Freight and sourcing raise costs for factories

Will Green is news editor of Supply Management
21 May 2020

Manufacturers have reported higher purchasing prices connected to rising freight costs and sourcing alternative suppliers, according to a flash PMI.

The IHS Markit/CIPS Flash UK Composite Purchasing Managers Index, based on 85% of usual monthly responses from manufacturing and services firms, found lower input costs for the services sector due to lower fuel prices and payroll expenses.

But manufacturers bucked the overall trend, with survey respondents noting that rising freight costs, the need to source alternative suppliers and exchange rate depreciation had all pushed up purchasing prices.

The index registered 28.9 in May, up on 13.8 in April but still below the 50 no-change threshold and signalling a far steeper pace of contraction than at the worst point of the 2008 crash.

Among firms noting staff had been furloughed, anecdotal evidence indicated this often accounted for more than half of all employees.

Duncan Brock, group director at CIPS, said: “As the sectors prepare for a further easing in restrictions and becoming Covid-ready for staff to return, the danger on the horizon is a second wave of infections threatening the health of the nation and dampening consumer confidence still further.

“In addition, if this intensity of job cuts continues, purse strings will be drawn tightly shut and spending severely curtailed, putting further pressure on the UK economy and ensuring any recovery is many years into the future.”

Chris Williamson, chief business economist at IHS Markit, said they were expecting GDP to decline by 20% in the second quarter.

“Virus related restrictions, widespread job insecurity and weak demand will be exacerbated by growing business uncertainty regarding Brexit. We are consequently expecting GDP to fall by almost 12% in 2020,” he said.

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