The Impact of Brexit on Supply Chain Operations

On the 10th of April during six hours of talks, UK prime minister Theresa May proposed a further extension to article 50 to the 30th of June. The EU has remained united and focused when handling the UK’s requests, but it would appear that discipline finally cracked that Wednesday night. The eventual outcome – an extension until (ironically) Halloween (31st October) with a ‘soft’ review at the June European Council Summit, left Emmanuel Macron fuming and Angela Merkel and at least a further 17 EU leaders pressing for a year-long Brexit extension.

With a real chance of leaving the EU with no deal- there is increasing concern about potential future trade and regulatory barriers between the UK and the EU, as well as the ramifications from political upheaval and public frustration.

Aside from this, the biggest risk to supply chain management could well come from another factor: time.

Border congestion, additional documentation and customs checks will slow the flow of goods, leading to increased lead times and all-round supply chain challenge. Brexit will also impact non-EU international trade and domestic trade, so businesses cannot afford to sit back and wait.

Current credible options for the UK include both hard and soft Brexits. A soft Brexit would likely see the UK remain strongly affiliated with the EU single market and reach a tariff-free agreement on most goods. A hard Brexit would likely see the UK leave the EU single market and customs union.

Both scenarios will lead to varying degrees of disruption, interrupting cross-border trade and greatly altering the landscape of supply chain operations.

The Impact of a Soft Brexit

Both the EU and the UK have confirmed they are keen to avoid Britain leaving without a deal. MPs voted in significant numbers for either a soft Brexit or a second referendum. The least damaging of scenarios; what are the likely consequences of a soft Brexit for supply chain operations?

  • The UK remains aligned with EU market rules
  • Increased tariff and logistics costs (short-term)
  • Exchange rate risk – sterling has been volatile since the referendum
  • Highway congestion around Dover, Calais, Dunkirk, Dublin and Holyhead (short-term)
  • Overall delay and increased lead times (short-term)
  • Trade agreements take time and can cause political issues
  • Political protests

The Impact of a Hard Brexit

A hard Brexit would mean that the UK leaves the EU and ceases to be a member of the single market and any form of customs union with the EU. A hard Brexit will mean that the UK leaves the EU with no form of free trade agreement. The most disruptive of scenarios; what are the likely consequences of a hard Brexit for supply chain operations?

  • Sanctions and import/export controls – the UK may operate differently following a hard Brexit, goods could be sanctioned or banned in some countries
  • Increased paperwork – such as declarations and certificates of origins
  • Border delays – long-term, causing the most risk to temperature-controlled and perishable goods
  • Freight inspection points/screening – similar to checks already in place on imports from non-EU destinations
  • Regulatory compliance – EU and UK law may diverge meaning that UK exporters/manufacturers will have to comply with different laws in order to export to the EU
  • Continued exchange rate volatility and pressure on pricing and costs
  • Insolvency risk – volatility and disruption could see suppliers/partners go out of business
  • VAT – no indication yet as to how this will work, but confirmation that this EU tax will remain

Whilst there is significant exposure for supply chain operations, there are steps that you can take to prepare for Brexit and mitigate risk.

Key Areas to Consider

Businesses need to plan for both soft and hard Brexits and understand which scenarios present the most risk to their supply chain.

  • Map your supply chain to identify high-risk contracts
  • Segregate customers into categories; those that trade between the EU and UK, those that trade between the UK and non-EU countries and those that trade domestically
  • Identify customers who do high-level trade and will be most affected
  • Identify your customers and suppliers – those that could have the highest level of financial impact on you
  • Review the standard operating plan (SOP) for all high-risk clients and plan contingencies
  • Identify the custom classifications for goods, check what the World Trade Organisation (WTO) tariff would be for UK import/exports, and potential EU import/export tariffs
  • Consider specific provisions for border costs and delays
  • Review any long-term contracts that could be counter-productive
  • Build in contingency time for deliveries
  • Credit check all partners and suppliers – smaller organisations are most at risk
  • Consider hedging for currency fluctuation
  • Keep abreast of all new regulatory and border developments
  • Consult a logistics and supply chain specialist

Key Opportunities to Explore

Alongside the risks of Brexit, a number of opportunities exist. Your operation and processes may already be overdue a review. Supply chain continues to be one of the most pressured departments within most organisations. There is relentless demand to meet strict deadlines, improve the customer experience and streamline costs.

For example, a weak pound should make UK suppliers more cost effective. Can your business capitalise on this and derive benefits? A soft Brexit will allow the UK to enter into trade agreements with individual countries, opening up potential new markets. Are there new opportunities for cross-border trade or cheaper supplies? You may wish to consider outsourcing your supply chain, leaving your fulfilment and distribution to experts who will be able to confidently navigate the post-Brexit climate on your behalf.

EC Group provides tailored, comprehensive logistics and fulfilment solutions and operational peace of mind. We offer national and cross-border delivery solutions designed around your business, industry and needs.

To speak with one of our experienced account managers about your supply chain management, or for advice on the impact of Brexit to your supply chain operation, please get in touch.