Worsening global supply chain disruption is one of the conflict’s most significant consequences for businesses. In fact, Moody’s has highlighted that the war in Ukraine has replaced COVID-19 as the most considerable risk confronting the global supply chain. Of course, this comes as no great surprise, considering that approximately 15,000 China-Europe freight train trips were made in 2021, with many of these trade routes running across Russia and Ukraine. 

The disruption and rerouting of these trade routes due to the war is leading to further chaos across the supply chain and this has massive implications for SMEs, which face tremendous supply chain challenges. Even before the war, almost two-thirds of UK SME manufacturers had already reported concerns that material supply shortage could impede their output. The conflict is serving to exacerbate these problems.

The need for supply chain redesign imminent

Tackling crippling supply chain challenges would require businesses to shift away from existing models that relied on lean inventories and just-in-time delivery. With this in mind, many companies are now looking at ways to build up and store inventory reserves to prepare for supply chain shocks in the future. The difficulty, however, is that while this mitigates the impact of disruptions to future production and improves supply chain resilience, it ties up valuable working capital. Moreover, these "safety stocks" can also risk obsolescence due to technological advancements or changing customer demands, which leads to precious resources, waste, and lost revenue, if not managed carefully. 

At the same time, larger organisations have begun to scrutinise their entire network of suppliers to identify potential critical bottlenecks. With the ongoing supply chain disruption, excessive reliance on specialist suppliers or suppliers in the exact locations created a knock-on effect that delayed production down the line. Unfortunately, this puts everyone in the supply chain at greater risk and consequently, these organisations are expected to diversify their network to strengthen their resilience.

The push for diversification presents both an opportunity and a challenge for SMEs.

While more MNCs are expected to decentralise their supply network to mitigate risk exposure, they will also likely set stringent criteria for SMEs to demonstrate strong business and financial fundamentals.

The need for liquidity and risk mitigation through trade financing

To assemble a well-stocked inventory and devise a strategy to sustain production during future disruptions, SMEs need to identify and unlock alternative funding sources to ensure resilient cash flows. 

Many are already suffering from high debt burdens due to the pandemic and, in addition, the war and the subsequent sanctions have caused soaring inflation and surging energy prices, exacerbating their financial challenges. This dramatically raises SMEs’ operational costs and worsens their liquidity crunch. 

The uncertainty of macroeconomic recovery due to the war in Ukraine has also led to investors remaining cautious and banks focusing their funding on more conservative, established relationships. 

The "flight to quality" has left many worthy businesses — particularly SMEs — with limited options for trade finance. Smaller companies are often unable to prove creditworthiness or show additional collateral required by banks to mitigate the risk of SME lending under the traditional banking system. Some may also resort to self-financing, which results in more significant cash flow challenges in a sustained crisis.

A recent survey Asian Development Bank (ADB) showed the global trade finance gap grew to an all-time high of US$1.7 trillion in 2020, a 15% increase from 2018. Despite the universal acknowledgement that SMEs are vital to economic prosperity and macroeconomic growth, they accounted for 40% of rejected trade finance requests. Without the short-term liquidity and risk mitigation provided by trade finance, buyers and sellers will be impeded in their efforts to tap into traded goods for recovery. 

One option SMEs can consider is a non-recourse approach for off-balance-sheet financing, which essentially takes away the burden of loans. Suppliers can leverage platforms, such as Incomlend's global invoice financing marketplace, to ask for early payment from their customers via a third-party financier. In effect, they are selling their invoice and obtaining finance without risk. It reduces the risk of late payments and bad debts – an option that would not be offered with traditional banking.

Buyers can also tap similar options by allowing buyers to optimise their cash conversion cycle and extend their payables due date to suppliers, freeing up working capital that would otherwise be trapped in the supply chain. 

Unlike commercial lending or dynamic discounting, such off-balance-sheet financing options allow SMEs to keep a low debt-to-equity ratio and preserve their borrowing capacity while diversifying their access to funding and reducing their reliance on traditional financial institutions. It also helps them mitigate the risk of their receivables and build up economic resilience in these volatile times. 

Hunkering down for uncertain times

Without an end to the conflict in Ukraine, many SMEs will need to build up their resilience and prepare themselves for prolonged volatility. During this period, SMEs in Europe will be challenged to transform their supply chain to buffer against ongoing disruptions and increase their working capital to remain fiscally agile in these uncertain times. These drivers will increase interest in receivables as an asset class among the SME community. They will look for more ways to manage risk in their trade processes and improve liquidity to weather through the storm.   

About the author: Morgan Terigi is CEO and Co-Founder of Incomlend.

Health, transport, and the cost of living were sharply focused on in the chancellor's speech, with changes announced including the removal of the freeze on public sector pay and an increase to the national living wage. 

Sunak emphasised the growing proportion of people in jobs as well as the country’s economic bounce back from the pandemic so far. “Our plan is working so far,” Sunak said, although, “the budget does not draw a line under covid, we have challenging times ahead.”

The chancellor addressed the pressure inflation is putting on the UK economy, as well as the strains caused by the ongoing supply chain crisis. He warned this could “take months to ease”, but the government is therefore planning to pump new funding to improve lorry park facilities and will freeze vehicle excise duty for HGVs. 

Total departmental spending is set to increase by £150 billion by 2024-25, with the government promising a “new economy” for the country. Sunak said the spending increase is the largest this century. 

Annie Button, professional content writer and branding aficionado, explores how businesses are successfully recruiting and retaining new delivery drivers amid the supply chain crisis.

While the HGV driver shortage is based on a variety of factors, including the pandemic, and Brexit, businesses are stepping up their efforts to recruit, train and retain new drivers in record time and mitigate the impending supply chain crisis.

Attracting new drivers

Amid serious concerns about the driver shortage impacting food, fuel and other deliveries in the build up to Christmas, the Government introduced measures to promote HGV driver recruitment both at home and abroad. Almost one million targeted letters were sent to drivers with existing HGV licences to attract them back to driving while 5,000 temporary visas were fast-tracked to help fill HGV vacancies from applicants overseas.

Training qualified drivers

Even with a shortage of drivers and new applicants coming forward, many still won’t be sufficiently qualified for the role. Businesses are solving this issue more directly by incentivising roles by paying for the relevant HGV training courses, offering scholarships or subsidising training. This means that applicants truly interested in a career in this industry can have their training paid for and businesses will have a qualified individual at the end that can fill the vacancy they have available. 

Retaining employees

Now skilled drivers are in such short supply, many businesses are combatting driver shortages by focusing on employee retention. In addition to the driver shortage, recruiters also have the issue of high turnover rates which are common within this industry. 

The way to successful retention is focusing on more than simply providing bonuses and financial incentives, though these are beneficial to encouraging applicants too. There have been many reports in the media of dramatic hikes in salaries which are not sustainable in the short-term. Strong retention rates are linked with the quality of the role and the business, such as having a positive company culture in place, listening and responding to feedback from staff and prioritising the safety of drivers, again highlighting the importance of driver training. Addressing the current driver shortage, the Government also created an extra 50,000 HGV annual driving tests and shortened the application process for such tests.

Lacking diversity

The majority of HGV drivers are men, with women making up just over 1 percent of the current workforce. The male-dominated industry can mean that fewer women apply for roles, as they don’t feel as welcome or encouraged to fill vacancies. For logistics businesses, women are a hugely valuable resource that organisations aren’t doing enough to utilise.

Businesses can tackle this through strategic recruitment campaigns that specifically target women. This includes highlighting the benefits of working in the industry and supporting women with female-centred scholarships that will highlight a career and industry they’ve likely not considered before. 

Working conditions

There’s no denying that the unsociable hours can put people off the industry. To encourage applications and to keep the staff already working in the role, working conditions need to be a focus for recruiters. 

Tackling this issue comes down to providing flexibility and better facilities for staff. This might mean reducing the number of duties employees need to carry out, to reduce overnight stays and being away from home, or providing a better balance in terms of working days and days off. It also means having a clear policy on keeping cabs tidy and hygienic, so that no member of the team is working in a poorly maintained environment, and that lorries are checked regularly to prevent safety or mechanical issues. 

Long-term planning to address an ageing workforce

Once businesses have addressed the short-term driver shortage, there are other challenges further down the road, too. One of the biggest problems that companies face when recruiting drivers is the ageing workforce. Fewer young people are considering lorry driving as a career choice, so as existing drivers retire, there aren’t as many people taking their place and picking up the shortfall. Beyond the high cost of acquiring a license, which has deterred many people from training in this industry, there’s also a lack of understanding of the sector. Young people aren’t being educated about how the logistics sector operates and what the role of an HGV driver entails, meaning it’s less likely to be considered as a career choice. 

To overcome this difficulty, businesses can offer apprenticeships which are a way for young people to gain the necessary skills and experience without having to pay out for training. Engaging with younger people is also a great way to educate them and encourage them to take up a career in the driving sector. Highlighting the benefits that the role offers, providing competitive salaries and delivering a role that offers career progression and fulfilment can all help to attract younger people. 

In summary

The HGV driver shortage has reached critical levels now and is impacting other industries, so businesses have their work cut out for them when it comes to qualified driver recruitment, professional training and long-term retention. Managing recruitment properly is essential to ensure safety and compliance while still filling roles as quickly as possible to ease the burden that the shortage of drivers continues to have on the UK’s overall economic recovery. 

On Thursday evening, environment secretary George Eustice announced that butchers in abattoirs and meat processing plants will be permitted to come to the UK to work for six months. He said that extra butchers were needed to meet staffing shortages in the sector. 

The government’s intervention comes several weeks after farmers in the UK began culling healthy livestock due to a lack of staff in the abattoirs and plants where the animals were being processed. Thousands of pigs have been culled in the past week alone.  

The measures “will help us to deal with the backlog of pigs that we currently have on farm, give those meat processors the ability to slaughter more pigs, and crucially as well we are going to make available what is called private storage aid to help those abattoirs to temporarily store that meat,” Eustice said.

UK ministers have also launched a consultation on extending cabotage rights, which would allow foreign HGV drivers to make unlimited journeys for two weeks within the country before returning home. Currently, foreign HGV drivers are only permitted to make two trips within seven days. 

The meat industry is one of several sectors in the UK struggling with labour shortages exacerbated by Brexit and the Covid-19 pandemic. A lack of HGV drivers has also led to further disruption for supply chains. 

A recent report by accountancy firm Grant Thorton revealed that there were nearly 1 million job vacancies in the UK, with around half of this figure being in the food and drink industries which have heavily relied on an EU workforce for the past 20 to 30 years. While this might imply that Brexit is to blame for the UK’s supply chain crisis, the government and other prominent figures are insisting that the crisis is being caused by the lingering impact of the pandemic, making it difficult to understand what exactly is at the root of the problem.

Is Brexit Causing The UK’s Supply Chain Crisis?

Many industry bosses are blaming Brexit for the crisis, claiming that there’s a substantial lack of British workers filling the gaps left by Brexit in the haulage industry, hospitality industry, warehousing, and the meat production sector. In 2019, the average percentage of EU workers in meat processing companies stood at approximately 70%, according to BMPA. 

Similarly, a March 2016 KPMG report for the British Hospitality Association showed that between 12.3% and 23.7% of the UK’s hospitality sector’s workforce was made up of EU nationals. At the time, KPMG estimated that the sector required 62,000 EU migrants per year to be able to maintain current activities and grow. 

According to Grant Thorton, 1.3 million foreign-born workers had left the UK since the beginning of the pandemic and yet to return. 

The Impact Of The Pandemic On The UK’s Supply Chain

However, as the supply chain crisis spread to petrol stations up and down the country, transport secretary Grant Shapps dismissed claims that Brexit was at the root of the problem. He insisted that coronavirus was to blame and said that the shortage of lorry drivers in the country was due to the fact that 40,000 HGV driving tests could not take place because of the pandemic. There have also been ongoing Covid-related restrictions in some large manufacturing countries such as Vietnam, with Hanoi continuing its strict lockdown measures across 10 districts in early September. 

Furthermore, it appears that the pandemic has not only limited the supply of some goods but has simultaneously had the effect of pushing up consumer demand. Flavio Romero Macu, a supply chain expert at Edith Cowan University, says that huge pent-up consumer demand in the wake of the pandemic has added to the strain on the world’s fragile economic ecosystem. 

“Consumers are crazy to buy things because the world is awash with dollars from government stimulus, higher savings and pent-up demand. PlayStations, laptops, phones, gym equipment – you name it people are trying to buy it,” he says. 

“Higher demand and restricted supply equals inflation: there’s no way out of it. You put all these things together and it's a perfect storm.”

The chief executive of the Cold Chain Federation, Shane Brennan, also agrees that the pandemic is to blame for the UK’s supply chain crisis, but he also pointed out that Brexit was limiting options for solutions.  

Are New Immigration Laws Contributing To The Supply Chain Crisis?

Some critics argue that Home Secretary Priti Patel’s decision to shut the door to low-skilled workers in new immigration laws is the major contributing factor in the UK’s supply chain crisis. A spokesperson for the British Meat Processors Association (BMPA), which commissioned the Grant Thorton report, said that EU policy was not to blame for the issue. Instead, the BMPA blamed the Home Office’s domestic policy on who can and can’t come to the UK to work.  

Retailers, meat processing plants, care homes, hospitality, and even big companies such as Amazon, are all competing for low-skilled, low-paid workers who are in very limited supply. This means that, even if there were plenty of lorry drivers on the roads, the UK’s supply chain would still have come under substantial strain from labour shortages. 

Initially, the UK government rejected all calls to attempt to resolve the country’s supply chain crisis by issuing short-term visas to lorry drivers and workers from the EU, insisting that Brexit was the solution. However, in a major u-turn, the government has since confirmed a temporary visa scheme for 5,000 foreign HGV drivers as well as 5,500 poultry workers. The move aims to provide last-resort means of avoiding an escalation of the UK’s supply chain crisis before the festive season, with the government also announcing increasing funding for training and releasing a letter encouraging ex-HGV drivers to return to their former profession.

The cause of the UK’s supply chain crisis is still being hotly debated. However, the general consensus appears to be that, while it may have contributed to the problem, the covid-19 pandemic did not break the retail supply chain altogether. Ultimately, it seems that several different factors are to blame and, with several issues being much harder to fix than just one, experts are warning that the UK’s supply chain crisis could take a long time to fix. 

According to IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI), a lack of raw materials and available UK workers has caused August’s reading to drop to 55.0, notably lower than the 59.6 recorded in July. However, the PMI marked a fifth month exceeding the 50 threshold. Any recording over 50 indicates growth. 

In a comment, group director at the Chartered Institute of Procurement and Supply, Duncan Brock, said: “The third consecutive monthly fall in growth in the services sector showed that a lack of staff and raw materials in August continued to rein back on recovery, after the spring surge.”

PMI’s data shows that staff recruitment picked up in August to its strongest since the survey began in July 1996, as businesses pushed to rebuild workforce numbers amid rising sales. However, due to highly competitive labour market conditions, August also saw a sharp climb in wages pressures.  

Business optimism also increased to a three-month high. While 8% of survey respondents expected a decline, 60% forecasted expansion.