With growing uncertainty surrounding the UK’s future trade links with Europe, combined with rising inflation, businesses within Britain’s supply chain are starting to feel the pinch, with more companies showing increased signs of stress, according to new research from insolvency firm Begbies Traynor.
Begbies Traynor’s Red Flag Alert research for Q1 2017, which monitors the financial health of UK companies, levels of ‘Significant’ financial distress within key sectors in the UK supply chain have risen by 26% on average over the past year following increased cost pressures from rising inflation in both fuel and food prices. This follows the news that UK inflation rose to 2.3% in March, its highest level since September 2013, with transport costs being the biggest contributor, increasing 6.6% over the past 12 months
Of all the sectors covered by the research, Industrial Transportation & Logistics businesses experienced the largest increase in ‘Significant’ distress, up 46% year-on-year (Q1 2017: 7,539 companies), with a 16% increase in the Wholesale sector (Q1 2017: 7,706 companies) and a 15% increase in the Food & Beverage Manufacturing sector (Q1 2017: 6,405 companies).
Worryingly, Begbies Traynor said these negative findings are yet to reflect the recent increase to the National Living Wage that came into effect on 1 April 2017, which is likely to add even more pressure to the margins of these key sectors in the UK supply chain which have a relatively high reliance on lower paid and temporary workers.
Julie Palmer, Partner at Begbies Traynor, said: “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.
“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.”
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.”