Shipping costs are “strangling” small businesses, resulting in firms looking to relocate manufacturing in a bid to cut price rises.
Two-in-five small businesses are considering a switch to UK manufacturers as rising shipping costs bite into margins and threaten growth, according to a survey of 750 firms by logistics platform ShipBob.
Almost half (45%) said high shipping costs were the "biggest challenge” to international expansion, and almost four-in-10 (38%) said the biggest boost for their business would be to move manufacturing operations from overseas to the UK, to remove current import challenges and rapidly rising freight costs.
Enda Breslin, general manager EMEA at ShipBob, said spiralling shipping costs are “strangling the growth” of UK firms as brands “begin to neglect cross-border commerce”.
Breslin said: “While it’s understandable that many will look to protect bottom lines by focusing inside British borders, it will mean that UK brands won’t scale as fast as they should be. Small brands should still look to expand ambitiously but should pay extra care to do so in a resilient way.
“Choosing fulfilment partnerships carefully will help small brands position themselves closer to their overseas customers and level the playing field with local competitors when it comes to shipping speed and cost.”
Research by Make UK, the UK manufacturing body, further found that four-in-10 companies said disruption at the Dover-Calais crossing was causing either “catastrophic” or “major” disruption to businesses.
However, the trade body stressed the “potent cocktail” of supply difficulties seen since the onset of the Covid-19 pandemic is being compounded by rising energy and transport costs.
Almost three-quarters of manufacturers (74%) said they are facing increased transportation costs and more than four-fifths (82%) reported transport disruption is an issue for their business.
Make UK also warned the energy crisis is “as big a threat to manufacturers as the Covid pandemic, if not greater”, which could offset the cost benefits of nearshoring production. A fifth of companies said energy costs will be an issue for two years.
Stephen Phipson, chief executive of Make UK, said: “While industry has recovered strongly over the last year, we are clearly heading for very stormy waters in the face of eye watering increases in energy costs and a difficult international environment. This threatens to shatter expectations of a sustained recovery from the pandemic.
“Some of the factors impacting companies are global and cannot be contained by the UK government alone. However, just as it is quite rightly taking measures to protect the least well off, given the rate at which companies are burning through their balance sheets just to survive, it must take immediate and substantial measures to help shield companies from the worst impact of escalating costs and help protect jobs.
“We need a shock-and-awe suite of proposals to protect viable companies and jobs and we need them now. Manufacturers cannot afford to wait for a functioning government to get its feet under the table.”