BREXIT Update: Potential Impact on the World’s Supply Chain

October 5, 2018 Update: Department for Transport publishes no deal planning information
Transport technical notices, setting out plans to be put into place in the unlikely situation the UK leaves the EU without a deal, published. Read full article here.

The status of the UK’s move to leave the European Union and what it means for the world’s supply chains.

The United Kingdom (UK) voted to leave the European Union by March of 2019—a milestone that will be reached in less than a year.

Having provisionally agreed on the three “divorce” issues (how much the UK owes the EU, what happens to the Northern Ireland border, and what happens to UK citizens living elsewhere in the EU and EU citizens living in the UK), the UK and the EU are now focused on the fine details of these important issues, according to the BBC.

Once Brexit takes place—and then during the period ending in December 2020—the official “transition” will be underway, allowing both sides to get everything in place and also allowing businesses to prepare for the moment when the new post-Brexit rules between the UK and the EU begin.

“It also allows more time for the details of the new relationship to be fully hammered out,” the BBC notes. “Free movement will continue during the transition period, as the EU wanted. The UK will be able to strike its own trade deals – although they won’t be able to come into force until January 1, 2021.”

What Does Brexit Mean for Supply Chains?

Right now, the EU offers significant advantages to its member states—including the UK—when it comes to trade and supply chains. For instance, EU states enjoy free trade and the open movement of goods, labor, people, and capital. “Without tariffs,” Supply and Demand Chain Executive reports, “EU member countries can operate more efficiently with lower costs, giving them a competitive advantage over non-EU companies.”

The publication notes that with the UK leaving the Customs Union after Brexit, free trade agreements will need to be put in place to avoid any significant increases in trade friction between the EU and the UK. Failing that, any company trading through EU-UK borders will likely be competitively hampered post Brexit. Key penalties include tariffs (which current UK companies don’t have to worry about); rules of origin requirements; and additional administration and paperwork.

“Companies will also need to introduce new participants into the process such as freight forwarders and customs brokers,” SDCE reports. “Aligning processes and systems adds complexity, costs, and delays.”

Noting that most of the Brexit fallout will be confined to Europe, SDCE says it could still have a significant impact on global trade. “Many global supply chains run through the UK and will be impacted by rising trade barriers and costs. The simple, single link that constitutes the current UK-to-Europe leg of the supply chain will fracture and require the introduction of new partners, systems, and procedures, all of which incur a cost and time penalty.”

Strong Logistics Partners Count

A recent CIPS survey of UK and European supply chain managers found that 40% of UK businesses are now looking to replace their EU suppliers, and 25% of large UK businesses (or businesses with more than 250 employees) have individually spent more than $131,943 (USD) preparing their supply chains for Brexit.

According to Forbes, those costs come on top of the daily impact of currency fluctuation, with 64% of U.K. businesses saying this has made their supply chains more expensive to manage. “Further,” the publication reports, “slightly more than a quarter (26%) of the respondents are taking another tack and investing more time to strengthen their relationships with suppliers on the continent.”

Toine Matthijssen, Managing Director Odyssey Logistics Europe BVBA , says the company is keeping a close watch on Brexit and on how it’s impacting the world’s supply chains. “Now is the time to make sure you have logistics partners who have expertise and who can scale in a way that meets your changing business needs,” says Matthijssen, “and who can deal with the uncertainty that Brexit may present.”