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Labour shortages force firms to rethink cashflow

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No milkshakes, chicken, confectionery, beer or petrol. Britain is counting the cost of chronic shortages of truck driving, shelf stacking and fruit picking staff. Accountants are warning it may get worse before it gets better

1st Sep 2021
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Covid restrictions and Brexit bureaucracy have combined to choke Britain’s supply of workers, leaving supermarket shelves empty, fruit and vegetables rotting unpicked in fields, and parents fretting over the availability of children’s toys ahead of Christmas.

Accounting experts say tough decisions will have to be taken by firms of all sizes to ride out the storm, maintain cashflow and ensure continuity.

“Cashflow in general for many businesses has been impacted for quite some time now and this current sledgehammer of Covid, the so-called ‘pingdemic’ and the difficulties bought forward by Brexit are going to put many in a precarious position,” said Rick Smith, managing director of business rescue firm Forbes Burton. “Sadly, tough expenditure decisions will need to be made and for some asset realisation may be needed as the appetite and overall confidence for lending is still not great,” Smith told AccountingWEB.

Fowl play

The acute workforce shortage has affected the agriculture, retail and construction sectors, along with bars, restaurants and cafes, food processing and even care homes.

Supply chain issues caused menu favourites to vanish from McDonald’s, Costa Coffee, and Nando’s, while Greggs ran out of its beloved chicken bakes and taps ran dry in many JD Wetherspoon pubs. Supermarket chains Tesco and Iceland, already unable to source a wide range of stock, warned Christmas could be painful for consumers.

Joel Berkowitz, founder of The London Toy Company, also delivered an early festive message to chill parents, as the global shipping crisis exacerbates the issues Britain faces.

“Toys this Christmas are going to be more expensive, and that's if they're even in stock,” Berkowitz said. “We are massively affected by the shortages. We have clients wanting to place orders now and we just can't deliver it. It's killing our business. It's a complete mess.”

Help wanted

A paucity of truck drivers has had the biggest impact, experts said, with an estimated shortfall of 100,000 operators triggering delays and depleted product lines. Tom Holder of the British Retail Consortium said the flow of food and other items from farms and factories to warehouses and distribution centres to shops had been significantly upended.

“This shortage means that there are some deliveries that simply aren't able to happen, or the cost of deliveries is going up," Holder said.

Large numbers of foreign workers have left British shores following Brexit, the haulage industry said, while tax legislation changes have cut the income of agency staff.

Lasting fallout from the Covid-19 pandemic has also aggravated the problem, with many drivers either having to self-isolate due to the rapid spread of the Delta variant or slowing the speed at which new hires can join.

“Even if we were allowed to recruit drivers from the EU, there’s a shortage of drivers there as well,” said Rod McKenzie, head of policy at the Road Haulage Association. “The only place that doesn’t have a significant shortage of drivers is Africa.”

Continuity matters

“Finance directors need to preserve continuity as much as possible in the face of cashflow and supply chain issues,” said Nick Jackson, finance transformation leader at Oracle. “This means putting resilience at the centre of their financial strategy.”

One way of doing so is a reprisal of buffer reserves, Jackson told AccountingWEB. For example, having three months of cash reserves available, or establishing stock levels for business-critical items that can sustain operations through periods of disruption, he said.

“It also means planning more for the unpredictable by conducting quick impact analysis and multiple scenario planning,” said Jackson. “AI solutions and predictive analytics are invaluable to this, by enabling vast quantities of data to be analysed and interpreted in little time and automating repetitive tasks.”

Advances in technology allow finance directors to work far more effectively across the different departments involved in shoring up the supply chain, make intelligent decisions and response to the fast-changing situations, he said.

“When thinking of financial modelling for situations like this, it should be a case of going back to basics for many,” said Smith. “It's simple and can be summed up in three headers; income statements, balance sheets and cashflow. Companies who have this information immediately at hand can then scale accordingly.”

No short-term fix

Knowing where a business is financially is “half the battle”, Smith said. While most big corporations will have planned as best they can, further problems are inevitable when supply chains are so large and complex, he said.

"A vast majority of companies possibly need to go back and review suppliers and plan alternatives, thinking not only about cost, but effectiveness too,” he said. “Are the goods going to be delivered? Can suppliers promise goods for definitive times and dates? This is certainly a case where many would have had all their eggs in one basket and we can now see the impact of that coming.”

The situation may not return to normality until the second quarter of 2022, he warned, adding diversification and an openness to change should be high on agendas. “The foundation of business is demand, not being able to fulfil is a bitter pill to take as it impacts across the board and can be embarrassing,” Smith said. “A chicken shop running out of chicken sounds ridiculous because it is.”

Replies (17)

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By Calculatorboy
02nd Sep 2021 08:20

It's not such a crisis, we eat and consume way too much anyway..

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By milleniumaire
02nd Sep 2021 11:57

No surprises here since Brexit! I'm sure the Leavers will argue this is all Covid and nothing to do with leaving the EU.

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Replying to milleniumaire:
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By Rgab1947
02nd Sep 2021 12:09

And I am sure that you would argue all problems are due to Brexit.

The train has moved on.

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Replying to Rgab1947:
Caroline
By accountantccole
02nd Sep 2021 12:28

The train has barely left the station!

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Replying to accountantccole:
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By Hugo Fair
02nd Sep 2021 12:37

“Even if we were allowed to recruit drivers from the EU, there’s a shortage of drivers there as well,” said Rod McKenzie, head of policy at the Road Haulage Association. “The only place that doesn’t have a significant shortage of drivers is Africa.”
So it doesn't matter where the train is vis-a-vis the station ... as it doesn't have a driver!

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Replying to milleniumaire:
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By SXGuy
02nd Sep 2021 14:21

Hi. Leaver here. Nothing to do with covid. If you speak to any hgv drivers you'll get a good understanding of the actual problem. A problem that has been slowly creeping and leading to this position for years. Guess what. It has nothing to do with brexit or covid.

Happy to explain why it's happening once the brexit train stops

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Replying to SXGuy:
Caroline
By accountantccole
03rd Sep 2021 13:01

Not aware of any shortages in France - might not be looking at the right news items to be fair but would have thought it would have been picked up if we had no chicken for our restaurants....

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By Paul Crowley
02nd Sep 2021 12:18

Odd
Furloughed workers everwhere
But nobody wants all these jobs

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By Hugo Fair
02nd Sep 2021 12:47

"One way of doing so (putting resilience at the centre of their financial strategy) is a reprisal of buffer reserves."
Is this a convoluted way of re-stating the Mr. Micawber principle on income & expenditure?
For 30 years I've lived by a simple principle - maintain cash reserves that cover at least 3 months' expenditure even if income stops entirely. The point is to give sufficient warning if a change in policies or even direction is needed - what used to be called 'worst case scenario planning'.

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By SXGuy
02nd Sep 2021 14:24

The fact that would be drivers have to go through hoops constantly. Red tape, get fined or penalised for the lorry they drive, the company the work for passing responsibility over to the driver, the long hours, etc etc, is the reason for all this. Not covid. Not brexit.

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Replying to SXGuy:
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By Paul Crowley
02nd Sep 2021 16:06

Lorry drivers
Yes
Wages have crumbled over the last five years. Endless comments on youtube as the retail giants just stopped paying at fair rates
As UK workers left the industry, East Europeans took up the slack
This issue is down to the Supermarkets devaluing the drivers profession not tax changes

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By Paul Crowley
02nd Sep 2021 15:20

"Large numbers of foreign workers have left British shores following Brexit, the haulage industry said,

while tax legislation changes have cut the income of agency staff."

Really?
No
Retail consortium people have cut wages, because foreign workers accepted low wages

Paying tax has cut the income of agency staff?
Seriously, Aweb should call out rubbish, not publish it

Is the claim that Agencies were dealing with tax in an inappropriate way?

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Replying to Paul Crowley:
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By Paul Crowley
02nd Sep 2021 15:54

Why is there a shortage of HGV drivers UK?
The logistics industry estimates around 100,000 more HGV drivers are needed to get goods and materials moving again. The shortfall has emerged, in part, because 14,000 EU drivers have left the country and only 600 have returned since Brexit. ... “All the headlines are blaming Brexit and Covid."
4 days ago

100,000 drivers short
But 14,000 EU drivers left
Why? Shoddy treatment by UK PLC

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By matabele
02nd Sep 2021 15:25

Plenty of potential staff but 18 months of furlough has not encouraged either resilience or a desire to work amongst many.
Expectations are also “ I want more pay for much less work’
Interested to see what happens when furlough finishes. Let’s hope the benefits system is not overloaded with applicants that can and should be in work.

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Replying to matabele:
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By Paul Crowley
02nd Sep 2021 16:01

So strongly disagree
Why did the Planned strike not happen?
Because drivers are responsible people that is why.
The leakage of trained drivers has been going on for years due to poor treatment and outsourcing by the Supermarkets.

Lorry drivers were in scarce supply before Covid and Brexit

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Replying to Paul Crowley:
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By matabele
02nd Sep 2021 16:21

My comment relates to the wider shortage of staff - not just hgv drivers

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paddle steamer
By DJKL
02nd Sep 2021 23:39

The other issue is of course increased stockholding and space to store this, when industries for years operate JIT when that gets disrupted they cannot just procure more warehousing, there is just not enough of it, and of course shortages of workers in construction mean additional storage takes longer to be built.

One just needs to have invested in Warehouse REIT (WHR), 96.91p in April 20, 162.20 now), Urban Logistics (SHED) 123.47 May 20, 177.50 now and Aberdeen Standard European Logistics (ASLI) 84.14 May 20, 123 .00 now to see how logistics warehouses etc have boomed as more and more companies have moved online and needed stock storage and distribution space.
(Not that I am complaining as I dumped my traditional property REITS last year as Covid bit and before Brexit transition ended and shifted the property part of my equity investments into these)

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