‘Coronavirus? We’re more worried about no-deal Brexit,’ say UK firms

While large multinationals may be able to ride out the economic turmoil on the horizon, some smaller firms have more to worry about. Ben Chapman reports

A container ship sails out of Hong Kong last month (EPA)

British manufacturers say they are summoning up the “wartime spirit” to deal with anticipated staff shortages and supply disruption caused by the coronavirus.

But for some, the major concern is a short, deep shock from the outbreak followed by the longer, more drawn-out pain of a hard Brexit.

While large multinationals may be able to ride out those twin problems, some smaller firms have more to worry about.

The government warned this week that up to a fifth of the workforce could be off sick at the height of the Covid-19 epidemic, a scenario that would present serious problems for manufacturers.

“We may have a few people off or we may be decimated,” says Donald Pow, a manager at Allied Vehicles Group in Glasgow.

Around 250 of Allied’s 670 staff work in manufacturing, mostly in Glasgow. They operate 15 stages of a production line which transforms ordinary vehicles to make them accessible for people with disabilities

Workers at each stage have specialised expertise which can’t necessarily be replaced if significant numbers are off work. Clearly working from home is not an option.

“It’s very difficult. We can move people from other parts of the business but at some point we would not be running efficiently,” says Pow. “We’re not just going to shut our doors and say, ‘Things are a bit difficult, let’s stop working.’ There’s a bit of that wartime spirit.”

For Allied, Brexit, and the uncertainty over what it will entail, represent bigger concerns than the virus, says Pow – at least for now.

The company exports vehicles to countries across western Europe. It is already concerned about tariffs and the effect of a highly uncertain future. “Brexit is affecting both the reality of our business and our customers’ confidence,” says Pow, who is concerned the company will be less competitive in future with rivals based inside the EU.

“To deal with that and a significant economic shock from coronavirus would be very detrimental for us.”

Allied says it is in a strong financial position with low debts and a loyal workforce. The same cannot be said for many British companies who may need to call on emergency funding to ride any turbulence caused by the outbreak.

The Bank of England’s governor, Andrew Bailey (who starts the job in 10 days), told MPs this week he may take action imminently to support lending to struggling small businesses. That might include relaxing banks’ capital requirements to allow them to hand out more loans – but there’s no guarantee that the banks will actually do it.

For some British firms, the impact is already being felt.

Tudor Rose International, a Gloucestershire-based logistics company, exports well-known food and drinks brands around the world.

It is close to the sharp end of the outbreak. Costs have shot up around 15 per cent so far as the company struggles to find enough ships to transport its products, says commercial manager John Stephenson.

Tudor Rose is losing sales as ships stay stuck in Chinese ports, causing a major backlog in the key arteries of world trade.

With many Chinese factories shut down to contain the virus’s spread, there is much less to ship and so freight companies have cancelled sailings. That leaves British firms facing a shortage of containers to put their goods into, pushing up prices.

“It has an effect all along those routes via places like Mumbai and the Middle East,” says Stephenson.

Shipping is often seen as a canary in the coal mine for economic shocks to come. With a vessel taking about a month to make its way from China to Europe, the sharp drop in activity in China is still working its way through.

Stephenson estimates that there are about 100 fewer vessels on the global routes along which Tudor Rose ships its food and drink. That may not sound like a lot but each one is vast, carrying an average 20,000 containers.

Two million fewer containers has a real impact, says Stephenson. “It’s already been quite pronounced. We’ve had a customer already waiting for a large order that we haven’t been able to fill.”

The effect coronavirus is having on shipping is unprecedented, he says. “We do see some seasonality of demand but we’ve not seen an event like this that’s had this much impact.”

Tudor Rose has been looking to boost sales in North America where disruption has been less severe than Asia but there is a limit to this strategy.

“We sell fast-moving consumer goods so we need a consistent, regular supply to our customers,” says Stephenson. The company anticipates some rebound in demand when the outbreak calms down but for the most part, sales lost now are likely to be lost for good.

If Chinese ports open up fully again things will improve, but Tudor Rose fears there may be further shutdowns at other key points along the route as governments seek to contain the virus.

“We are at the early stages of this. It’s only in the last 10 days that it’s come to light how significant this could be,” says Stephenson

Back in Glasgow, Donald Pow is remaining vigilant but relatively relaxed, given the situation. “We don’t know what’s going to happen; many of the experts don’t seem to know what’s going to happen.”

“It’s like that old football manager cliche: we just take each game as it comes.”