Bumpy times ahead for Brexit Britain’s supply chains

Sup­ply chain dis­rup­tion is now the norm for UK busi­ness­es, with con­sumers at the receiv­ing end of delays and short­ages. Can busi­ness­es and the UK gov­ern­ment smooth out the bumps?

A report by dig­i­tal sup­ply chain experts project44 pre­dicts ongo­ing prob­lems into 2022. Logis­tics indus­try lead­ers view Brex­it and reliance on Chi­na as two main issues, though they’re far from the only prob­lems.

How much of this is down to Brexit and China?

There’s a broad con­sen­sus across sup­ply chain experts and indus­try lead­ers that Brexit’s impact is real, but the extent of the impact varies. James Hookham is the direc­tor of inter­na­tion­al ship­ping trade body the Glob­al Ship­pers Forum. He says Brex­it reduced the num­ber of lor­ry dri­vers in the UK from 2020 and caused bureau­cra­cy-relat­ed delays, espe­cial­ly when full UK bor­der con­trols came into force at the end of Jan­u­ary 2022. More con­trols on food and ani­mal prod­ucts are still to come, trade between the EU and Britain has dropped dra­mat­i­cal­ly, and Covid has frus­trat­ed new trade agree­ments, he adds.

Before the pan­dem­ic, China’s glob­al sup­ply chain role was log­i­cal and con­ve­nient. But Bei­jing’s zero-Covid strat­e­gy and trade dis­putes with the US cre­at­ed knock-on effects for mov­ing goods. Trade dis­putes caused man­u­fac­tur­ers to stock­pile com­po­nents ahead of embar­gos, says Lau­rence Del­li­cot, direc­tor of sup­ply chain ser­vices at logis­tics tech­nol­o­gy firm Avnet Sil­i­ca. Short­ages of elec­tri­cal com­po­nents, such as semi­con­duc­tors and cir­cuit boards, have been exac­er­bat­ed by delays from the coun­try.  

“Dra­con­ian mea­sures” to pre­vent Covid-19 spread­ing have squeezed exports to the UK, accord­ing to Kent Busi­ness School’s Pro­fes­sor Thanos Papadopou­los, such as restric­tive lock­downs in the ports of Dalian, Shang­hai, Ning­bo, Tian­jin and Shen­zhen.

Con­sumer demand is ris­ing, Papadopou­los adds, which pres­sures man­u­fac­tur­ers to pro­duce and trans­port more raw mate­ri­als to meet increased orders. But for many com­pa­nies, espe­cial­ly elec­tron­ic man­u­fac­tur­ers, this pres­sure is at odds with com­po­nent short­ages, lead­ing to sup­ply chain snarls and increased costs.

“Com­po­nents were scarce because of sup­pli­ers in the Far East, ship­ping con­tain­ers became scarce, fin­ished prod­ucts piled up in stor­age and trans­porta­tion costs sky­rock­et­ed,” he says.

Brex­it and Chi­na aren’t the only chal­lenges. Local issues are also affect­ing sup­ply chains, whether or not a busi­ness relies on inter­na­tion­al routes. These include infla­tion, high­er-than-antic­i­pat­ed post-pan­dem­ic demand, and the knock-on effects of ris­ing ener­gy costs, such as increased prices for raw mate­ri­als, trans­porta­tion and fin­ished prod­ucts. 

Hookham says the fun­da­men­tal prob­lem is “too many box­es chas­ing too few ships, with ports and inland dis­tri­b­u­tion net­works becom­ing con­gest­ed”, lead­ing to ship­ping rates that are three to five times high­er than 2019 costs.

Sustainable solutions

How can sup­pli­ers over­come these chal­lenges? Some com­pa­nies have absorbed the costs rather than increase prices for their cus­tomers. Some have moved from just-in-time to just-in-case sup­ply chain strate­gies: for exam­ple, stock­pil­ing and over-order­ing goods or com­po­nents. 

Lay-Z-Spa UK, for exam­ple, man­u­fac­tures its prod­ucts in Chi­na, but has large­ly absorbed the increased freight costs rather than pass­ing these costs on to cus­tomers. Sim­i­lar­ly, trade sup­plies com­pa­ny TIMCO has a buffer of five to sev­en months of stock and £34m of orders from the Far East. Cloth­ing man­u­fac­tur­er Hawthorn has bulk-pur­chased cot­ton ahead of time to meet cus­tomer demand.

But these aren’t prac­ti­cal solu­tions for all busi­ness­es. Com­pa­nies should “avoid over­selling and over­promis­ing to cus­tomers”, accord­ing to Del­li­cot. Diver­si­fy­ing sup­ply chains alone will not solve all prob­lems. He advis­es busi­ness­es to per­form robust­ness and agili­ty tests on their sup­ply chain and use the data, espe­cial­ly real-time data, to improve the flow of prod­ucts. 

Len Pan­nett, man­ag­ing part­ner at Vis­a­gio, encour­ages dig­i­tal trans­for­ma­tion to improve sup­ply chain vis­i­bil­i­ty. He also points to iden­ti­fy­ing alter­na­tive sources of mate­ri­als from local sup­pli­ers or using inno­v­a­tive tech­niques like 3D print­ing to “alle­vi­ate long lead times and save costs of spare and tool­ing parts”.  Empow­er­ing low­er-lev­el deci­sion-mak­ers to respond quick­ly to prob­lems, and obtain­ing demand data from sup­pli­ers and cus­tomers to plan accord­ing­ly will make it eas­i­er to move goods on a day-to-day basis, he adds.  

Long-term ship­ping con­tracts are anoth­er solu­tion. How­ev­er, Hookham cau­tions that while such deals might buy deliv­ery cer­tain­ty, busi­ness­es could “pay over the odds” if the spot mar­ket col­laps­es lat­er in the year and con­tain­er demand drops.

What can the UK government do?

The UK gov­ern­ment has been urged to increase invest­ment to ease sup­ply chain delays, includ­ing more mon­ey for port and rail infra­struc­ture to improve con­nec­tions with­in the coun­try, as well as tech­nol­o­gy and research capa­bil­i­ties. How­ev­er, invest­ment in sup­ply chain inno­va­tion can be a shared respon­si­bil­i­ty between the pub­lic and pri­vate sec­tor.

“Dig­i­tal tools can bring scal­a­bil­i­ty, ver­sa­til­i­ty and cost reduc­tion if deployed cor­rect­ly,” says Pan­nett. “Solu­tions such as robot­ic process automa­tion are proven to have fast returns on invest­ment and can give sup­ply chains speed, accu­ra­cy and econ­o­my.” 

At a leg­isla­tive lev­el, the lor­ry dri­ver short­age, which has been exac­er­bat­ed by EU dri­vers return­ing home post-Brex­it, could be eased through new laws to make it eas­i­er to recruit for­eign work­ers. But in the long-term, UK facil­i­ties for lor­ry dri­vers, pay, ben­e­fits and train­ing oppor­tu­ni­ties need to improve to make the job more appeal­ing. Som­er­set-based Brad­fords Build­ing Sup­plies sup­ports its appren­tices to get their HGV dri­ver licences, but Jon Ren­dall, the company’s sup­ply chain man­ag­er, says more needs to be done to ensure there is a large pool of qual­i­fied dri­vers avail­able for British busi­ness­es.  

Com­mu­ni­ca­tion between British busi­ness­es and gov­ern­ment – and between busi­ness­es and their sup­pli­ers – will help smooth some sup­ply chain issues, par­tic­u­lar­ly with­in the UK. How­ev­er, oth­er fac­tors, includ­ing Brex­it-relat­ed obsta­cles, remain hard­er to over­come.

Pan­nett agrees that com­mu­ni­ca­tion between gov­ern­ment and busi­ness is impor­tant, while advo­cat­ing for a bet­ter Brex­it deal, ide­al­ly with Cus­toms Union and Sin­gle Mar­ket access. How­ev­er, he out­lines the chal­lenge of realign­ing UK-EU rela­tions: “Rejoin­ing the Cus­toms Union and the Sin­gle Mar­ket … would be help­ful, [but] bring fur­ther polit­i­cal impli­ca­tions.”

But with­out the appetite in West­min­ster for such bold moves, British busi­ness­es will have to look clos­er to home to smooth out sup­ply chains.