Manufacturing costs highest in 30 years

UK manufacturers continue to face a challenging operating environment, with stretched supply chains, disrupted production schedules and increasing component and raw material prices.

The manufacturing sector saw growth slow down last month, with surging material costs and staff shortages, according to the IHS Markit/CIPS Purchasing Managers Index (PMI), despite rates of expansion in output and new orders gaining some traction.

According to the latest PMI release, manufacturers continue to face a challenging operating environment, as the demands on supply chains disrupt production schedules and drive up input prices to the greatest extent in the survey’s 30-year history.

The release showed all five of the PMI components had a positive influence, as production, new orders, employment and stocks of purchases rose and supplier lead times lengthened.

Output increased for the eighteenth month running in November, with improved new work intakes – especially from the domestic market – and efforts to build safety stocks supported increased output.

Exports dropped for the third month in a row, with reports of weaker demand from China, disruption to trade with the EU and the cancellation of some orders due to extended lead times. Which isn’t good reading for UK manufacturing.

Prior to news of the Omicron variant breaking, business optimism had risen to a three-month high, linked to Covid recovery, economic growth, new product launches, planned marketing campaigns, business expansions, diversification, innovation, and reduced supply chain stress.

Whilst some manufacturers are reassessing existing supply chains, finding new suppliers and more direct routes to source, most are challenged by global supply chains, components shortages and logistics availability.

The strain on supply chains also led to further substantial lengthening of lead times. This resulted in shortages of components and commodities, combined with input demand outstripping supply, led to a survey record increase in average purchase prices. 

Around three-quarters of manufacturers reported a rise, compared to less than 1% seeing a fall. Cost and market pressures also affected selling prices, which rose at a rate close to October’s series-record.

About 74% of supply chain managers paid more for their goods in November, as prices charged also accelerated at a rapid pace, raising fears that the UK economy could over inflate if supply chain disruption doesn’t subside in the first quarter of 2022.

But with ocean carriers cherry-picking the largest-volume shippers and locking them into multi-year deals, with the largest increases recorded, consumers are likely to see more price increases filter through.

Capacity also remained stretched at UK manufacturers during November, with backlogs of work reaching a near record high. This supported further job creation in the sector, with employment rising for the eleventh month running and at the quickest pace since August.

Duncan Brock, group director at CIPS, said most manufacturers felt conditions would improve, despite rising inflation and the highest recorded fuel levels.

“With more success in finding skilled labour they are preparing for supply chain issues to even out and for price rises to subside,” he said.

However you assess the situation, the only conclusion can be it isn’t easy and it doesn’t look likely to get any easier for the foreseeable future. But Metro can assist in softening the impact.

The supply chains challenges we continue to overcome, from origin to destination, and the elevated freight rates experienced across all modes, will continue into next year, without much compromise expected.

We make it our key mission to recognise our customers situation, needs and expectations, so that we can manage outcomes, in line with their business objectives.

With a thorough knowledge of what is needed, we can identify the most effective service options, to design optimised logistics, transport and supply chain solutions, that represent the best available in the current market.

We encourage an engaged and collaborative partnership approach, with all of our customers. For further information and to discuss your ongoing requirements, please contact Elliot Carlile or Grant Liddell.