THE EFFECT OF BREXIT ON THE SUPPLY CHAIN INDUSTRY

In what is considered a historic ruling, the people of the United Kingdom voted to leave the European Union in June 2016, after having been a part of it for over 40 years. How this move affects the trading and logistics sectors is a topic that has undergone a tremendous amount of speculation.

The exact ramifications are unclear at the moment, as the move will not occur overnight. An enabling Act was passed by Parliament in March 2017, and on 29 March the Government formally notified the EU of its intention to leave. Negotiations on terms and future relationships can now begin. A maximum of two years is allowed for these, so by 29 March 2019 the UK will have left the EU ‘deal or no deal’. Over the course of this period, several deals and trade agreements will be negotiated by the UK, both with the member countries of the EU, and with non-member countries. The outcome of these negotiations will determine the future of the supply chain industry in the UK. For instance, failure to set up a free trade agreement with the EU will result in the application of World Trade Organization trade rules and tariffs.

Concerns for the supply chain sector

There are several factors that would be under consideration during the formulation of new trade regulations. One of the main concerns is the currency exchange rate, with the Pound having already fallen in value. The rates are expected to fluctuate widely in the near future.

New customs policies will be put in place that will affect global trade. The UK will be looking towards setting up independent deals with countries such as China, India, Japan, and the US. A change in tariffs could make the UK a lucrative trading partner as compared to the EU. Reduction in corporate tax and regulations could also lead to a rise in exports to the UK.

Another point of consideration is how non-tariff barriers will take shape. The UK could choose not to follow the Union Customs Code, recently instated by the EU. It also remains to be seen how the EU recognizes the UK’s standardization and testing facilities.

The future of the labor market is also uncertain as controlling immigration was one of the driving forces behind Brexit. Supply chain companies based in the UK could face a shortage of manpower, leading to a rise in automation. New immigration policies could also result in increased paperwork for firms and make the labor market less flexible.

The new trade agreements will determine how goods will flow in and out of the UK. Companies that initially shipped through other EU member countries may have to consider directly shipping to ports in the UK, and setting up new distribution centers.

Being prepared

The specifics of these negotiations will most likely be available only once the 2-year period is up, with most of the policies being implemented almost immediately. Supply chain firms need to be appropriately informed and prepared to deal with the outcomes.

Damco Supply Chain Development are working towards getting a clearer picture of the effects of Brexit on the supply chain market. Along with closely following all negotiations, we have also partnered with leading universities to research possible solutions for companies, and ensure a smooth transition into the future scenario.

For more details on how Brexit will affect your supply chain business, consult our white paper on the matter, and get in touch with our local offices here.