Reviewed: 15th May 2017
Recent figures from insolvency specialists, Begbies Traynor, show that UK transport and logistics companies are experiencing high levels of financial difficulty, along with other key supply chain sectors.
Their Red Flag Alert research highlights that, “levels of ‘Significant’ financial distress within key sectors in the UK supply chain have risen by 26% on average over the past year”.
Companies suffering the greatest impact are operating in Industrial Transport and Logistics, however. This sector has seen a 46% year-on-year increase in ‘significant’ financial difficulty according to the Q1 2017 figures.
When supply chains break down
The failure of large organisations at the head of supply chains can cause a ‘domino effect’ with potentially devastating results for companies positioned further down. These smaller firms may already be dealing with extremely challenging trading conditions over which they have little control, and the loss of a key customer often signals the end for their business.
So what are some of the circumstances faced by the transport and logistics sector?
- Rising fuel prices
The direct impact of rising fuel costs places a huge strain on working capital, narrowing the low profit margins already associated with this sector. Begbies Traynor report an increase in transport fuel costs of 6.6% during the last 12 months.
- Trade with Europe
Uncertainty over the future of trade with Europe threatens to further destabilise businesses in this sector. Apart from a potential drop in demand for road haulage across Europe, a heavy reliance on migrant European workers and drivers from EU member states, also places companies in a challenging position as far as current and future staffing plans are concerned.
- Introduction of the National Living Wage (NLW)
It is likely that the new National Living Wage introduced in April 2017, and annual increases to the National Minimum Wage (NMW), will further compromise profit margins for operators in the transport and logistics sector.
The supply chain industry as a whole relies on lower paid employees, and these additional employment costs may be passed down to logistics and transport companies that are already operating under tight profit margins. This added strain on an already poor cash flow position could be enough to signal business failure, and for firms to enter insolvency.
If you are the director of a company operating in the transport and logistics sector, Real Business Rescue can help you decide on the best way forward. It is vital to seek this advice at the earliest sign of financial trouble, however, as it broadens your options and offers the best chance of business recovery. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 75 UK offices or a place of your convenience.
Further Reading on Advice for Directors
Free Guide for Limited Company Directors
Business Rescue Advice for Directors
- How to manage company cash flow problems
- Advice on dealing with HMRC
- Understanding rescue and closure options
- And much more...
Business Rescue Guide for Accountants
Dealing with your Insolvent Clients
- Helping you advise insolvent clients
- Spotting signs of client distress
- Exploring business rescue options
- And much more...
