Brexit uncertainty hits supply chain contracts

Almost a quarter (22 per cent) of UK businesses with EU suppliers are having difficulty securing contracts which run after March 2019, according to a study by the Chartered Institute of Procurement & Supply published just as the UK & EU agreed the terms of the Brexit transition.

CIPS warned: “These numbers raise fears of an imminent collapse in the UK’s supply chain following Brexit, unless negotiators can give businesses on both side of the channel greater clarity around what the future trading relationship between the UK and EU will look like.”

Some 32 per cent of UK businesses with EU suppliers have already increased their prices as a result of the vote leave, while 41 per cent plan to increase their prices in the future to offset the potential costs of Brexit.

In addition, 23 per cent of UK businesses said they plan to reduce the size of their workforce to offset Brexit-related costs, while 11 per cent of EU companies have moved some of their workforce out of the UK since the Brexit vote.

The study found that EU businesses are reducing their ties to the UK. Nine per cent of UK businesses with EU suppliers have already lost or had contracts cancelled as a direct result of Brexit. On top of the lost contracts, 14 per cent of EU businesses with UK suppliers have already moved parts of their business out of the UK to reduce their exposure to any complications resulting from Brexit.

The CIPS research also found that 42 per cent of EU supply chain managers said that they do not think British products ‘stand out from the crowd’, while 37 per cent said it would be less expensive to work with a local supplier compared to a UK supplier.

By comparison, only eight per cent of supply chain managers from outside the EU said that British products don’t ‘stand out from the crowd’, implying that UK businesses could benefit by targeting markets outside the EU.

CIPS also founds that to mitigate these challenges, an increasing number of UK supply chain managers are looking to re-shore their supply chains back to the UK. Now, 36 per cent of UK supply chain managers with EU suppliers say they are already looking for alternative suppliers inside the UK.

John Glen, economist at CIPS, said: “Businesses are now looking elsewhere to try and recuperate the money they are losing as a result of Brexit. To achieve this, many are also looking to switch suppliers, but they’re likely to have difficulty finding suitable alternatives in the UK. It is therefore crucial they don’t burn their bridges with their EU contacts but instead work to build stronger relationships with European partners. Businesses should also consider other ways through which they can improve the efficiency of their supply chain, such as by embracing new technologies and automating processes.

“In the end, businesses that fail to plan ahead and use this opportunity to reduce costs in their supply chain may not survive post-Brexit.”

* UK and EU negotiators have agreed a Brexit transition period to run until December 2020. The move was welcomed by the Freight Transport Association. Deputy chief executive James Hookham said: “Today’s news from Brussels is welcome, as far as it goes. We seem to be getting more time to agree the new border procedures and there is some confidence that UK employers will be able to continue to employ EU nationals up until the end of the transition and beyond, as long as those are permanent residents in the UK or frontier workers. But business still needs to know what customs and trade procedures look like after the transition period: the customs duties and taxes, the formalities required in the UK and the arrangements for border inspections of goods, the number of trucks that will be allowed to cross the border and the arrangements for the recognition of drivers’ licences and qualifications.”