The UK’s second-largest trade credit insurer, Atradius has revealed that the number of claims it received from UK businesses decreased by 18 per cent compared to the same period in 2023, as a positive consumer outlook boosts consumer sectors.
The new report into payment default trends for Q1 2024, however, has also revealed that the prolonged economic and sector challenges are having a significant impact on UK industries, resulting in major increases in payment defaults for many cornerstone industries. Major claims increases have been reported for energy, fuel, metals, paper & packaging, and food sectors.
Energy and fuel
Atradius’ report reveals the energy and fuel sector had a 75 per cent increase in payment defaults in Q1 year-on-year. The growing instability could be fuelled by new border controls that will come into effect on 30th April, which could cost businesses up to £2 billion, increase inflation and have a knock-on impact on EU/UK tade. The border controls are the latest challenge for the sector post-Brexit, with global conflict also pushing prices up for consumers.
Paper and packaging
Packaging claims increased by 400 per cent year-on-year and by 25 per cent quarter-on-quarter (Q4 2023 to Q1 2024), the biggest spike in instability of all sectors. One cause for this could be growing consumer and regulatory reactions to the sustainability of packaging. This was seen most notably in Amazon pulling single-use plastic delivery bags and encouraging grouped delivery for orders.
Food and drink
Food and drinks, the largest manufacturing sector in the UK (bigger than automotive and aerospace combined), claims increased by 44 per cent – a significant figure for the 97 per cent of food sector firms that are SMEs. After the highest level of rainfall for any 18 month period since 1836 had a knock-on effect on the amount of food produced in the UK, the food sector will be increasingly reliant on imports, which will impact food prices and profitability for agri-food firms. This is reflected in turbulence within the sector’s supply chains, with claims for agriculture firms 67 per cent higher in March 2024, year-on-year.
Metals, iron and steel
Metals increased by 55 per cent in Q1 of 2024. In March 2024 alone, there was an 83 per cent increase year-on-year for payment default claims. Labour and talent shortages, green transition pressures, rising costs and international conflict are creating an unstable business environment, pushing firms to grow opportunities and navigate the risks associated with the challenges impacting the sector. Claims for the iron and steel sector increased by 20 per cent year-on-year for Q1, and by 100 per cent from Q4 2023, following the introduction of restrictions on Russian imported iron and steel by the UK and Europe in Q3 2023.
Consumer sectors
Despite the ‘economic storm’ of challenges impacting many UK and global industries, consumer confidence has increased 14 percentage points in a year (36 per cent compared to 24 per cent) – even though 55 per cent of consumers reported that the cost-of-living crisis had not eased for them. This positive outlook has resulted in a 3.2 per cent increase in consumer spending, boosting resilience for previously vulnerable consumer sectors including retail, hospitality and consumer durables. Consumer sectors have shown increased stability in Q1, highlighting the significance of consumer outlook on wider supply chains.
Retail firms hit hard following the pandemic by unstable consumer demand, labour shortages, and rising costs, experienced a 46 per cent decrease in payment defaults in Q1 2024 compared to the same period in 2023. A positive consumer outlook is already being reflected in retail footfall, which increased by 1.7 per cent in March. Consumer durables were also buoyed by growing consumer confidence, with claims falling by 43 per cent since last year, and by 39 per cent from Q4 2023.
Despite an 11 per cent increase year-on-year in monthly direct debit failures, and non-essential spending falling to an 18-month low in March, Atradius’ new data reveals an 18 per cent decrease in claims for hospitality firms. The sector, which was hit by falling demand in the wake of the cost-of-living crisis and cost increases, is now expected to surpass 2019 performance thanks to sustained hotel performance and lender support for the sector. The continued popularity of staycations has also boosted the sector, delivering a £3.2 billion uplift over the Easter holidays thanks to 11 million Brits opting for a UK holiday.
Experts at Atradius suggest that while there are some encouraging signs of recovery, the ongoing cost-of-living crisis is likely to see increasing vulnerability for firms reliant on trade credit agreements – particularly if the interest rate remains high until a slow decline from H2.
Atradius provides trade credit insurance and expert guidance to companies across all UK industries and sectors. Trade credit insurance helps to protect suppliers against the risks associated with supply chain failures, such as late or failed payments.
Payment defaults are a major risk for companies and retailers reliant on trade credit agreements. Without insurance, suppliers tend to seek more specific payment terms, putting pressure on cash flow and pushing up prices, due to the risk of the ‘domino effect’ of insolvency. A rise in claims received indicates the number of companies failing to pay their suppliers has risen, as firms struggle to stabilise their finances amid ongoing market challenges.
James Burgess, Head of Commercial and insolvency expert at Atradius says:
“Consumer confidence is blossoming as we approach the warmer months, which brings renewed hope and opportunity for consumer sectors. For retailers and hospitality firms, there is a clear opportunity to ‘spring’ into a more fruitful season – if they can adapt to the changing needs and expectations of hardworking families, who will continue to prioritise value for money.
“Payment default trends give us a unique insight into the frontline of business operations, which can be quite revealing in the wake of big events, like the recent dip into recession. We work closely with firms across the UK to monitor the real-world impact of economic and sector events, so we know that the UK isn’t out of the woods yet. Business leaders must take action to respond to instability in their sector and the wider economy.
“Summer may be approaching but there’s still a financial chill in the air, and it’s been felt by many cornerstone industries. We do not expect the interest rate to fall until later this summer, which could make the next 6 months challenging for firms in vulnerable sectors. The biggest step firms can take to be proactive in bracing themselves against the impact of this is to look at where their vulnerabilities are. Often, these lie in crucial supply chain agreements, which are reliant on resilience and liquidity along the supply chain. Protecting these with trade credit insurance can be ‘make or break’ on a rainy day.”
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