Source: Lloyd’s Loading List, Reuters
Date: 12th October 2021
Supply chain disruption and delays in freight transport services are going to result in otherwise healthy companies going out of business, the managing director of the UK’s biggest bicycle manufacturer has warned, giving further weight to predictions reported several months ago in Lloyd’s Loading List.
The Times reports this week that Brompton, the leading maker of foldable bikes, has had to spend £10 million (US$14 million) of its savings in ten months to keep afloat and has also raised its prices by 14% since Covid-19 hit. “Normally you have to deal with just one crisis but to have quite so many at the same time is pretty extraordinary,” the company’s managing director said.
“We are going to be okay because we had cash savings and no debt, but for businesses that are leveraged going into this and don’t have cash reserves… that will break very good businesses that shouldn’t go to the wall.”
He said Brompton was facing raw material price increases of more than 10% and container shipping costs had gone up by 500%. Supply chain delays related to Covid and Brexit were also having an impact.
The company’s London factory had recently to reduce its output after a supplier failed to deliver a crucial component, costing Brompton £2 million in lost sales and productivity over the course of seven weeks.
With supply chains becoming more inefficient, Brompton has also had to tie up more cash in stock.
“Before Covid we had about £5 million floating about on the sea, containers with raw material coming to us or finished bikes going back out to Asia and to the US. That has now doubled to £10 million because logistics have slowed down,” he told The Times. “That’s significant when you’re only turning over £75 million.”
A shipment of a thousand Brompton bikes disappeared in transit earlier this year, blaming that on Brexit. Although 700 were eventually recovered, months later, in sub-optimal condition, and the rest remain missing.
Brompton’s short-term solution has been to send bikes by air rather than sea, but this comes at a premium. “Before Covid we spent £45,000 a year on air freight; we would only fly things over when there was a crisis. If we carry on spending at the rate that we’re spending this year we’ll spend £1.5 million and that comes straight off the bottom line.”
These observations are consistent with multiple reports this year in Lloyd’s Loading List that goods imported from Asia face sizeable increases in prices, and potentially business failures, as the impact of unsustainable container shipping prices gradually filters down through supply chains.
Supply chain issues hit British online fashion retailer profits
Meanwhile, British online fashion retailer this week warned that supply chain pressures and consumers returning to pre-pandemic behaviour could reduce its 2022 profits by over 40%.
For the new 2021-22 year, the British online fashion retailer forecasts an adjusted pretax profit of £110-140 million, as customer returns normalise. Taking the mid-point of the range, that is 35% below analysts’ average forecast of 193 million prior to Monday’s update, Reuters reported, and below its exceptional 2020-21 year adjusted pretax profit of £193.6 million.
While, sales growth was forecast in the range of 10% to 15%, warned that supply chain pressures that have hit the movement of container ships and trucks globally during the pandemic were expected to continue through the first half, resulting in longer lead times and constrained supply from partner brands.
Also faced higher inbound freight and outbound delivery costs, Brexit-related duty costs and labour wage inflation, Reuters reported.