UK businesses preparing for a no-deal Brexit are being hit with “real costs” and are facing challenges that should not be dismissed as “project fear”, John Glen, CIPS economist warned today.
Writing in a new report by CIPS, he outlined how companies are already counting the cost of Brexit, amid fears that a no-deal will result in chaos at Britain’s ports.
Some firms have hired extra staff to manage no-deal custom procedures and increased stockpiling efforts, in turn paying premium prices for warehouse space, according to Glen, who is a visiting fellow at Cranfield School of Management.
In addition to increased operational costs, some UK businesses have also lost orders as EU businesses have chosen to relocate their supply chains onto the European mainland.
“Adding insult to injury, investments have been postponed due to ‘Brexit uncertainty’ which has resulted in UK businesses losing orders. All this is not ‘project fear’; these are real costs that are being incurred,” Glen said.
The report reveals how one in ten UK firms said they would go out of business if they were unable to receive supplies from the EU, according to a CIPS survey of 1,253 businesses earlier this year.
Less than half (40%) of companies said they will be able to export to the EU if the UK leaves without a deal.
And 39% said Brexit would mean increased costs for their organisation.
While 43% of UK supply chain managers said they were stockpiling goods and raw materials to mitigate the impact of a hard Brexit, 5% struggled to find suitable warehousing to build up stocks.
One in five business held less than a month’s worth of stock, which “begs the question of how businesses can continue to function should a hard Brexit occur or customs arrangements not agreed,” the report stated.
And almost a third of businesses (31%) said they were looking at alternative routes, ports or transportation to avoid getting caught in queues at ports.
Resolving the issue of delays is crucial for business, as 11% of UK exporters expect their contract to be cancelled outright by their clients in the event of border delays.
Writing in the report, Glen said: “Delays at ports will hit UK exporters hard, who, as our survey illustrates, expect to pay penalties or lose contracts for late delivery of exported goods. In addition to these penalties, delayed delivery of goods will mean delayed payments for those goods and this will put the ‘cash flow ’ of exporters under greater pressure."
He added: “This is particularly impactful on smaller export businesses; a number of whom have suggested in our survey that the combination of delays and interrupted payments may bankrupt their businesses.”
Meanwhile, almost a quarter (24%) of UK firms said they had not registered and are not aware of the necessary steps to apply for a Economic Operator Registration and Identification number (EORI).
Only 14% said they had applied and completed all four steps to secure an EORI - which is required to move goods in or out of the UK in a no-deal scenario.
“Supply chains across Europe have worked pretty well for the last few decades. Supply chain managers have been used to straightforward processes and the free movement of labour, goods and services but this is fast becoming derailed,” according to Duncan Brock, group director, CIPS.
Writing in the report, he added: “If no-deal becomes a reality, supply chains will experience a re-set and supply chain managers will almost be back to square one doing their best to save their businesses from oblivion.”
This comes just six months after the Cabinet Office warned that a lack of preparation by businesses is likely to add to the disruption experienced in a no-deal scenario.
And earlier this month, data released by HM Revenue & Customs showed 70,000 out of a possible 240,000 companies had registered for the documentation.