To anyone old enough to remember, “Crisis? What Crisis?” was an album by Supertramp borne of the 1970’s energy crisis. It was used as a headline in The Sun newspaper during the Winter of Discontent in 1979. Who would have thought we’d be back there again!
It is unavoidable that higher energy prices will continue to drive inflation and general costs of all products and logistics costs higher. The FT reported recently that any rescue plan to shield households from rising bills could cost more than £100bn over two years and that’s before we start to look at businesses and the rising energy costs they are suffering already. Businesses are not covered by Ofgem’s energy price cap, today set at £3,549.00 for households, instead negotiating bespoke fixed-term contracts with suppliers. And with many of those contracts expiring this year, “the majority of UK companies are due to renegotiate their electricity and gas contracts in October”, the Financial Times (FT) reported.
Businesses are already recording huge increases on their energy costs from this time last year and many are concerned that with new energy price hikes on the way, it could push them to the brink of disaster. Companies face a “cost of doing business crisis”, UK ministers have been warned, with many commercial energy bills poised to rise more than fourfold this autumn. Paul Wilson, policy director at the UK federation of small businesses, said the government needed to intervene to prevent thousands of businesses from going to the wall.
This is not just a UK phenomenon. This is a global crisis that affects everyone. Large international corporates are already reporting higher costs of raw materials, product and shipping costs directly linked to higher energy prices which is likely to rise during winter, as usage grows. Order fulfilment has also become a concern as suppliers can only produce a percentage of the product at the fixed price agreed upon or passing the increases directly on to the buyers.
In the Times it was reported that Britain’s biggest business groups have warned that viable businesses will be forced to the brink of collapse unless the government provides urgent help to support companies and consumers through the energy crisis. The calls for state intervention came after the head of EDF Energy’s retail business warned yesterday that the UK faces a “dramatic and catastrophic winter for customers”
The global supply chain is in a very fragile state and although Governments may assist with various financial aid packages it is ultimately those along the supply chain, the numerous links in the chain, that must help each other.
Corporates have a key role to play here by paying suppliers faster or providing working capital programmes to their suppliers that will release tied up capital needed to keep up with rising energy prices and to keep the lights on.
Without these mechanisms we will see a rapid escalation in failing businesses that will only add to Governments woes as a rise in unpaid business loans, increased benefits, unemployment claims and industry growth slowing means Inflation could very easily turn into Stagflation. A prospect we would all like to avoid!
Kevin Hayden is an executive level professional with over 35 years of Fintech, Investment & Commercial banking, and software sales & services industry experience, managing key major business and transformation change teams. With an economics and banking background he is driven by challenge and excellence at all levels, he is committed to delivering a long-term partnership with clients that foster trust and build reputations, focused on the transformation of supply chain finance that helps and assists everyone along the journey.