My company can’t afford increased import costs

Julie Palmer

Regional Managing Partner

3 minutes to read

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My company can’t afford increased import costs

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?

"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"

Rescue options for companies experiencing prohibitive import costs

Alternative finance

Alternative funding can significantly alter the trajectory of a struggling business. You can use alternative finance as a foundation for recovery and growth, rebuilding your business using bespoke funding that addresses its specific issues.

Trade finance, for instance, helps companies address the uncertainties of importing/exporting on a global basis, and bolsters the trade cycle. Real Business Rescue has contacts with alternative financiers throughout the UK, and extensive experience of helping import/export companies to source the correct type of funding.

Company administration

An eight-week moratorium on creditor legal action commences when a company enters administration. This prevents the company being forced into liquidation, and allows the appointed administrator the time they need to formulate a plan.

Various possible exits from administration may be possible, including a pre pack administration that involves selling a business’ underlying assets. Depending on the administrator’s assessment of its viability, a Company Voluntary Arrangement could also be suitable.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement may be an option if your business is viable in the long-term. Debts are formally restructured, and the company makes one monthly payment towards the debts included in the agreement.

Company Voluntary Arrangements offer company directors the chance to trade out of difficulty, and typically last for 3-5 years, with any debts outstanding at the end of the term being written off.

Voluntary insolvent liquidation

Creditors’ Voluntary Liquidation (CVL)

If your company can’t afford the increased import costs and there’s no possibility of recovery, Creditors’ Voluntary Liquidation ensures the business is closed down according to UK insolvency laws.

CVL also enables you to fulfil your legal obligations as a director - when your company enters insolvency you must cease trading to prioritise creditor interests, rather than placing the company’s interests first.

A significant issue for company directors in this situation is repaying personal guarantees. Entering Creditors’ Voluntary Liquidation may entitle you to director redundancy, however, which could be used to pay some or the entirety of your personal guarantee.

So what are the basic eligibility criteria for director redundancy pay?

Working as an employee of the company for at least 16 hours per week, continuously for a minimum of two years
Working under a written, oral, or implied contract of employment
Being owed money by the company

We can establish whether you would be entitled to director redundancy if your company can’t afford increased import costs and, in the worst case scenario, has to liquidate.

Real Business Rescue has huge experience and expertise in advising the freight transport sector on issues surrounding the import and export of goods and subsequent cash flow troubles. Please contact one of our partner-led team to arrange a free, same-day consultation.