Perfect storm of supply chain issues threatens a winter of discontent, says UK mid-market

As major disruption to supply chains continues across the country, Grant Thornton UK LLP’s latest Business Outlook Tracker* finds that a perfect storm of temporary and structural supply chain challenges, from changing Brexit regulations to production delays, are threatening to create a winter of discontent for UK businesses and consumers alike.

Over the last few months, the UK has been facing severe supply chain disruption resulting in delayed deliveries and increased prices. One in five of the 605 mid-sized businesses surveyed said they are finding it harder to move products around the UK and across the world because of the ongoing issues.

The research finds that there are a range of problems contributing to the disruption, but the main issues cited by respondents who said they have been negatively affected were found to be: delays from source production facilities (23%), changing rules and regulations from Brexit (21%) and international delays in shipping (21%).

While not ranked individually within the top issues, collectively, over half of respondents who said they have been negatively affected said problems relating to a lack of available workers was a major blocker. Including shortages in skilled (18%) and unskilled (19%) operators, and shortages in transport workers, including heavy/large goods vehicle drivers (19%), and specialist transport workers (18%).

John O’Mahony, a tax partner who heads up Grant Thornton’s Gatwick office, said: “As the south east effectively acts as the country’s gateway, it means it’s at the front line of the current supply chain problems. The international connections that flow through the region’s airports and ports every day are vital for keeping the country running and making sure that people, goods and services can reach the capital and spread throughout the nation. The supply chain disruption threatens to not only slow down this movement of material but risks exacerbating the inflationary pressures that are raising prices for businesses and causing the economy to slow down.

“We have seen examples at docks where container turnaround time is slower due to additional Brexit regulations and container pick up is sluggish due to a lack of drivers. Airports are obviously struggling from the impact of COVID-19 and are still working their way out of a historic backlog. It really is creating a perfect storm and the combination of factors is increasing delays and having substantial knock-on effects further down the supply chain.

“There is also the potential for things to get worse for businesses before they get better. Many businesses may not be aware that they are currently benefitting from a range of phased Brexit implementations measures, including grace periods around rules of origin. With this set to change from 2022, when further border measures come into force, businesses need to ensure that they are prepared and ready, to avoid a shock and even further disruption.”

Ongoing supply chain issues are also found to be impacting profit levels across the mid-market. Over one third (39%) cited that they are facing reduced profits due to the continued disruption. Profit expectations over the next six months across the mid-market have also dropped -18pp compared to Grant Thornton’s last Business Outlook Tracker survey in August.

As businesses continue to build their recovery from the pandemic, one quarter of businesses (26%) also cited supply chain disruption as a top threat to their growth in 2022.

John O’Mahony added: “We are enduring a tough period where the panic buying of fuel, food and even Christmas toys has become part of our national dialogue, along with concerns about the rising costs of energy and consumer goods. Business confidence is clearly fragile, as they continue to try to recover from the pandemic but face an accumulation of challenges.

“Businesses are likely to be looking for reassurance that the issues disrupting their supply chains can be resolved, and swiftly. As we look ahead to the Autumn Budget next week, we need to see affirmative action from government to help businesses navigate through these challenges. And businesses will need to continue to draw on the agility and resilience they have already demonstrated so well over the past 18 months to safeguard their business through the winter and into 2022.”

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Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.