Businesses start to batten down the Brexit hatches
ONE in 10 UK firms believe they will be bankrupted if goods are delayed by just 10 to 30 minutes at Customs borders once the Brexit-bound UK leaves the EU, and 63 per cent of European businesses say they will probably go out of business if such delays last up to three days, a report starkly warns.
An independent survey of 1,300 UK and European Union-based supply chain managers conducted by the Chartered Institute of Procurement and Supply (CIPS,) reveals the extent of the deep concern among business chiefs about major disruption to global logistics chains ahead of the UK’s exit on 29 March 2019.
Worryingly, a high proportion of the EU and UK respondents are not even aware how long their goods/supplies currently take to pass through the relevant borders, writes Thelma Etim.
According to the research, more than half (56 per cent) of UK businesses are unaware of how long their goods and raw materials take to pass through Customs, a collective ignorance that will make planning even more difficult, it says.
Brexit: Businesses mitigate against threats to their supply chains
Less than one fifth (17 per cent) of respondents know that shipments take between 30 minutes and one hour, whilst 23 per cent admit they are planning to stockpile supplies, with four per cent having already begun that process.
In line with the UK, 38 per cent of EU-based firms have no idea how long on average it takes for their goods to clear Customs; more than a tenth (12 per cent) say less than 30 minutes, another 12 per cent suggest the time is between one to three hours, whilst six per cent think it is between 12 and 24 hours.
What is not ambiguous, is the manoeuvring being carried out by firms in an attempt to mitigate threats to the smooth running of their supply chains.
“One in 10 businesses (12 per cent) have also switched suppliers as a result of Brexit and 21 per cent have tried to protect their businesses by adding new contract clauses in case of increases in trade tariffs,” the survey finds.
Almost a fifth (19 per cent) of UK supply chain chiefs admit they have found it difficult to secure new business after March 2019 – and six per cent have lost business since the UK government announced its intention to leave the European Union.
Brexit: The threat of trade tariffs and restrictions
Whilst UK Prime Minister Theresa May continues to negotiate a deal that she hopes will be palatable to both ‘Remainers’ and ‘Brexiteers’, UK businesses are generally pessimistic about future global trade. They are forecasting that supply chains will become more expensive, with 57 per cent of respondents believing that trade tariffs and restrictions will increase.
However 28 per cent insist that investment in new technologies will reduce the burden on supply chains.
Already, one in 10 EU supply chain managers are taking no chances with what may or may not transpire after 29 March 2019, and have already moved all, or part of their businesses out of the UK.
Some (38 per cent) are looking for alternative suppliers within the EU and are mapping potential costs of tariffs (31 per cent). But, surprisingly, others are also strengthening existing links with the UK (26 per cent).
Almost a third of respondents believe that working with a EU supplier will be cheaper than a similar relationship with a UK supplier (32 per cent) – although 47 per cent expect there will be no difference, the survey finds.
Rather predictably, re-shoring – the practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated – is looking like an attractive prospect. The research shows that 35 per cent of EU supply chain managers will re-shore part or even all of their supply chain currently contained within the EU.
“However, they were also unconvinced of success, as 18 per cent say their business would no longer be viable post-Brexit, and suppliers would also be placed under additional pressure,” the report highlights.
Regarding Customs delays, 22 per cent of EU bosses say they intend to stockpile goods and raw materials, whilst six per cent have already begun doing so.
Some supply chain managers are re-training their workforce to cope with the likely new Customs process, building greater flexibility into new contracts and investing in new technologies to make improvements in their supply chains.
The overall gloomy short-term and long-term outlooks are even more evident among certain specific business sectors.
Some Airbus investments put ‘on hold’
For example, more than 70 per cent of aerospace and defence companies who responded to the CIPS survey are still in the process of conducting risk analyses, 54 per cent believe they will find it difficult to find the skills they require in the UK, 33 per cent think it will be more expensive to work with a UK supplier than an EU supplier, whilst 21 per cent intend to stockpile goods.
Just a few days ago, Katherine Bennett (below, right), senior vice-president of Airbus UK, revealed to a House of Commons Business, Energy and Industrial Strategy select committee that no new ‘significant investments’ had been made by the European planemaker over the last year.
“Investments have been put on hold for Airbus, Bennett confirms. “If the withdrawal agreement is successful in some form or another, then Airbus would consider continuing to invest, as the company has done over many years. But obviously, because of the uncertainty, which we want to see reversed, is why investments have been put on hold.”
Airbus usually aims to spend around £500 million annually on research and development projects, the senior vice-president revealed, but she would not be drawn on how many millions of pounds of investment the UK may have lost out on since the referendum.
“We want the lightest touch in terms of checks at Customs, [as if] we are tariff free. You may remember in the civil aerospace side of things that there are also the non-tariff barriers,” declares Bennett. “We want the dial to be as low as possible in terms of any extra burdens.”
She continues: “We have a huge task-force within Airbus which is looking and analysing all the processes we have to go through in Customs because you will appreciate that our parts cross over [multiple] borders a lot – into France, into Spain, into Germany…many times.”
Paul Everitt, chief executive of ADS Group, the trade organisation representing the aerospace, defence, security and space industries in the UK, who also attended the session, detailed the state of play in the sector. “Those that had committed to invest prior to the [UK] referendum have continued with those investments but those, if you like, have options, have chosen to either hold and wait and see what happens, or in some cases have decided to put that investment into other markets or into capability in other territories.”
UK manufacturing bosses share a similar dim view, with 70 per cent revealing currency fluctuations are making their supply chains more expensive – with 48 per cent now looking for UK replacement suppliers.
Overall, it seems that the supply chain sector believes that future global trade is likely to be significantly more expensive and supply chains more complex.
Sixty-five per cent predict that trade tariffs and restrictions will increase, but 27 per cent think new technologies could make supply chains easier to manage.
Many manufacturing companies are relatively prepared for the exit, the report shows. A third (31 per cent) have been adding clauses to their contracts to allow for price negotiations during currency fluctuation periods and new clauses have also been added to allow for price re-negotiations should trade tariffs increase.
Earlier this month, global technology group Halma, which manufactures health and safety products, was unequivocal in describing how the Brexit negotiations have generated “a number of potential risks and uncertainties”, which could have “a material impact on the group’s performance over the second half of the financial year,” the company says.
“This decision [the UK’s withdrawal from the EU] has created a new dimension to the uncertainties surrounding global economic growth and trading conditions between the UK and the EU during the transition process,” warns a corporate statement from the company.
“Halma has an executive working group (set up) to assess and monitor the potential impact of Brexit on the group, to communicate updates and support our businesses in preparing for the range of possible outcomes,” adds the statement.
In 2017/18, approximately nine per cent of the group’s revenues emanated from direct sales between the UK and the EU.
Meanwhile, the technology company has identified several main Brexit risks as having an actual and/or potential impact on its business. These include increased overall uncertainty, including the specific impacts on growth, inflation, interest and currency rates, and potential changes to UK and EU-based laws and regulations including product approvals, patents and import/export tariffs.
“Depending on the nature of Brexit, our business could experience shorter-term disruption around the time of Brexit in its supply chain, including disruption associated with customer buying patterns, Customs and border clearances and uncertainty over UK and EU product approvals,” the statement asserts.
Read more stories about global trade here