Amsterdam-headquartered Atradius, the second-largest trade credit insurer in the UK, has reported an 18% drop in claims from UK businesses for the first quarter of 2024 compared to the same period last year, signalling a boost from positive consumer sentiment across various sectors.
Despite the overall decline, though, the insurer’s latest research into payment default trends shows that prolonged economic and industry-specific challenges continue to exert significant pressure on certain sectors, leading to substantial rises in payment defaults in fields like energy & fuel, food & drink, metals, iron & steel, and paper & packaging.
In Q1, the energy & fuel sector saw a sharp 75% year-on-year increase in payment defaults. Upcoming border controls to be implemented on April 30 are seen as a likely contributor, with them potentially costing businesses up to £2 billion and increasing inflation, Atradius said. Prices have also gone up amid global conflict.
In the paper & packaging sector, there was a staggering 400% surge in claims year-on-year. The significant instability in this sector, according to Atradius, may be linked to growing consumer and regulatory focus on sustainable packaging practices, highlighted by actions such as Amazon’s decision to eliminate single-use plastic delivery bags and promote combined deliveries.
The food & drinks sector, which is the UK’s largest manufacturing industry, experienced a 44% increase in claims. Primarily made up of SMEs, the sector has been heavily impacted by the highest rainfall in any 18-month period since 1836 (October 2022 to March 2024), affecting UK food production and increasing reliance on imports. Heightened volatility in supply chains saw claims for agricultural firms go up by 67%.
Metal industries also faced significant challenges, with a 55% uptick in payment defaults in Q1 2024. The sector saw a particular spike in March, with an 83% rise in claims due to labour shortages, green transition pressures, rising costs, and international conflict. Meanwhile, claims in the iron & steel industry jumped 20% year-on-year and doubled from Q4 2023 following new restrictions on imported Russian materials imposed by the UK and Europe last year.
It’s not all gloom and doom, however, with Atradius reporting: “Retail firms hit hard following the pandemic by unstable consumer demand, labour shortages, and rising costs, experienced a 46% decrease in payment defaults in Q1 2024 compared to the same period in 2023…
“Consumer durables were also buoyed by growing consumer confidence, with claims falling by 43% since last year, and by 39% from Q4 2023. Despite an 11% increase year-on-year in monthly direct debit failures, and non-essential spending falling to an 18-month low in March, Atradius’ new data reveals an 18% decrease in claims for hospitality firms.”
Insolvency expert James Burgess, head of commercial at Atradius, commented: “Consumer confidence is blossoming as we approach the warmer months, which brings renewed hope and opportunity for consumer sectors. For retailers and hospitality firms, there is a clear opportunity to ‘spring’ into a more fruitful season – if they can adapt to the changing needs and expectations of hardworking families, who will continue to prioritise value for money.
“Payment default trends give us a unique insight into the frontline of business operations, which can be quite revealing in the wake of big events, like the recent dip into recession. We work closely with firms across the UK to monitor the real-world impact of economic and sector events, so we know that the UK isn’t out of the woods yet. Business leaders must take action to respond to instability in their sector and the wider economy.”
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