I’ve deliberately not blogged about Brexit before – there is more than enough coverage of this topic. But we’ve decided to write a case study on Brexit for the new edition of our book, and I have been researching* the topic. So I thought I would share some insights from this research with you here…
It seems that British politicians have woken up to the fact that a No Deal scenario would be the worst possible outcome, especially for business. Nonetheless, it is still a possibility, so firms are putting in place contingency plans for this scenario. One such response is to stockpile supplies of goods inwards and finished stock. The IHS Markit/CIPS UK Manufacturing PMI® Report for April 2019 reported “The rate of increase in stocks of purchases hit a survey-record high for the third month running in March. The three sub-industries covered (capital, consumer and intermediate goods) all saw inventories rise at series high rates. A similar story was told for stocks of finished goods, which rose at a record pace for manufacturing as a whole and at, or close to, record highs across the three product sectors”. As a result, the UK Warehousing Association (UKWA) reported that its 750 members, operating 9.3 million square metres of space between them, had reported little or no spare capacity. Demand has been so strong that warehousing costs had risen by 25% in three months. Pharmaceuticals storage, which is handled by five specialist licensed operators in the UK, was at capacity. Frozen and chilled food warehouses were also full. Tesco has rented frozen food containers and located them outside all their largest stores.
A second major issue is professional expertise in importing and/or exporting under WTO rules. Currently the U.K. has a free trade deal with the 27 other E.U. countries, and through the E.U. another 50 trade agreements with other countries. In a no deal scenario most, if not all, of these trading arrangement would cease. The complexity of operating under WTO rules is such that firms would probably need to secure the service of an agent – if it is possible to secure the services of one, given the huge demand for their services.
The third major issue is logistics. The Road Haulage Association has six pages of advice for its members covering issues such as Certificates of Compliance in each vehicle, international driving licences for drivers, Economic Operator Registration and Identification Number (EORIN), customs codes, motor insurance Green Cards, and the Export Security and Safety Declaration. There were some issues waiting “to be clarified”, such as VAT fuel rebates, Driver 3rdCountry attestation forms, vehicles on hire or lease, fines, and tolls.
Depending on a firm’s exposure to these issues, it all means added costs to pay for agents, warehousing, import tariffs, lorry hire, compliance, and etc. etc. This creates serious issues with regards firms’ working capital and cash flow. This is why a few days ago, Barclays announced a £14bn fund designed to help small and medium-sized businesses (SMEs) to respond to the challenge of Brexit.
And all of the above are just the short-term issues…..
*I’ve avoided press reports and focused on government sources, and professional associations such as the CBI and U.K. Warehousing Association.