.?

Feel inspired to explore AI's potential in your logistics operations? Connect with me to discuss further

Stuart Robertson

L.E.K. Transport & Logistics Senior Team

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Becrom Basu Andrew Allum William Tite Stuart Robertson

John Goddard Jonathan Simmons Will Chamberlain Chiraag Dattani

The L.E.K. transport and logistics team helps?corporates, investors, shareholders, and leaders?develop fact-based, practical, winning strategies?to navigate today’s mobility and logistics landscape. ?

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