How Will Brexit Affect Your Supply Chain?

Posted on 23rd April 2019

As the world’s fifth largest economy, the UK is facing unprecedented uncertainty following the referendum where the country voted to leave the European Union. No one knows what post-Brexit will look like, yet businesses across the country must plan for it. Most see Brexit as something to mitigate. Others, however, see it as a strategic opportunity to enter new markets or a way of challenging the status quo and revitalising their supply chain.

How might Brexit affect your supply chain?

The free movement of trade between the UK and the EU has until now meant supply chains have operated tariff-free, with minimal delays at borders. This looks set to change soon, with most UK businesses facing a shake-up in key areas of their supply chain.

Customs and border clearance delays

Until there is a new customs agreement between the UK and the EU, there are likely to be delays caused by border checks both coming in and going out of the country. Not only will stricter border controls harm the economy, but there will also be repercussions for Britain's roads too. Imperial College, London predict if vehicles are delayed at the border in Folkestone or Dover for just an extra two minutes, motorway queues in Kent could triple to 29 miles.

If your supply chain includes European suppliers, you may face longer delivery times for components or goods. Moreover, it's not just European imports that will be affected. The UK's Asian imports are transported to ports in Europe such as Rotterdam, meaning they may also experience delays in being transported to UK shores. Predicted delays will have significant repercussions for perishable goods, especially when transportation routes can mean crossing several borders.

Customs and tariffs

Introducing new customs duties on imports has the potential to impact businesses severely. If you can't absorb the costs, sourcing new UK based suppliers or relocating the production of your products may be options. If you're looking to grow your business, you may want to shelve your plans until you find out the impact of new import tariffs.

Legal considerations

You may want to consider renegotiating or terminating existing supplier contracts if they become too onerous following Brexit. Adding in safeguards to protect your business against uncertainty will be paramount. Intellectual property such as trademarks and patents may be impacted also. You may have to re-register them from the EU to the UK or risk their viability being affected in international markets or make new applications in the global markets you operate in.

What can your company do to protect its supply chain when preparing for Brexit?

It may feel you’re planning for the impossible when preparing for Brexit. However, there are practical steps to take that will give your business the flexibility to deal with the possible outcomes.

Contingency planning

Many companies will already have a contingency plan for supply chain disruption, as there are many potential sources of disruption, Brexit being just one. Disruption may come in unusual forms, for example, increased customer demand rather than supply interruption.

Contingency planning should consider (where applicable):

•    Reviewing your existing business plan

•    How to deal with changing or increased compliance or legal obligations

•    Continued access to skilled staff or up-skilling/cross-skilling current staff

•    Delays on movement of goods caused by border checks

•    Increased customs costs

•    Using alternative suppliers based in the UK

•    Stockpiling of goods

Supply chain mapping

Supply chain mapping is essential to your Brexit planning. With movement of goods, knowing what countries your inputs come from and their product categories will help with calculating what new tariffs might apply post-Brexit. It's not just your critical suppliers that warrant attention. You must know who their lower level suppliers are and where they are based for sufficient visibility to mitigate risk.

Contract reviews

You will also want to carry out a contract review to identify your European suppliers. Pay close attention to any increased costs or risks that may arise because of Brexit. For example, who will be liable for new tariffs or compensation for delays. It may be worth renegotiating contracts or contract terms with your suppliers. In extreme cases, termination may be your only option. If you have a contract management system in place, it will help you quickly identify non-UK suppliers.

Extreme measures

Some companies have taken extreme measures to prepare for Brexit. EasyJet, for example, is changing its legal structure by increasing its European shareholder base to over 50%, so they meet European Union ownership requirements. Other measures include transferring registration of their aircraft from the UK to their Austrian base and obtaining European operating licences for pilots and cabin crew.

Opportunities for British businesses post Brexit

Brexit may also present positive opportunities for the UK’s SMEs. If the pound weakens as expected, then private equity firms may invest more in the UK, securing business and creating more jobs. Shrewd business owners who can quickly adapt to market changes may grow their businesses thanks to lean operations and their ability to be flexible.

Currency fluctuations since the Brexit vote have had a positive impact on exports of some British goods and services as they are more affordable for international customers. If this trend continues, international expansion may be an option for UK companies, who can find themselves a completely new customer base post-Brexit.

Companies should take action now and proactively plan for the disruption and change Brexit may bring. While the current climate of uncertainty is concerning, it also offers the opportunity for forward-thinking businesses to take advantage of growth opportunities and flourish post-Brexit.

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