Brexit is one of the most controversial developments in recent international affairs, and the impact it will have will extend far beyond the borders of the United Kingdom. Whether companies export goods to the U.K., source materials from U.K.-based businesses or otherwise include the United Kingdom in their supply chains, the effect Brexit will have on operations will be far-reaching. The current uncertainty regarding exactly how the U.K.’s departure from the European Union will transpire adds even more concerns that global businesses will need to address as we jump now into the Brexit Transition period.

Regardless of how Brexit shakes out in 2021 and beyond, it will have a major impact on global supply. Here’s what you need to know:

 

Deal or no deal after Transition?

It’s been more than three years of turmoil, but it is now clear that the U.K. will leave the EU by Jan. 31, 2020. This marks the beginning of a Transition period agreed to last until December 31, 2020. This Transition period is supposed to give all parties enough time to reach agreements on relationships including a future trade agreement. Although the U.K. and the EU have, in principle, agreed for all current rules and regulations to remain in place during this Transition period, it is still a very limited period of time and conflicting political messages are already flying across the English Channel. This period could be extended however and, given the complexity of such matters, an extension is likely.

If no agreement is reached by the end of the Transition period, the U.K. may face the “no deal” scenario, in which the country will be considered a third-party country by the EU. That would mean all trade agreements previously in place, which made shipping products between the U.K. and the EU far easier by eliminating tariffs and other checks, would no longer apply. The United Kingdom would revert to rules and tariffs established by the World Trade Organization until it could establish new trade agreements. This dramatic scenario may be preferred by the U.K. government to facilitate trade agreements with the USA or other non-EU countries, and it may also be preferred by EU institutions if critical alignment on such matters as food or pharmaceutical safety and regulations are not agreed upon.

The WTO’s trade rules are notoriously complicated, especially compared with the streamlined agreements that facilitate trade between EU nations. There is a very real possibility that supply chains extending into the U.K. will need to account for EU, WTO and whatever trade rules the United Kingdom eventually establishes post-Brexit, all in a fairly small amount of time. That is a lot of complexity to account for. On the other hand, if a deal between the U.K. and EU is reached before the end of the Transition period, the adjustment processes could be far less painful and easier to anticipate. Many external parameters will influence such discussions in 2020/21. It is impossible to predict the outcome and therefore we need to get prepared to face various types of disruptions.

There is no doubt that the impact of Brexit will extend across the entire supply chain, affecting the day-to-day jobs of truck drivers, customs officers, tax officers but also procurement officers, compliance officers and deeply disturb logistics services – whatever the transport mode. Products that previously were able to move between the U.K. and EU countries with relative ease may require a more diligent customs process, delaying shipments going into and leaving the country, adding tax and cost.

Businesses will need to anticipate those logistical challenges and account for them in their supply chain and demand management planning. It’s yet another factor that needs to be addressed to ensure supply chain operators are working with the most up-to-date and accurate information available.

Extra costs could undercut profits

It’s still too early to say what the U.K.’s new trade agreements with EU and non-EU countries will look like, but the impact of higher tariffs, customs, duties and other fees as well as product import restrictions due to non-compliance with EU regulations will require careful management across all supply chains whatever industry.

Johnathon Marshall, Partner at PricewaterhouseCoopers UK, urged business leaders to assess the impact that potential tariffs and additional custom checks would have on their bottom line. They may find that operations need to be moved to different regions to reduce these costs and protect revenue. In worst-case scenarios, businesses may be forced to leave the U.K. market entirely.

Noncompliance could be huge impact as well

On the EU side, there is a consensus to stick to EU standards that have been developed over years and the chance of compromising to lower standards (a trend expected to be pushed by the discussion between the U.K. and the USA) is close to nil.

Food supply chains, Pharmaceutical supply chains, Chemical supply chains are first in line, but discrete manufacturing and other process industries will be next in line as evidences of non-compliance to EU standards are materialized.

Time to put Supply Chains in tight control

Brexit has the potential to make an enormous impact on business operations. It is a major disruption for all industries and this disruption will extend across the entire supply chain. Businesses will need to anticipate potential challenges and get prepared. This preparation for Brexit may also be a chance for businesses to prepare for other types of disruptions in their supply chains that are likely to come in the future due to global warming and climate changes (flooding, hurricanes, heat, fires etc), other natural disasters (earthquakes, nuclear incidents, etc), or political fights or other regional conflicts.

As the digital integrated supply chain leaders, Inspirage has been involved in a large number of assessments across various industries on this very specific topic, with supply chain readiness assessments and scenario impact simulations to prepare a business for the impact of Brexit – or other disruptive events. In many cases, we could evidence the exposure to businesses due to their supply chain not being in control at the required granularity level which is needed to identify and manage issues in due time. We have helped companies to transform, ensure they have visibility across their entire supply chain and enable predictive simulations to react to incidents and make the right decisions.

We do this while delivering transformational services and solutions meant to future-proof supply chain management. The time is now to start planning – contact Inspirage today to minimize the potentially negative impact of Brexit and other major disruptions on your business.

Note: this article reflects the personal opinions of the author and may not necessarily represent the position of Inspirage.