Businesses already preparing for Brexit by rerouting supply chains

Nearly half of EU businesses working with UK suppliers are already looking for replacements within the rest of the EU. Meanwhile 11% of British supply chain managers fear part of their operations “may no longer be viable” after Brexit.

Whilst UK politicians continue campaigning ahead of the general election, a new report suggests that businesses are already preparing for the separation. The survey of supply chain managers by the Chartered Institute of Procurement & Supply (CIPD) found that 46% of EU-based businesses expect to reduce their use of UK suppliers with 45% of those currently working with UK suppliers already looking for replacements within the rest of the EU. Meanwhile, 32% of UK-based businesses who use EU suppliers are looking for alternative suppliers inside the country.

Many UK and EU businesses have supply chains across the bloc. The lack of tariff and non-tariff barriers in the single market make doing business across the bloc both cheap and easy. In the process of making a car for instance, parts can be moved several times between EU countries before a car is built. The new car can then be sold within the single market with zero tariffs and zero non-tariff barriers.

But with Theresa May likely to be prime minister again on 9 June, the UK is set to leave the single market. This could mean manufacturers face multiple tariffs. As the survey suggests, businesses are already making plans and the UK looks set to lose out. Whilst businesses on both sides are seeking to reroute their supply chains in order to avoid tariff and non-tariff barriers, the size of the EU (even without the UK) mean there are more options and more flexibility for EU-based businesses. On the other hand, UK businesses are likely to face increased costs and  reduced trade with its biggest trading partner so even if a company could manufacture their goods from parts entirely produced in the UK, they still could face additional costs to export them into the EU.

The report also suggested that British supply managers were more pessimistic about Brexit than their European counterparts. The UK’s weak negotiating position was the biggest concern for 39% of British supply managers surveyed. Meanwhile 36% thought there wasn’t enough time and 33% believe there is a “dearth of supply chain expertise and knowledge in the UK to draw upon”.

Businesses were also pessimistic about the financial costs of Brexit to them. The CIPS report pointed to the fluctuation of the pound as being another challenge that the UK faced. 65% of businesses said their supply chains became more expensive because of the weaker pound. Meanwhile 11% of supply chain managers said that “part of their operations may no longer be viable”.

In a statement about the report, CIPS Group CEO Gerry Walsh said “fluctuations in the exchange rate or the introductions of new tariffs can dramatically change where British companies do business.” He added that whilst there are opportunities for small businesses in Britain to win new contracts as companies look for local suppliers, there are significant challenges with costs eventually passed onto consumers.

Brexit is likely to bring considerable costs for businesses in the UK and Europe; these costs are then going to be passed on to small suppliers and eventually consumers.

Gerry Walsh, Group CEO of CIPS

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