Trade uncertainty and rising inflation are two factors placing the supply chains of UK industries under increasing pressure as new research claims to uncover signs of stress.
Cost pressures are biting supply chains which, according to one insolvency firm, are reporting a 26% rise in levels of ‘significant financial distress’.
Mobility retailers and other sectors dependent on discretionary spending are some of those most exposed to further price rises.
Insolvency firm Begbies Traynor’s research for Q1 which monitored the financial health of UK companies, said that a 6.6% increase in transport costs in the last year have been the prime contributor towards inflation.
Of all the sectors covered by the research, industrial transportation and logistics businesses experienced the largest increase in significant distress, up 46% year-on-year, with a 16% increase in the wholesale sector.
Further still, these negative findings are yet to reflect the recent increase to the National Living Wage that came into effect in April, which is likely to add even more pressure to the margins of these key sectors in the UK supply chain.
“Levels of financial distress have increased significantly over the past year, and nowhere more so than in the transportation and logistics sector, which continues to be severely hit by ongoing fuel price inflation,” said Julie Palmer, partner at Begbies Traynor.
“Given the scale of the increases in distress during Q1, it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on these rising costs to their customers. But it is only a matter of time before we start to see this coming through, especially given the added margin pressures associated with the new National Living Wage. Once those costs ultimately feed through to consumers, we’d expect further pressure on sectors exposed to discretionary spending such as retail, bars and restaurants, travel and leisure.”
Meanwhile, Ric Traynor, executive chairman of Begbies Traynor, added:“These figures show that rising energy and food prices, combined with the devaluation of Sterling, have undoubtedly put a strain on the much of the UK’s supply chain. As we wait to see what a future UK trade agreement with Europe might look like, these suppliers face continued uncertainty, not just in terms of their European distribution channels but also with regards to staffing, given their higher reliance on European migrant workers.
“It is clear that UK suppliers, wholesalers and manufacturers can’t afford to adopt a ‘wait and see’ approach – they’ll need to rapidly invest to improve their efficiency or renegotiate prices with customers to avoid the risk of falling into more severe financial distress in the coming months.”