Supply Chain Beyond Brexit
This piece is based on a roundtable discussion hosted by Craft and PWC in London on March 7, 2019, inviting supply chain professionals to discuss the challenges and plans for supply chain management through and beyond Brexit.
Uncertainty over Britain’s exit from the E.U. has loomed since 2016’s referendum, with terms remaining opaque as we pass the original March 2019 departure date.
E.U. membership has allowed for UK supply chains to be managed in relatively simple ways until now. Companies have been able to build complex cross-continental supply chains with no tariffs, low transport costs, and limited border delays (Marshall, 2018) building a high level of interdependence in production. Over half of the UK’s imports from the EU are of intermediate goods and services required for production, as are nearly 70% of the U.K.'s exports to the EU (Levell, 2018).
While it remains unclear how exactly current policies will alter post-Brexit, it is clear that steps must be taken to prepare for a number of outcomes when planning for the future of supply chains.
The Political Situation
Both a ‘Deal’ or ‘No Deal’ Brexit will result in policy changes that impact U.K. trade over the coming months and years. Even with an extension of the original March 29 exit date, a clear finalized outcome at this point is impossible - even if a deal is agreed there will still be a period of negotiations to agree new trade rules.
Unless the House of Commons votes with a majority on a deal or delay, there will be an automatic ‘No Deal’ Brexit. This means a sudden change to trade rules in April 2019:
- WTO tariffs on UK exports to the EU
- Tariff elimination on imports from all countries
- Intrusive border checks on imports
- No freedom of movement for people, money or goods
- Uncertainty is one of the most significant factors that makes planning for Brexit difficult. The challenge is building a strategy even though terms of exit are unclear and likely to remain in flux for some years to come.
- Paralysis has been the result of this uncertainty, with companies not actively commencing plans for the potential Brexit scenarios.
- Impact on wider business functions that are dependent on supply chain need to also be considered, not just supply chain as a standalone.
- Business strategy should be reviewed in light of the risks and opportunities of supply chain after Brexit.
- Agility in trade will be important beyond the scope of Brexit’s impact - as broader trade deal considerations (eg US-China) come into play, technology increases scrutiny on compliance as well as transforming supply chains, and demand changes, such as those in growing markets, could rapidly affect availability of supply, as well as opening up new channels of sale.
- Brexit could be seen as a catalyst for change for companies that have examined the worse-case scenarios to find that their supply chain can be resilient enough. The urgency of Brexit has helped these companies to upgrade and put new systems and processes in place that have been put off for some time.
- An opportunity to get to know the supply chain has also arisen, where companies are not taking for granted supply chains that have built up over many years, but are examining their value against other parts of the business and considering alternative and improved ways to achieve their objectives.
Recommendations And Advice For Planning
Ideally, mid-April should be seen as the date of Brexit as it is not clear what an extension would mean and legally entail. A company’s operational and regulatory complexity increases the likely impact of Brexit, regardless of however the final terms are agreed.
- Trusted Trader Status: In terms of exports and imports, it is likely that post Brexit, HMRC will be highly pragmatic, and prioritize flow over revenue collection, to minimize disruption from the UK side as much as possible. However, France and the Netherlands may still demand full regulatory checks for import/export at their end. To reduce disruption and risk, companies can apply for ‘Trusted trader status’ (i.e. ‘authorized economic operator’) which will be audited by HMRC and speeds up border flow. However, this status can take 3-6 months to achieve.
- Negotiation Preparation: Even when, or if, a Brexit deal is accepted there will still be uncertainty from subsequent negotiations.
- Contingency Plans: Understand the cost of change and availability of alternatives around critical suppliers.
- Consumer Behavior: Will consumers start to behave differently after Brexit? This is yet to be seen but should be considered in planning.
- Beyond Brexit - Time to act: supply chain by Jonathon Marshall
- Firms’ supply chains form an important part of UK-EU trade: what does this mean for future trade policy? By Peter Levell (Jan 2018)
- The UK government website, GOV.UK is a useful resource to follow for the latest developments