Supply Chain Alert: Bracing for the Brexit Impact

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Brexit day came and went on March 29 and the U.K. is still in the European Union. Brexit could potentially be extended by another 1-2 months, even longer, or not happen at all. Meanwhile, businesses are left in a holding pattern in attempts to prepare for any impact brought on by the UK’s withdrawal. This could affect businesses the day the UK leaves the EU or on January 1, 2021, the expected end date of the transition period. While UK-EU supply chains are sure to be affected, the impact on global supply chains is still uncertain as it is unclear what the Brexit impact on supply chain would bring.

Possible Scenarios

The possible scenarios include a hard Brexit, a soft Brexit and even no Brexit.

Hard Brexit: As the UK leaves the EU, it stops being a member of the EU customs union. Exports/imports from and to the UK would be subject to border controls and tariffs, the extent of which depends on how hard a Brexit it will be.

Soft Brexit: Although the UK leaves the EU, it will remain in the customs union in some way. All or some goods can move within the customs union without duty, tariffs or extensive border checks, but subject to EU regulations.

Brexit Effect on Supply Chains

Businesses might have to face major supply chain disruptions and challenges in the following areas.

Trade: Following Brexit, the UK and EU could have different trade sanctions and export/import rules. You might face border delays because of new permits and certificates, vehicle standards, and more. There could be a rush to find ideally placed warehouses and uncertainty as to where to hold stock.

Legalities: The legal impact on people, contracts, and intellectual property could be quite significant. At present, UK court judgments can be enforced in the EU and vice versa.

Cost: You might incur transaction costs for UK-EU cross-border goods movement. The sterling exchange rate could be volatile. Such disruptions could cause your suppliers and customers to become insolvent.

Workers: The impact of Brexit on employment laws are still unknown. Competition for well-qualified and experienced personnel could be higher.

Services: UK companies might find it quite hard to provide services in the EU because of difficult EU licenses or regulations.

Preparation for Brexit Impact on Supply Chain

If you are well-prepared, you would be able to manage the Brexit impact well.

Map your supply chain to assess risks and opportunities.

  • Identify strategic suppliers/customers.
  • Divide supply chain contracts into those across UK-EU borders; between UK and the rest of the world; and those within the UK.
  • Identify those that last beyond the Brexit date and beyond December 31, 2020.
  • For each contract, identify who would be responsible for border requirements, expenses, or delays.

The strategic relationships that require trade between the UK and the EU and last beyond December 31, 2020 will be the riskiest. The non-strategic relationships within the UK that don’t last beyond March 2019 won’t pose much risk.

If you are at risk, stay safe by doing the following.

  • Renegotiate terms for current contracts or add new safeguards. Examine exit strategies.
  • Avoid long-term contracts until clarity prevails.
  • Prepare for tougher cross-border logistics and border delays.
  • Check for change in tariffs/duties and documentation.
  • Plan for increased expenses and changes in exchange rate.
  • Prepare for impact on services.
  • Consider arbitration rather than courts if any of your partners/suppliers become insolvent.
  • Check for grants and incentives.
  • Consider qualifying with Her Majesty’s Revenue and Customs (HMRC) as an authorized economic operator (AEO), which would mean lesser border inspections and delays.
  • Understand the new data being collected and supply them correctly.
  • Update and modify processes to remain relevant.
  • Consider robust technologies and solutions to enhance your supply chain.

Once the Brexit uncertainty is over, those who are better at anticipating and implementing changes will have a distinct advantage. Utilize the latest technologies so that you are among them.