Business Difficulty Index – where does the transport and logistics sector stand?

How is the transport and logistics sector doing?

The data for Q2 2024 shows that the five sectors in “significant” financial distress are: construction (89,824), ancillary services (89,763), real estate and property services (65,919), professional services (50,683), retail (42,992), healthcare and education (39,933).

In terms of businesses in “critical” financial distress, the number rose by 1.1% to 40,613 in the UK. This followed notable increases in the automotive (+13.2%), industrial transport and logistics (+12.2%), health and education (+8.4%) and bars and restaurants (+7.3%) sectors.

Critical financial distress refers to companies that are on the verge of insolvency due to deteriorating key financial indicators such as working capital, retained earnings and net worth.

Overall, the transport and logistics sector is in good shape compared with the ten most financially distressed sectors, according to the latest Business Distress Index. While the sector faces enormous pressure to accelerate the implementation of green strategies and upgrade its technological capabilities, it has made significant progress towards faster fleet decarbonisation and sustainable logistics.

Key factors shaping the financial condition of the transport industry

While internal factors largely dictate the direction of a business’s health, external factors such as market conditions, political uncertainty, rising costs, skills shortages and recruitment challenges have an equal amount of control. We look at the key factors that shape the financial health of SMEs operating in the transport sector.

Increase in overhead costs – Significant increases in the price of goods, services and general economic maintenance can squeeze profit margins and create serious cash flow problems. The coronavirus pandemic has sparked an industry-wide price war as supply chains have slowed, making essential resources that were once abundant scarce.

As UK SMEs struggle to cope with the impact of the pandemic, overheads remain challenging due to rising maintenance and compliance costs, staff shortages, inflation and planning for the future.

Cash flow problems – The knock-on effect of rising costs can threaten a company’s profitability. A cash-strapped company is susceptible to long-term financial difficulties without the intervention of a licensed insolvency advisor, corporate restructuring to fine-tune business efficiency, or specialist business finance such as asset finance.

Recruitment and retention – The sector must address staff shortages by investing in recruitment, training and retention, including pay, working conditions, benefits and job security. While this is a more deeply embedded sector issue, job cuts have been necessary across the board to cover declines in consumer demand and customer volatility.

Shaun Barton, National Director of Online Business Operations at Real Business Rescue, commented:

“The Business Distress Index shows that while some businesses have gradually recovered from the economic instability caused by Covid-19, those that have been hardest hit, such as the construction industry, are playing catch-up as they face new challenges.

“The slightest swings in interest rates toward record highs are forcing businesses to halt investment and limit borrowing, which are essential tools in the business rescue toolbox.

“The number of business failures in 2023 and early 2024 is on par with the 2008-09 recession, which is worrying but puts the scale of the cost of living crisis into perspective.

“The number of CVLs was the highest since records began in 1960, and compulsory liquidations were also up. A combination of economic and political uncertainty would undoubtedly contribute to this number, albeit minimally, along with concurrent pressures such as high interest rates resulting in pent-up demand.”

Chris Bristow is a corporate debt advisor at Real business rescueexperts in the field of corporate bankruptcy and corporate restructuring