The Business Distress Index, released quarterly by Real Business Rescue, paints a picture of the financial health of UK SMEs across various sectors, including industrial transportation and logistics. It fleshes out the journey travelled by each sector under a range of trading conditions influenced by external factors, such as the unprecedented cost of living crisis, the UK General Election 2024, record high interest rates, and anticipated tax reforms set to be announced in the Autumn Budget.
How is the transport & logistics sector faring?
The Q2 2024 release shows that the top five sectors in ‘significant’ financial distress include, Construction (89,824), Support Services (89,763), Real Estate & Property Services (65,919), Professional Services (50,683), General Retailers (42,992), Health & Education (39,933).
When looking at businesses in ‘critical’ financial distress, this increased by 1.1% to 40,613 companies in the UK. This followed noticeable increases in the Automotive (+13.2%), Industrial Transportation & Logistics (+12.2%), Health & Education (+8.4%) and Bars & Restaurants (+7.3%) sectors.
Critical financial distress refers to businesses on the brink of insolvency due to deteriorating key financial ratios, such as working capital, retained profits, and net worth.
Overall, the transportation & logistics sector is in fit shape, compared to the top ten sectors in significant financial distress, as stated in the latest Business Distress Index. While the sector is under great pressure to fast forward the implementation of green strategies and upgrade technological capabilities, it is making notable strides towards achieving fleet decarbonisation at a faster pace and sustainability in logistics.
Key factors shaping the financial health of the transport industry
While internal factors heavily dictate the direction in which the health of a business moves towards, external factors, such as market conditions, political uncertainty, rising costs, skills shortages and recruitment challenges, have equal control. We look at key factors that shape the financial health of SMEs operating in the transport industry.
Increase in overhead costs – A substantial increase in the price of goods, services and general business maintenance can drive down profit margins and trigger serious cash flow problems. The coronavirus pandemic set off a price war across the industry as supply chains slowed down, making essential resources that were once rife, a rare find.
While SMEs across the UK recovered from the effects of the pandemic, overhead costs remain ambitiously high due to rising maintenance and compliance costs, staff shortages, inflation and future planning.
Cashflow problems – The domino effect of rising costs can threaten the viability of a business. A cash poor business is prone to long-term financial difficulty without intervention from a licensed insolvency practitioner, corporate restructuring to finetune business efficiencies, or specialist business finance, such as asset finance.
Recruitment and retention – The sector must address staff shortages by investing in recruitment, training, and staff retention, including wages, working conditions, benefits and job security. While this is a deeper rooting sector issue, job cuts have been necessary across the board to cover drops in consumer demand and customer volatility.
Shaun Barton, National Online Business Operations Director at Real Business Rescue, commented:
“The Business Distress Index shows that while some businesses have steadily recovered from Covid-19 economic instability, those that were the hardest hit, such as the construction industry, are playing catch up, amid new pressures approaching their way.
“Minimal movement to record-high interest rates are forcing the hands of businesses to pause investment and reduce borrowing, both of which are essential tools in the business rescue toolbox.
“The number of company insolvencies in 2023, and the start of 2024, match up to that presented during the 2008 – 2009 recession which is worrying, although it brings into perspective the severity of the cost of living crisis.
“The number of CVLs was at the highest annual number since records began in 1960, and compulsory liquidations also crept higher. A combination of economic and political uncertainty would no doubt have contributed to this figure, albeit minimally, alongside concurrent pressures, such as high interest rates which is resulting in subdued demand.”
Chris Bristow is a business debt adviser at Real Business Rescue, company insolvency and business turnaround experts
