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A record number of UK-listed companies reported profit warnings due to supply chain disruption in the final three months of last year, with research showing ongoing concerns over inventory shortages and slow invoice traffic. 

A total of 70 publicly listed companies informed investors that profits would be lower than expected in Q4 2021, a year-on-year increase of 19%, according to research published this week by consultancy giant EY-Parthenon. 

Of those companies, 44% attributed the slowdown to problems with their supply chains – the highest ever figure reported by EY – up from an average of just 2% over the previous 10 years. A further quarter of companies laid the blame with rising cost pressures. 

EY says the worst affected were FTSE-listed aerospace and defence companies, 57% of which issued a profit warning at least once last year. Consumer-facing sectors such as personal care, groceries and other retail were also “affected by supply chain headwinds in the second half of the year”, it says. 

Silvia Rindone, EY’s retail lead for the UK and Ireland, says supply chain issues “are likely to continue” into 2022, though a larger unknown for retailers is consumers’ likely spending habits. 

Alan Hudson, a partner at EY-Parthenon and its turnaround and restructuring strategy leader, adds: “The biggest driver of warnings in 2022 is likely to be the rise in inflationary pressures and its impact on disposable incomes and margins.  

“We have already recorded profit warnings relating to rising energy prices. Labour shortages and wage increases are also beginning to feature more in company concerns, especially in logistics, hospitality and healthcare.” 

The findings come as research by supplier invoice platform Tradeshift suggests UK companies appear to be disproportionately affected by problems with suppliers meeting buyer demand. 

According to trade data across its platform, UK supply chain activity fell by 9 points in Q4 relative to pre-pandemic forecasts, while transaction activity fell by 17 points. 

The figures leave the UK’s supply chains “at the bottom of the international pack in terms of recovery since the pandemic”, Tradeshift says. “Much of the slowdown comes from a fall in invoice traffic, which dropped well below the expected range in Q4.”  

Low invoice activity does not mean companies are facing low demand, however. Tradeshift cites data from the Confederation of British Industry showing manufacturing order books are tracking above average, suggesting problems lie instead with fulfilment issues among their suppliers. 

“Inventory volumes across suppliers tumbled to record lows in December,” it adds. 

The reasons suppliers are struggling to fulfil orders include “significant” cashflow concerns and pressures on capacity, the report says, adding: “This will continue to have a knock-on effect on global trade in the quarters to come.” 

The findings are in stark contrast to the report’s findings in the US, where supply chain activity reached “touching distance” of pre-pandemic forecasts by the end of Q4 last year. That level of recovery is significantly higher than other regions reviewed, it says. 

But even in the US, signs of slowdown in China could signal further disruption in 2022, if strict Covid-19 containment measures cause shortages in manufactured components and extend order backlogs, negatively affecting trade volumes across the world. 

Such concerns are comparable to the issues that caused a marked rise in shipping costs on key Asia-to-North America and Asia-to-Europe routes last year. 

In those cases, surging demand driven by a recovery in industrial processes and rising consumer spending was not matched by supply from Asia, causing a drop in worldwide container availability and a rapid escalation of costs. 

But even if supply returns to previous levels, researchers are increasingly warning that without a boost to production capacity and investments in port infrastructure, European supply bottlenecks could continue well into 2022.