Is your supply chain Brexit-ready?

22nd Jan 2018

Following early warning signs during the fallout of Brexit, the inevitable has happened: 63% of European companies are expecting to move their supply chains out of the UK, with 40% of British companies beginning to find alternatives to their European suppliers. This will increase internal costs on both sides and, as the Financial Times notes, will be a particular burden to the auto industry, as well as unexpected sectors such as pharmaceuticals.

Forbes has noted that, of British companies with European suppliers, only 14% feel prepared for the imminent split that Brexit will make after the transition period ends. Furthermore, there are some factors, particularly the fluctuation of exchange rates, which are harder to plan for and more expensive to manage. All of this will arguably cause ongoing issues for retailers to a very serious degree, and a pronounced need for supply chain solutions, regardless of which trade agreement is decided upon after the UK leaves the European Union.

Disruption is expected across the board

While some advances have been made, the overall status of Brexit negotiations is closer to deadlock than the UK getting its way. The prospect of a secure a deal which continues to offer “free and frictionless trade” outside of the Customs Union is looking less likely. Beyond staffing concerns, the potential risks of incurring additional costs beyond tariffs will be something businesses are likely to be eager to avoid.

According to Chris Sturman, the Chief Executive of the Food Storage and Distribution Federation, for every hour of delay at customs there is a £15,000 cost to road haulage. In addition to that, there are 14,000 trucks which cross from Calais to Dover on a daily basis, bringing nearly 30% of Britain’s food from the continent.

As Sturman notes, while these deliveries are essential to Britain’s supermarkets, if it becomes too expensive to export goods to us, Europe will be more than happy to find somewhere else for its trucks to go. This will leave our food supply chain extremely disrupted, with solutions becoming a costly problem to deal with.

The BBC has reported that the pharmaceutical sector is set to face similar problems, not least due to the European Medicines Agency’s headquarters moving to Amsterdam from London. In the wake of Brexit, the price of medication is also set to rise, requiring a separate UK license before they can be prescribed. At present, 8 million more packs of medication coming to the UK than leaving it, meaning that there could be far longer waiting times at pharmacies as well as hospital wards.

Why retailers need to be nurturing relationships

As the above examples demonstrate, industries shouldn’t wait until the deadline hits to futureproof their supply chains to withstand the potential effects of Brexit. As the above Forbes piece notes, “if you treat your supplier as an ally and partner, you will have the best chance of weathering the Brexit storm”.

According to the Independent, major fashion chains Asos and Next are already planning to increase their stock, with a view to establishing a distribution base on the continent. Reuters have also pointed out that major supermarkets are already in talks with their suppliers to identify potential delays, shortages and price rises, and have begun to find new sources for their goods.

Of course, relocation is going to be far harder for most SMEs than well-established companies who can afford to do so, and finding new links in the supply chain isn’t going to be easy either. Consequently, retailers must make the effort now to strengthen the ties they have with their existing overseas suppliers and begin their own negotiations to safeguard their future.