What are the supply chain legacies of Covid and Brexit?

23 September 2020

Companies will prioritise working with firms with standards that reduce supply chain disruption risk, a webinar was told.

Richard Wilding, professor of supply chain strategy at Cranfield University, said the legacy of Brexit and Covid would be that companies will be more careful going forward about which firms they choose to work with.

Speaking on a webinar by the International Chamber of Shipping (ICS), he said firms with standards that ensure lower global supply chain risks, such as Authorised Economic Operator (AEO) status, would be the top choice, as this will enable more efficient movement of supply.

He said: “This [AEO status] is becoming something of increasing importance because this particular standard means that the parties with it are saying, ‘We have a lower risk supply chain’.

“From security and customs, it would be less likely to get any disruption in terms of customs and controls. This applies to all supplies, whether they are bulk commodities or containers.”

AEO status is an internationally-recognised quality mark which shows that a business complies with UK and EU customs control procedure standards. Firms which have the status have faster application processes and a lower risk score, which may reduce the number of checks customs carry out on documents and goods, according to HM Revenue and Customs guidelines.

Building resilience is key for companies in current times as they aim for lower risk supply chains and reduced intervention from government and other authorities, Wilding said.

“We're in this world of increased volatility, and therefore we're all having to actually adapt within that environment. We have external pressures, which are really changing things and Covid created more of a burning platform for change across all supply chains, and all industries at this time,” he added.

Esben Poulsson, chairman at ICS, said: “We have a lot on our plate and what is now coming our way in Europe. There are concerns regarding Brexit, the implementation of the European emission trading scheme, which will include shipping, and what else we should be taking into account for future planning.” 

She also mentioned the US-China trade war and trade uncertainty increasing against the geopolitical background.

Wilding suggested Covid’s legacy would be heightened resilience as businesses restructure their global supply chains to reduce risks, with a move towards increased onshoring of production and automated machinery to keep costs down.

He said: “With Covid, we're in a world where it’s about procuring or resilience, rather than cost, so people want shorter supply chains, which are therefore more resilient. For shipping, it will mean the types of products will change, it's probably going to be more [basic] ‘vanilla products’, which will then be configured locally, close to the market.

“Businesses are having to switch rapidly into an exploratory, agile way of thinking. We're finding with some of the challenges, in terms of trade, that now the whole issue of being promiscuous about where we locate our facilities to leverage cheap labour is starting to go away, and highly automated environments are being put into place.”

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