A significant increase in the cost of shipping goods from China has led to an alarming situation for UK import businesses. The huge rise in import costs has effectively rendered some ecommerce business models unsustainable, with little room for manoeuvre.
In some cases, businesses have had no choice but to liquidate due to an increase in import costs of up to 700% since the start of the coronavirus pandemic. So what has caused the problem, and is there anything you can do to protect your cash flow?
Real Business Rescue can provide the tailored advice you need to deal with compromised cash flows due to increased import costs.
Unmanageable cost increases for ecommerce companies importing from China
As the world locked down at the beginning of the coronavirus pandemic, normal trade was abruptly halted. Essentially, the balance of trade routes was disrupted by the pandemic due to the difference in lockdown timings globally.
During the UK lockdown demand for consumer goods increased, but many containers were stranded in ports around Europe and the United States. A container shortage ensued, and a fragile supply chain was broken.
The severe shortage of containers led to competition for container space, and a subsequent rise in costs. The high demand for goods, but lack of ability to deliver, created a ‘perfect storm’ that resulted in some previously thriving import businesses facing insolvency.
Should companies bear the additional costs or pass them on to the consumer?
The cost of imports can be either absorbed by companies or passed on to the consumer, but both options carry inherent risk to a company’s finances. Absorbing the cost increase may simply not be possible - it could make the business unsustainable.
Passing the costs on to the consumer has its own risks, however, as even the most loyal customer may look elsewhere for the goods they need in the face of rising prices and disrupted deliveries.
Given the abruptness with which this issue has arisen, it’s clear that professional insolvency advice is urgently needed by many companies. So what options might be available if your company can’t afford increased import costs?