Brexit - the preparation

It was June 2016 when the UK voted to leave the EU. Today little is resolved… but things have moved on, and action has been taken.

 The 2019 Classic FM Hall of Fame, which ranks the UK’s 300 most popular classical works, offered further proof that nothing is safe from Brexit’s polarising power. The return of Ralph Vaughan Williams’ The Lark Ascending to the No1 spot – and 10 entries for Sir Edward Elgar, with his Enigma Variations at No3 – had the Daily Telegraph proclaiming a “Brexit boost for British composers”.

Holiday bookings to non EU destinations have also risen, and UK holiday parks are doing a roaring business, as others turn their back on poor exchange rates and the threat of airport and airline disruption. The low value of sterling works in reverse for international tourists who helped boost UK gallery and museum visitor numbers by almost 9% last year, and international buyers spent 13% more per transaction on UK goods in the first six months after the Brexit deal.

 But these are small gains. Largely the UK remains in turmoil, leavers and remainers still arguing. You might think talk of division is overhyped but, as Tatler writer Emily Hill noted: “There is NOTHING as important on the dating scene as how someone voted in the EU referendum.”

One explanation for the growing polarisation is that our brains are hard wired to reject unpredictability. And the delay in executing Brexit may, in retrospect, seem like the greatest mass experiment into the impact of uncertainty in the history of psychology.

The desperate spinning of alternate scenarios in the country’s boardrooms – and living rooms – leaves business in a quandary. Traditionally, the toughest corporate challenges are the all-pervasive ones. It’s clear that Brexit could radically transform every aspect of a business, from recruitment of staff to the import of raw materials. But then again, it might not.

 Not knowing what to think is no excuse for not thinking at all. Across the British economy, procurement and supply chain leaders have been thinking, acting and planning. Read on to find out how. 

How ready are UK businesses?

“In the UK, around 50% of businesses have put things in place while the other half have held fire – and you can’t really blame them,” says CIPS economist John Glen. “For companies looking down the barrel of significant investment for Brexit, when do you press the ‘go’ button? Some, for instance, will need extra staff and systems to do the customs clearance for existing customers – but if we don’t Brexit, that investment could come to nothing.”

The cost to the UK itself ranges from paying consultants for advice, to a communications campaign for day one, he says. A Goldman Sachs doppelgänger analysis, which examined economies similar to the UK, estimated the UK had lost 2.5% of GDP growth, a costing of around £600m a week, Glen adds.

The key concern for supply chains is keeping goods moving and many companies are currently paying a premium to store excess stock in warehouses in readiness for border delays. Day one of Brexit would require about 130,000 traders to do EU customs declarations, only about half of which are ready. Some will only need to complete a simple declaration, but moving dangerous goods requires 22 pieces of data, he says. “But even if you’ve done the paperwork, there are no cameras at Dover to reconcile your lorry load with your customs declaration.”

When French border guards staged a Brexit-style security exercise, within 12 hours there was a 25km queue at Calais. “Perishable goods degrade at about 5% for every additional hour of transit – so a lorry of strawberries held up for 20 hours means you’re just left with smoothies.”

Labour supply is also a concern. There has been a fall in net migration from the EU and the increase in migration from the rest of the world has presented some issues with the skills mix, Glen says. “But, Eastern European workers don’t want to come where they’re not welcome and the depreciation of the pound has made it less attractive,” he explains

What about the public sector?

When the UK leaves the EU, public procurement policy for British businesses is sure to change, but the scale of that change depends on whether the government secures a deal or not, says the Cabinet Office.

 In the case of an exit deal, public procurement regulations will remain unchanged during any implementation period, and contracts will still need to be advertised on the Official Journal of the European Union Tenders Electronic Daily (OJEU TED). But if there’s no deal, it will be replaced by a new UK-specific online list of tender opportunities called the e-notification service, which the government insists will be in place by Brexit day. 

For procurement deals that start before Brexit and finish after, public sector buyers must comply with new regulations when they come into force, it says, such as posting subsequent contract award notices on the e-notification service, says the Cabinet Office. “However, the effect of the former rules will be preserved in some circumstances to maintain fairness throughout the procurement.”

 In the meantime, the Cabinet Office encourages procurement and supply chain professionals to stay up-to-date, with the latest information posted online at: www.gov.uk/guidance/public-sector-procurement-after-brexit.

And the automotive industry?

The motor industry has been vocal, and active. Vauxhall, BMW, Jaguar Land Rover and Honda all paused production at their plants for a period in April, Nissan and Jaguar Land Rover cited Brexit in production shifts outside the UK, and BMW may move the Mini’s production out if it’s a no-deal.

Significant resources have already been devoted to preparing for Brexit, says Luke Hampton, senior supply chain manager at the Society of Motor Manufacturers and Traders (SMMT). In the supply chain, the vast majority are small- and medium-sized enterprises, he says, and not all will have the resources to prepare for a no-deal Brexit.

Calculating and proving the origin of goods, delays in moving components, warehousing and changes to raw material stock could all cause problems, he says. “Customs guidance alone on moving goods outside of the EU stretches to some 88 pages.” 

“SMMT analysis shows that fresh investment into the industry fell nearly 50% in 2018, amid fears over the UK’s future trading prospects,” he says. 

Hampton says SMMT members are preparing as best they can for Brexit, but time is running out. “No-deal Brexit must be taken off the table for good, with a positive long-term resolution that delivers frictionless trade, or else we face yet another devastating precipice on 31 October.” 

How are farmers affected?

Frustrated by the prolonged uncertainty over Brexit, and facing a dry start to 2019 after a dry 2018, many British farmers have opted to take a wait-and-see approach to Brexit preparations, says the National Farmers Union.

 Given that many are small or medium-sized enterprises, this is a logical decision, says Tom Hind, chief strategy officer for the Agriculture and Horticulture Development Board (AHDB). He believes the industry is relatively unprepared for Brexit, and even more so for a no-deal. “That doesn’t mean there aren’t individual farmers that have been taking action to mitigate business risks,” he adds. “A few livestock and mixed farmers have looked to reduce sheep numbers in anticipation of more difficult trading conditions, for example.” 

Last September, the government announced a two-year pilot scheme to allow non-EU migrant workers to work for six months on UK farms to address concerns about a lack of seasonal workers, but businesses have been struggling to recruit seasonal workers, whether because of Brexit or a falling currency, says Hind. 

“One of the biggest concerns for retailers will be what Brexit means in terms of the availability of supply, and potentially the oncost in terms of inflation to consumers. It’s a fiercely competitive market and they’ll all be trying to ensure they’ve got the best advantage,” he says. Despite strong rhetoric in support of British food, customers are driven by value and cost.

Farmers regularly exporting to the EU have also become more aware of the risks of tariffs being imposed through a no-deal, and an imbalance with imports into the UK, where the government has said it would cut tariffs on imports of many crops and lower those on livestock products. “Only a few tariff lines such as lamb retain the same levels of protection afforded by the EU’s tariff wall,” Hind says.

What of logistics and customs?

For the freight industry in the UK, “the Christmas peak never stopped”, says James Hookham, deputy chief executive of the Freight Transport Association. Businesses started stockpiling to avoid the risk of customs duties. “Had you ordered a new car from a continental manufacturer to be delivered the week after a Brexit crash-out, the customer would have to pay 22% on top of that.”

Hookham has been waiting for the trigger that would start free trade discussions to cut red tape and frictions at the border. Had there been a no-deal Brexit in April, it would have gone badly, he says. “But that threat has gone away until October. You can step back, stand down, take the summer off.”

 A year ago there was a threat there would be no planes leaving, and the number of permits available for trucks to move across the UK EU border was woefully inadequate. “But the UK government started putting together its own contingency plans and the EU came forward with concessions and easements, and rules could be tweaked so most journeys wouldn’t need permits,” he says. For businesses, he recommends the HMRC procedures released in January, with a partnership pack “It is the definitive go-to document.”

Hookham says all British ports now have an enhanced customs presence and the ability to perform checks. In a no-deal, with the temporary special procedures, a driver can complete a pre-declaration and be allowed through the port, declaring the goods to customs a day later and paying the duty after that. But it would be difficult for vehicles with multiple consignments. Technology could be developed that would help, but that is probably three to five years away, he says. “We need to be realistic about how long it will take.”

 Some continental hauliers want to drop trailers in Calais and leave the British haulier to pick it up and bring it back to the UK. “That is still a no-deal risk. There are tight margins in haulage and you could lose a couple of days in queues.” 

But many haulage and supply chain firms are much better prepared than a year ago, believes Hookham. Some large pan-European logistics businesses have started to activate control towers – where the team is centralised, managing big contracts across countries and businesses. “It is a well-established concept and it costs more to set up, but because you can see everything together you can almost change plans in real-time, divert from Calais to Scandinavia if needed.”

 Issues of driver licences being approved has been sorted out, says Hookham, but with a no-deal Brexit you would need an international permit. “You can get one now if you want to – they are not a bad investment,” he says.

His organisation is providing practical advice and assistance to its members on how to manage the processes, and he wishes that organisations would share their learnings. “But staying on top of this is quite often seen as a competitive advantage,” he points out.

What have businesses been doing?

“Most businesses I speak to are doing something. The level of activity varies, but businesses are in a better state of readiness now.” Tom Woodham, FCIPS, is digital supply chain leader at PwC, and talks to a number of businesses about their preparation for Brexit.

Warehousing of contingency stock has increased and businesses have been helping their European workforce. “At PwC, we have set up kiosks to help staff complete forms and to feel they are not threatened by being removed from the country. Even so, it is making people think twice about the right to remain,” he says.

Visibility of suppliers has improved, with many looking beyond their direct suppliers to their suppliers’ suppliers. Technology is helping this and funds have gone into analytics and reporting, says Woodham.

Some industries, including automotive and aerospace, are seeing businesses looking at reshoring manufacturing. There are still specialist skills in the country for metalwork, fixtures and fittings, he says, and these can be supplemented by automation.

And there is a better understanding of what needs to be done to prepare for working outside the UK. In cosmetics, for example, the regulations in principle will be the same, but it will have to be filed to the UK regulatory authority, so there will be changes in paperwork and labelling requirements. “Some are preparing, but for others it is more cost effective to wait until the point when it becomes clear it is going to happen,” he says.

For now, check your systems, advises Woodham. If a new duty is imposed on a material you export, your IT system may not have the right fields for preparing a sales invoice, for example. “It can be as simple as adding a bolt-on import/export system, or populating a table you didn’t do before,” he says. And put together a good team to manage Brexit. “You need a steering committee with senior people who can make decisions and allocate funds.”

If nothing else, this exercise has shown people in the C-suite who perhaps assumed there was visibility that didn’t exist. “Now they know and can do something about it.”

CIPS survey: What have businesses been doing to prepare for Brexit?

Over 42% of UK organisations have been stockpiling goods or raw materials to ensure a consistent supply despite any changes due to Brexit, according to the CIPS survey of supply chain managers, conducted in February. Not only did this tie up business funds, it was also incurring high costs as demand for storage increased.

 Of the EU respondents to the same survey, only 25% were stockpiling, but 35% were reshoring some supply chains to the EU, leading to UK businesses losing deals or having to renegotiate contracts. Cautious behaviour was another reason for a fall-off in business, with 21% of UK respondents reporting clients or customers hesitating to place contracts, 12% postponing or cancelling contracts, and 21% renegotiating.

“UK businesses have lost orders as investments are postponed due to ‘Brexit uncertainty’,” says Glen who insists government action is long overdue. “Politicians must make their minds up and get on with implementing their decision so that UK businesses can start to plan for the future.”

The survey also found that both UK and EU businesses were strategising on the impact on transport routes and customs checks to avoid delays, with 31% of UK businesses concerned about frictionless trade and 27% of EU respondents.

Meanwhile, 28.3% of UK organisations and 20.2% of EU organisations said they were not able to prepare for Brexit due to uncertainty.

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