With only six months to go before the UK formally withdraws from the European Union, shippers need to plan for supply chain disruptions and a more complex trading environment.
On Tuesday, British multinational clothing retailer Next outlined its plans for trading in the event of a no-deal Brexit. Chief executive, Simon Wolfson, a Leave supporter, warned that customs delays and higher prices are likely. Wolfson also noted that a no-deal withdrawal was not the company’s “preferred outcome” but that Next had put plans in place for this possibility. To this end, the retailer has set up new companies in Ireland and Germany. In addition, Next analyzed how import duties on goods entering the UK could potentially impact retailers and — crucially— by how much.
Is Stockpiling the Answer?
Next is of course not the only organization making Brexit contingency plans. A number of high profile organizations are stockpiling in the event of supply chain disruptions. Mondelez International, owner of Cadbury and Oreos, made the news when it announced plans to stockpile chocolate and other ingredients. More worryingly for the British public is the risk to healthcare supply chains. Matt Hancock, the UK’s Health Secretary, suggested healthcare providers should stockpile six weeks’ supply of vital medicines in the event of a no-deal.
Stockpiling is a short-term solution. But it is also a sensible strategy in the face of likely supply chain disruptions. That is why nearly a quarter of UK businesses plan on fattening up inventories. Long term planning has been more difficult. Negotiations between the United Kingdom and the European Union have been fractious. As a result, there is not much clarity about what the future trading relationship between the UK and the EU will look like.
The 29 March 2019 withdrawal date is looming, but there are still serious unresolved Brexit issues. Theresa May’s Chequers plan — announced with much optimism in July — is under attack at home and abroad.
At the recent Salzburg summit, European Council President Donald Tusk called the plan unworkable. Furthermore, Chequers does not have the unassailed support of May’s own Conservative Party. Leading Tories have publically attacked it, undermining May’s standing both within the UK and the EU.
There are two issues on which the EU has not been willing — and is unlikely to ever be willing — to budge: an undivided single market and an open border between the Republic of Ireland and Northern Ireland. The Northern Ireland border issue is particularly thorny. Any reintroduction of a hard border risks sectarian violence and jeopardizing Northern Ireland’s hard-won peace.
The supposed solution to this issue is the much-discussed “backstop”. The backstop would align Northern Ireland with Ireland in the customs union and single market. This would allow the free flow of goods, but Northern Ireland would effectively be in a different customs regime to rest of the UK.
This is not an ideal, nor a popular, proposal. Firstly it would mean that Northern Ireland would not benefit from any future trade deals that the UK makes. For many in Northern Ireland and the UK this is unacceptable — a separate customs regime is tantamount to being outside the UK itself.
The 21 month transition period gives the UK some breathing room here. However, an Irish border has been an intractable issue from the triggering of Article 50. Time won’t make it any less so.
Planning for an Uncertain Future
Given all of this uncertainty, it is perhaps unsurprising that many companies have not made long-term post-Brexit plans. This is true both within the UK and EU, and a number of companies have adopted a “wait and see” approach. Although calls for a second referendum have gotten louder, it is unlikely that Brexit will be halted.
Not all organizations have the clout of Next or the resources to game out all possible scenarios. But all companies need a Brexit strategy. This includes reviewing their logistics and distribution models and trade compliance programs. The post-departure trade relationship between the UK and EU will almost certainly be more complex. Likely changes include increased documentation requirements and more product-related compliance checks. Companies who have only traded across the single market and who do not have procedures in place to deal with these issues are likely to be stung by fines, customs delays, unhappy customers and lost business.
About Precision Software – Trusted Global Trade and Transportation Execution
Precision Software, a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on Precision’s global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. Our open architecture easily integrates with Enterprise Resource Planning, Warehouse Management Systems and legacy solutions. An ISO-certified company, Precision Software assists companies to minimize shipping costs, optimize first mile and last mile deliveries, automate free trade agreement compliance, avoid customs delays and mitigate the risks associated with dynamic trading environments to maximize their competitive advantage. Precision Software’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about Precision Software, visit www.precisionsoftware.com.