-

Covid-bounce back for manufacturers looks set to continue in 2022

Lee Collinson shares his insights on what 2022 might hold for manufacturing, transport and logistics (MTL) businesses that have been demonstrating their resilience in dealing with the pressures of Brexit, Covid-19, rising costs and supply chain disruption over the past year.

It may sound counterintuitive, but for many companies across the MTL sector, 2021 was actually a pretty good year.

As our recent report on manufacturing, The Export Dividend, shows, more than a quarter of the UK manufacturers we surveyed say growth has outpaced expectations for a ‘normal’ pre-Covid year.

Firms across the sector have experienced a strong bounce back after the initial impact of Covid-19, with robust demand from overseas delivering an ‘export dividend’, partly driven by overseas buyers’ perceptions of value, quality and innovation associated with a ‘made in Britain’ label.

Sectors that have performed particularly well include food and drink, automotive and transport, aerospace, and pharmaceuticals.

Logistics operators also ended last year in upbeat mood, with our annual Logistics Confidence Index Score for 2021 standing at 62.5 – it’s highest level since 2015.

Upbeat about growth

Against this backdrop, many manufacturers are feeling pretty upbeat about 2022.

According to our survey, over 80% of all manufacturing businesses are confident in seeing some growth this year and the sector looks set to play a significant role in the UK’s future economic growth. The recent move to ‘Plan B’ after the emergence of the Omicron variant could dampen these levels of optimism. Although manufacturers have shown high levels of resilience and innovation over the past two years to deal with the combined challenges of the pandemic, Brexit and supply change disruption.

Interestingly, seven out of 10 firms say they are actively exporting and nearly two thirds of those who aren’t already exporting are planning to start this year.

Manufacturing exporters have also been actively diversifying and expanding their target markets. Although the US and Europe remain the largest markets, companies say they will be looking to grow their penetration in Latin America and Africa, South Korea and Japan. China remains challenging but India offers significant opportunities, once its Covid-driven economic slowdown ends.

More than ever, support is needed to help companies wanting to export for the first time or looking to increase their export sales.

In response to this need the Government launched a new ‘Made in the UK, sold to the World’ plan on 17 November 2021, to help UK businesses double exports and sell their world class products around the globe. The 12-point export strategy aims to give businesses the tools they need to become a nation of exporters and reap the benefits of free trade deals and initiatives.

As part of its ambitious export strategy, the UKEF General Export Finance Facility guarantees up to 80% of loan or bond finance for businesses whose exports comprise more than 5% of turnover. We believe Barclays and other banks have an important role to play in this area and supporting MTL businesses will continue to be an essential part of what we do.

Ongoing challenges

Despite the sector’s upbeat outlook, it will still need to work hard to overcome ongoing challenges.

Brexit-related delays and increased paperwork remain an issue for the sector, while global supply chain issues, exacerbated by a shortage of HGV drivers and rising shipping costs, are impacting the availability and price of raw materials, as well as firms’ ability to export overseas.

Understandably, many companies are now sourcing more products and materials locally and reducing their reliance on China, and thus de-risking their supply chain, this near-shoring trend will undoubtedly continue this year.

Nevertheless, it will probably be up to twelve months for the supply chain to return to something resembling normality.

Talent shortages

Another challenge for the sector in 2022 are continuing skills & labour shortages. Some sub sectors have a particular recruitment challenge due to the perception that manufacturing is a dirty, outdated and low skill occupation despite the fact many manufacturers now feature robotics, automated systems, AI and other advanced technologies.

So, there’s a need to overcome the ‘perception gap’ around jobs in manufacturing which will require manufacturers to engage more closely with the education sector to attract new talent. While there are many good examples of manufacturers working with local schools and colleges for example the Bradford Manufacturing Week, the sector needs to work more closely with educational establishments to create courses to prepare the skilled workforce of the future as well as encouraging more work experience opportunities.

There is a serious shortage of labour in some sectors particularly food processing where businesses are really struggling to recruit local workers into roles previously undertaken by EU workers. Manufacturers are looking at innovative ways to attract new pools of labour as well as looking at ways to automate processes to reduce the need for so many workers.

On a more positive note, there are signs the shortage of HGV drivers is starting to ease thanks to more driver training and testing, increased availability of HGV licenses and better pay. The government has also provided new funding to improve the quality of facilities drivers face across truck stops across the UK road network.

Turning to tech

Manufacturers know labour shortages aren’t going to disappear quickly and, consequently, they’re looking to do things faster and smarter using technology.

Not all jobs can be easily automated but firms are increasingly deploying tech, in part to reduce their dependence on labour, but also to enhance their efficiency, competitiveness and profitability.

We’re seeing increasing numbers of manufacturers and logistics operators introducing and using robotics and automation as part of their processes. It’s a trend that will undoubtedly accelerate during 2022.

In summary, 2022 looks promising on many levels as companies build on the successes of last year and, providing they are able to address the lingering after-effects of 2021, it could mark the start of a new golden era for UK manufacturing exports.

Read related insights

Insights

2022 sector outlook

Looking forward to the opportunities, challenges and trends our industry leaders expect to impact businesses in the year ahead.

Industry expertise

Manufacturing, Transport and Logistics

For over a decade, Barclays has provided dedicated expertise across the whole value chain for these key UK industries.

Insights

The export dividend: Extending the global reach of UK manufacturing

In our latest manufacturing research report 63% of non-exporters plan to start exporting in 2021. Discover how momentum is growing among the sector to ramp up exports and how this can help grow your business.

Insights

Direct from manufacturer

Barclays’ Lee Collinson, discusses how for a growing number of UK households, buying goods direct from the producer is now an established habit.

insights

Made in Britain

Our latest research  is an international review of the demand for goods that are ‘Made in Britain’ and a willingness for key markets to pay a premium.