What direction do directors need to head in next?
As home working became the enforced norm for millions, home shopping followed and home deliveries rocketed as a result.
The haulage industry stepped up to keep supplies running while the warehouses worked with customary efficiency to get packages out as quickly as they were coming in.
The postal and courier delivery services stepped up and became a nearly daily feature of our lives, accepting packages for neighbours if we weren’t expecting and receiving them ourselves.
It’s difficult to think of any goods transported in the UK that aren’t involved in road transport in some way.
According to the Road Haulage Association (RHA) some 89% of goods are estimated to be directly moved by road and the 11% that aren’t will still require some road connection in their journeys between ports, airports and rail terminals.
The sector is the UK’s fifth largest employer and 2.54 million workers alone keep the haulage and logistics businesses operating.
But cruelly, just as the final government support measures are being withdrawn, transportation businesses are suffering.
In the latest business insights bulletin from the Office of National Statistics, more transportation and shipping companies are likely to have paused trading or shut down altogether than any other sector with just 82% of them operating as normal.
The report found that 9.1% of transport and storage firms have permanently ceased trading, while 8.5% are paused.
The average across the wider UK economy is 3.4% of businesses have closed for good while 7% have closed temporarily.
It found that the high percentage of paused and not permanently ceased traders was partly driven by the freight transport by road industry and the unlicensed carriers industry which is experiencing a shortage of lorry drivers.
The knock-on effect of these and other issues means the national supply chain is affected with 7% of UK businesses unable to get materials and staff in the last fortnight with others forced to switch suppliers or make alternative arrangements.
Rod McKenzie of the RHA said that in the short term drivers’ pay is increasing to stimulate demand but: “This in turn is a cost that will need to be passed on, and given the tight profit margins of most haulage operators that means their rates to customers will have to go up.
“In turn, this may mean more of us paying higher prices for goods, services and shopping – including food prices – going forward.”
Who kept the show on the road?
According to the figures from March 2019 to February 2020 – there were 527 insolvencies involving businesses in the transportation sector.
In the immediate 12 months afterwards from March 2020 when the first nationwide lockdowns were implemented to February 2021, there were 382 closures in the sector.
Now, according to official statistics supplied by the Insolvency Service, there have been an additional 156 transportation sector insolvencies since March this year which takes the total number since lockdown to 538 – which is 33 a month or over eight a week pulling down their shutters for the final time.
Ominously, 51 businesses in the sector became insolvent in June this year, the last month figures were available for, the largest monthly total recorded since March 2020.
Did bounce back loans soften the blow?
Many transportation companies took advantage of the support options available to them throughout the pandemic and recovery period.
Many furloughed staff rather than making them redundant and others looked for government-backed borrowing sources such as bounce back loans or CBILS to help them through this unprecedented period.
The number of bounce back loans taken out by UK transportation services was 77,920 with a total amount borrowed of £2 billion.
This is an average loan amount of £25,667 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected would be £300 million but if the default rate rose to even 40% then this figure would also grow to £1.2 billion.
Companies with bounce back loan arrears can still close – find out how
Now the end of the line for the furlough scheme is in sight and while the temporary suspension on winding up petitions is being lifted to an extent, it will come with a £10,000 price tag until the end of March 2022 meaning some, but not all, creditors will stay their immediate legal attempts to force repayment.
Of course this doesn’t apply to any bounce back loan arrears or other borrowing amounts which have yet to be repaid. Nor will it impact on owed VAT arrears or stop business rates being reapplied to companies with physical properties.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk thinks transportation businesses have a bumpy road to travel in the near future. He said: “Despite performing heroically during the pandemic and lockdown, the sector has been hit with a triple blow almost instantaneously.
“An unlucky combination of Covid-19, Brexit red tape and personnel shortages means a lot of businesses in the sector are facing dire financial conditions just when they should be gearing up for the busy Christmas and new year period.
“Unfortunately the timing of these issues are hurting a lot of otherwise viable transportation firms. Bounce back loan and VAT arrears are building and the lenders will be taking more active steps to recover this debt.
“One thing transport and logistics businesses can do is move quickly when they need to and if they can arrange some professional advice and act on it, they might still be able to make the necessary changes and protection to get back to doing what they do best and keeping the country literally on the road to recovery.”
Still time to change direction
Any business owner or director of a transportation focused business will tell you that logistics only works when there are no blockages in the system.
One hold-up can affect the whole network, impeding every channel until the problem is solved or removed.
But once it’s cleared, the recovery is usually quick and normal productivity and services are functioning again swiftly.
So it is with business rescue and restructuring. Once the biggest problems are identified and solved, upward progress usually follows in short order. But only when they’re dealt with.
We offer a free initial consultation to directors and business owners to identify what problems are holding their companies back and we’ll work with them quickly and efficiently to diagnose the most effective solutions.
The remedies can often be put into practice immediately but they can only work if the management seizes the chance to take action before it’s finally too late to change.