Rising costs of shipping for UK importers

As soaring costs of containers from China hit UK importers, Sarah MacInnes, Client Manager at invoice finance service Optimise, talks about the impact on one Yorkshire-based client.

The doubling and sometimes trebling of costs associated with imports from China since November last year is having a detrimental effect on all sorts of UK businesses who rely on Chinese product.

None more so than a Leeds-based lighting distributor and manufacturer, who supply to the electrical wholesale industry and turnover approximately £3.5m a year.

Since November they have been hit with a peak season surcharge of £1700 on imported electrical product from China that would previously have been £900. The use of a £40ft container which previously cost $2000 (c £1500) is now being quoted between $8000 – $10000 (c£5700 – £7200) – all of which is putting pressure on the cost base of the business.

The crisis is a result of the shortage of empty containers in Asia and bottlenecks at some of the UK’s ports.  It was hoped that the two-week shut down for Chinese New Year in February would help to clear the backlog of ships waiting to dock, but unfortunately, due to more Covid outbreaks, the Chinese authorities staggered factory closing dates.

There are also many containers ‘piled up’ at docksides across Europe and the US which have not been sent back to Asia. This includes the Port of Felixstowe which handles nearly half of all Britain’s container trade. In some cases, containers which would normally be unloaded in the UK first are now diverting to Europe before coming here, causing further shortages.

This has all meant that instead of having space on a boat within a week, it is now taking up to three weeks, extending our client’s total shipping cycle to 8-9 weeks when it was just 5-6 before. So now our client needs to consider whether to increase prices or accept a lower margin.  Neither route is ideal.

In the UK these international shipping difficulties have also coincided with post-Brexit challenges as goods from European suppliers are being held at customs due to incorrect paperwork. Under new VAT rules carriers are also charging documentation fees.  This is affecting our client’s appetite for supply to Ireland – just too much hassle and expense.

Uncertainty around how long these issues will continue  –  with some believing it could take months to improve – is now causing major concern.

 By reviewing the client’s invoice finance facility through our monthly Optimise report we keep in regular contact with our clients. This means that we have a deeper understanding of what is affecting their business at any one time. In this instance, the client may deal with the issue by increasing their prices, however, if they are unable to do this successfully we would look to work with the Directors to see if there is scope to increase availability and cash with their existing funder.