Post-Brexit trading: supply chain challenges

Date : 22 August 2018

Brexit is on everyone’s mind in the UK and elsewhere – and so it should be. But with so many conflicting messages flying around, it’s difficult to keep track of what’s going on. And even when you are up to date, do you really understand the implications?

My colleague James recently wrote a report for IGD Supply Chain Analysis about trading after Brexit, so with these thoughts in mind, I decided to do some demystifying of my own.

Current trading

21st century supply chains have developed and evolved over the years on the assumption that the UK is - and will continue to be – an EU member. As of the 29th March 2019 (the UK’s expected departure date), this will no longer be the case, and supply chain re-design will have to be done swiftly – and without affecting service levels.

Percentage of the UK’s EU and non-EU imports and exports of food and drink in 2017
Source: UK Trade Info, HMRC, August 2018

With so many international supply chains beginning and ending in the UK, customs, trade and regulation are key aspects of Brexit negotiations for food and grocery businesses. As minimal storage is available for short and medium shelf life products, products are delivered ‘just in time’. Any disruption will affect availability and likely lead to shorter shelf lives or wastage.

So what’s to be done?

We are left with four plausible scenarios for trade and customs (ranked in increasing levels of likely disruption for you):

  1. The UK requests to remain in the EU, perhaps following another referendum
  2. The UK remains within the European Economic Area (the ‘Norway option’) and therefore the Single Market, perhaps while a longer-term arrangement is negotiated
  3. A novel customs arrangement is agreed alongside a free trade agreement, achieving the UK government’s objectives
  4. No agreement is reached, triggering a sudden break in March 2019 and reversion to basic World Trade Organization (WTO) rules

Let’s look at option 3, the UK government’s proposal.

What the UK government wants

Last month, the UK government published a paper which shared its current objectives for post-Brexit trading. It highlights the deeply integrated markets between the UK and the EU, proposing a free trade agreement (FTA). The proposed FTA would cover all goods – including agri-food. The zero-tariff arrangement would be supported by a ‘common rulebook’ for these goods, with the UK committing by treaty to ongoing harmonisation for frictionless trade at UK borders. 

Potential post-Brexit trading challenges

If the UK’s proposal is accepted by the EU (not a certainty), it will resolve some of the uncertainty we’re currently facing around post-Brexit trading. However, it will raise new challenges and costs for businesses. More administrative and financial responsibilities, for example, would be required. This will be a challenge for smaller businesses, who may lack the capacity and expertise in these areas. Subcontracting to specialists could be one solution, although that won’t remove business responsibility in some areas:

  • Requirement to know the origin of goods, in line with the applicable rules-of-origin
  • Requirement to know the end destination for goods
  • Ability to track goods through supply chains, to verify arrival at stated destination

Clear as mud?

What’s clear is that the current level of uncertainty is daunting for any company to manage. With the UK Parliament in its summer recess, we’re unlikely to have any clarification or progress reported before the autumn. As always, IGD will follow all developments with information and analysis, so make sure you’re signed up to the Brexit newsletter for all the latest updates, including our upcoming summary report on supply chain preparedness for Brexit.
 

Suzannah Murphy

Suzannah Murphy

Supply Chain Analyst

IGD’s Chief Economist looks at the current state of negotiation between the UK and EU regarding trade after Brexit

New competitors, technology, political and environmental events, are among a growing number of threats to supply. Be capable of adapting and responding.
 

The food and grocery sector faces a daunting to-do list to prepare for this worst-case scenario. Each business’ list will be unique, but here’s our checklist to use as a cross-reference.