Reference no: EM133345613

Case: The case study highlights several problems for UK businesses in the wake of Covid-19 and Brexit. Are the problems discussed in the case study transitory or longer term in nature?

Article 'Running a business is like guessing lottery numbers'

When reading children's stories to her young son, Lynsey Pollard was struck by how "society has moved on, but children's books haven't", with little depiction of single-parent families or indeed anything beyond the white, conventional nuclear model. It inspired her to start her diversity-focused book subscription service in 2018, initially fulfilling orders from her south London flat.

Amid increased awareness of diversity, thanks in part to the Black Lives Matter movement and to the rise of schooling at home during the first national lockdown, growth took off to the extent that her business, Little Box of Books, had to hire third party fulfilment.

It should have been a milestone to celebrate, but Pollard, 42, says that the increased scale of her small company has coincided with a litany of complications for businesses of all sizes, from rising shipping prices to supply and staff shortages, driven by a range of factors including Brexit, the pandemic and the knock-on effects of the Suez Canal being blocked by the Ever Given container ship. All of which means that "running a small business at the moment is like trying to guess the right lottery numbers".

Cardboard shortages caused by the online shopping boom, combined with production issues, have pushed out the lead time on her company's branded subscription boxes to up to four months. It used to be four weeks. Some of her book suppliers are experiencing delays in getting products delivered from Asia. Cashflow is a growing concern as ecommerce companies begin to fret about supplies for Christmas and feel the pressure to place orders for stock with lengthening lead times.

"You used to be able to forecast some steady growth," she said. "Now there are just so many variables, from Covid to Brexit to supply chain issues. It's a precarious time for a lot of business owners."

James Leinhardt, chief executive of Levitex Foams, a Manchester-based pillow and mattress business, can testify to that. He lost £60,000 "overnight" in November 2020 when his shipping costs rose fivefold. The combination of personal protective equipment being prioritised in shipping containers and increased demand for online shopping during lockdowns meant that Levitex struggled to get any stock delivered during certain months last year.

The cost of transporting a Levitex pillow rose from $2 to $18, an unsustainable increase that Leinhardt said meant a deal with Dreams, the national bed retailer, had to be put on hold for two months. More disruption came in the form of a recent Covid outbreak at the vast Chinese container port of Yantian.

"If we were a wholesaler, our business would be dead," Leinhardt, 41, said. "Our website saved our business through lockdown. We're now looking at ways to vacuum-pack our product so we can get five times more product into a shipping container in an attempt to get back what we lost through lockdown."

Ian McCulloch, founder of Silent Pool Distillers, a gin producer that has a distillery in the Surrey Hills, said that he was still experiencing "massive issues" with shipping gift packaging and decorative tins for its bottles from China, but also with outbound shipping from Britain to Europe, Australasia and the United States. "It's adding up to three weeks on the longer legs and about eight days to Europe. There is no real workaround, apart from sending larger loads less frequently. This then has an impact on cashflow, as we have more money tied up in stock sitting overseas."

SwetWipes, based in Lewes, East Sussex, makes FreshWipes-branded biodegradable body wipes aimed at those who cannot shower, including those with mobility and disability issues. For Liz Barnes, 44, its founder, rising transport costs are proving a "nightmare ... A 40ft container from China to the UK that was last year costing us £2,500 is now £14,500.

"We've already emailed all of our customers to let them know that we are going to have to raise prices to cope with these extra costs and nearly everyone has been very understanding, but my customer base is mainly elderly and disabled adults on limited incomes and I think the vast majority of them will struggle to afford price rises, even small ones."

She warned that she was likely to have to stop offering free shipping unless customers spent more than £15. "I've been taking the hit on these price rises for the last 12 months. I can't absorb any more or I'll go out of business."

McCulloch, 61, agreed that rising raw material and transport prices were putting small businesses in an impossible position, with thinning margins on one side and delicate demand on the other.

The Bristol-based Sliderfy makes custom footwear for clients including sports clubs, businesses and universities. Euan Davies, 25, its founder and managing director, has recently completed a migration to a new shipping system implemented to minimise Brexit-related disruption, which involves having a fiscal headquarters in the Netherlands as well as finding a third-party fulfilment centre there to serve European Union customers. However, hopes that his logistics woes might be over have been scuppered by his air-freight and shipping costs rising by up to 30 per cent compared with 2019, while a Covid outbreak at his local UPS warehouse complicated matters further. "The last 14 months have been a logistical minefield, a constant squeezing of our margins and disruption to our supply chain makes us feel incredibly vulnerable.

"Just after the Euros [football championship] we were caught up in the 'pingdemic', with parcels being delayed as a result of UPS workers needing to self-isolate. This left us with frustrated customers and no real excuse for why we had not delivered orders on time. We have had parcels held up at customs in Ireland due to a shortage of staff on multiple occasions.

"It's been an incredibly difficult trading period. Despite the lifting of restrictions, we feel that these issues are not going anywhere fast and there will be a serious lag before we return to some form of market confidence."

Entrepreneurs are often warned how tough it will be to get a business off the ground and Pollard said that their resilience was being tested like never before. "Your passion has to drive you through. I'm passionate about getting inclusive books on shelves, so that's what is allowing me to roll with it."

Supply shortages from cardboard boxes to cooking gas

Raw material and key component shortages are adding to the hurdles facing companies hoping to bounce back from the pandemic (James Hurley writes).

According to Ian McCulloch, of Silent Pool Distillers: "Some distilleries can't source cardboard for boxes and that's halted production, it's a sub-£1 item that's halting the sale of [circa] £250 of product."

Other business owners who said that they were experiencing material shortages included a milliner struggling to source materials, an arts and crafts business in need of wood stock and a bricklayer short of steel ties.

Craig Burkinshaw owns Three Mile Beach, a collection of 15 luxury beach houses near St Ives. The serial entrepreneur, who also co-founded Audley Travel, said that his plans for a street-food van were almost scuppered when he discovered that there was a countrywide shortage of gas bottles.

"You have your food van, it's all ready to go and then you can get the gas for it,"

He said. "It runs on propane, so I had to find a local supplier and beg them for gas bottles. You go to Calor and they only do refills. You ask them for new bottles and they laugh at you. It's nuts. But I've managed to get eight 19kg bottles, so we are just OK for now."

Burkinshaw bought the bottles from Warrier Gas in Camborne. The company said that luckily it had stocked up with several years' worth of smaller bottles before the pandemic, but was aware of the present shortage, which it said extended to items such as screws and concrete for posts.

Calor Gas said that it was continuing to experience "cylinder availability issues" amid "higher demand and restricted supply", but said that new cylinders were now arriving and were being supplemented by an increase in refurbished cylinders being made available.

Supply shortages threaten to become more pronounced in Britain as a result of the thousands of European Union HGV drivers and warehouse operatives who have left the UK logistics industry, as well as Covid testing delays at British and European ports, drivers being forced into isolation and a slowdown in training and examinations. The government announced measures last week intended to tackle driver shortages, including attracting new drivers, simplifying training and encouraging people to stay in the industry.

The Federation of Small Businesses welcomed the moves, but is concerned that they won't be enough.

Enginuity, an engineering skills group, said that there were nearly 100,000 vacancies for HGV and delivery drivers and the shortage was beginning to disrupt manufacturing processes.