Brexit Woes Continue for Supply Chains

September 5, 2019


Plan or no plan, the United Kingdom’s prime minister, Boris Johnson wants to leave the European Union October 31. However, a political uproar is underway as members of the opposing political party fight to force a deal requirement.

The fight continues with time running out. The uncertainty has driven businesses to either completely pull out of the country or at least shift some of their supply chains elsewhere in preparation.

Still, the dependence between the EU and the UK is so very important to supply chains. The EU is the UK’s largest trading partner, accounting for about half of both imports and exports of goods. Furthermore, a large proportion of the UK’s imports from and exports to the EU are in the form of intermediary products—an indicator of the high degree of interconnectedness between UK and EU supply chains.

McKinsey & Company interviewed UK-based executives on the possibility of a no-deal and their responses were quite telling:

  • A food-manufacturing executive said, “If Brexit goes badly, we could easily lose £100 million of business. Some of our products become immediately uncompetitive if we are hit with tariffs.”
  • An automotive manufacturer said, “The operational costs alone of managing increased customs processes will be in excess of £7 million pounds a year for our company.”

Leaving the EU without a plan will result in increases in trade costs with the UK as well as delivery and transportation delays. Ports, airports and customs are still not entirely equipped to handle this possibility. However, recently, The U.K. Department for Transport announced it would make a total of 30 million British pounds ($36.6 million) available for port infrastructure and road and rail link improvements after the Oct. 31, 2019 Brexit deadline – note that this funding is after the deadline – in our opinion, it should have been made much earlier in the process but the U.K. Department for Transport noted that “The updated figure is part of the government's overall 2.1 billion British pound ($2.6 billion) investment in preparations for leaving the EU.”

Additional government funding has also been made available for businesses to train staff in making customs declarations, and to help businesses who support others to trade goods to invest in IT. Financial secretary to the treasury, Jesse Norman MP, said, “Brexit takes place on 31 October and we urge all businesses to make the necessary preparations in order to be fully ready. The government has doubled the support available, so that thousands more customs experts are on hand to help businesses on and after Brexit day.”

In the event of a transportation backlog once Brexit occurs, the UK government has issued a tender worth up to £300m calling for companies that transport critical goods via trucks, trailers and vans to switch to aircraft or rail, thus placing even more pressure on these transport modes.

October 31 is just 56 days away. Supply chains that wait do so at their detriment. As for the UK’s government, preparations have often been more talk than substance over the past couple of years. Plans should have been made much sooner and not at the last minute. It’s time for the U.K. to come to a unified decision for supply chains as well as for the country overall.

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Brexit Woes Continue for Supply Chains

September 5, 2019


Plan or no plan, the United Kingdom’s prime minister, Boris Johnson wants to leave the European Union October 31. However, a political uproar is underway as members of the opposing political party fight to force a deal requirement. The fight continues with time running out. The uncertainty has driven businesses to either completely pull out of the country or at least shift some of their supply chains elsewhere in preparation. Still, the dependence between the EU and the UK is so very important to supply chains. The EU is the UK’s largest trading partner, accounting for about half of both imports and exports of goods. Furthermore, a large proportion of the UK’s imports from and exports to the EU are in the form of intermediary products—an indicator of the high degree of interconnectedness between UK and EU supply chains. McKinsey & Company interviewed UK-based executives on the possibility of a no-deal and their responses were quite telling:

  • A food-manufacturing executive said, “If Brexit goes badly, we could easily lose £100 million of business. Some of our products become immediately uncompetitive if we are hit with tariffs.”
  • An automotive manufacturer said, “The operational costs alone of managing increased customs processes will be in excess of £7 million pounds a year for our company.”
Leaving the EU without a plan will result in increases in trade costs with the UK as well as delivery and transportation delays. Ports, airports and customs are still not entirely equipped to handle this possibility. However, recently, The U.K. Department for Transport announced it would make a total of 30 million British pounds ($36.6 million) available for port infrastructure and road and rail link improvements after the Oct. 31, 2019 Brexit deadline – note that this funding is after the deadline – in our opinion, it should have been made much earlier in the process but the U.K. Department for Transport noted that “The updated figure is part of the government's overall 2.1 billion British pound ($2.6 billion) investment in preparations for leaving the EU.” Additional government funding has also been made available for businesses to train staff in making customs declarations, and to help businesses who support others to trade goods to invest in IT. Financial secretary to the treasury, Jesse Norman MP, said, “Brexit takes place on 31 October and we urge all businesses to make the necessary preparations in order to be fully ready. The government has doubled the support available, so that thousands more customs experts are on hand to help businesses on and after Brexit day.” In the event of a transportation backlog once Brexit occurs, the UK government has issued a tender worth up to £300m calling for companies that transport critical goods via trucks, trailers and vans to switch to aircraft or rail, thus placing even more pressure on these transport modes. October 31 is just 56 days away. Supply chains that wait do so at their detriment. As for the UK’s government, preparations have often been more talk than substance over the past couple of years. Plans should have been made much sooner and not at the last minute. It’s time for the U.K. to come to a unified decision for supply chains as well as for the country overall.

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