A survey by the Chartered Institute for Procurement and Supply has provided some interesting insight into how supply chain managers both in the UK and the EU are beginning to strategise around the potential impact of Brexit.
While Article 50 has been invoked, we don’t yet know what kind of trade arrangements will exist between the newly independent UK and the EU. Current British prime minister Theresa May set out that plans would be for a ‘hard Brexit’, which would mean the UK leaving the single market and potentially no trade deal. Of course, since then, she has also called a snap general election which will take place next month, and until the outcome of that is known there is likely to be little more clarity for businesses to work with in terms of how their supply chains might be affected by post-Brexit tariffs.
Supply Chain Managers Not Keen to ‘Wait and See’
The best advice for supply chain managers since the Brexit referendum has been to look for ways to reduce the risk of tariffs that may come into effect after Brexit affecting costs. While there is always the possibility that it may not ultimately be necessary to switch suppliers, having investigated whether suppliers from the opposite side of the channel to your business will always put you in a more organised position. It seems, from the CIPS survey that this is exactly what both UK and EU based supply chain managers have been doing, with only 23 percent saying that they hadn’t yet made any provisions.
Currency Fluctuation Already Causing Challenges
As well as concern around tariffs after Brexit, there is also the problem of the depreciation of the pound causing UK businesses to re-evaluate using EU suppliers. Britain has seen some volatile times in both currency and share dealing in recent months. With the pound weaker against the euro for nearly a year now, costs have been pushed up for British firms who are now seeking out alternative UK based suppliers. Although only 29% have so far had to renegotiate contracts, 65% reported that the currency fluctuations had had a noticeable effect on their supply costs.
EU Businesses Looking to Sever Ties
All of the businesses in the CIPS survey currently had supply chain ties between the EU and the UK. Of the EU businesses asked, of which there were 117, 46 percent expected to remove more of their supply chain activity from the UK in the near future, and 28% were already investigating ‘re-shoring’ supply chains to other parts of mainland Europe.
Uncertainty and a Weak Negotiating Position to Blame
67% of the supply chain managers interviewed said that the uncertainty around what kind of trade environment would exist after Brexit was a significant problem. It also seems that people feel Britain is going into negotiations from a weak position, being the first EU country to leave using Article 50. If Britain is offered a good deal, this could be seen as encouraging other countries to go down the same path, which obviously, the EU does not want.
Sadly, the survey shows what many have suspected – that relations between UK and EU businesses just won’t be as cost effective or beneficial post-Brexit, and supply chain managers are doing what they can despite having no clear details yet to remove risk of increased costs from their businesses.