5 ways Brexit is shaping supply chains

When the Brex­it tran­si­tion peri­od end­ed on Decem­ber 31, many busi­ness own­ers faced the new year filled with uncer­tain­ty. 

“As a small busi­ness, we’ve had no oth­er option but to switch off direct sales to Europe in the short term, while we work out what our next steps will be,” says Kather­ine Swift, founder of the UK-based Japan­ese green tea brand OMGTea.

Hit by the extra red tape and hap­haz­ard deliv­ery sched­ules that have ush­ered in the UK’s exit from Europe, like many small-busi­ness own­ers, Swift plans to increase her stock and reduce the num­ber of ship­ments with­out dent­ing cash flow.

With as many as one in five small busi­ness­es in the UK classed as exporters, raw mate­ri­als short­ages, length­en­ing ven­dor lead times and high­er prices have seen some shut up shop for good. Oth­ers are in fever­ish realign­ment mode.

Whether it’s join­ing forces with crit­i­cal Euro­pean Union sup­pli­ers, rent­ing extra ware­hous­ing space in key mar­kets or active­ly chas­ing new ter­ri­to­ries, busi­ness­es across all sec­tors are prov­ing noth­ing if not inno­v­a­tive. 

After 47 years of unfet­tered access to the EU’s 500 mil­lion-plus con­sumers, the UK may no longer be in the club but, as firms bat­tle their way through com­plex rules of ori­gin, incon­sis­tent duties and unsta­ble sup­ply lines, the end-game is far from over.

On-shoring

Mov­ing onshore to avoid sup­ply chain dis­rup­tion is polit­i­cal­ly expe­di­ent and earns brown­ie points among con­sumers for whom a “Made in Britain” logo will speak vol­umes in the post-Brex­it world.  

But while close to 100 per cent of UK sourc­ing is already with­in reach for some firms, fast fash­ion, toys and tech are just three of the indus­tries which remain heav­i­ly reliant on sup­plies from Chi­na and the Far East. 

“The British toy indus­try moved to Asia in the 80s oil cri­sis and although I’d love to bring my pro­duc­tion back to Britain, it would nev­er be cost effec­tive,” says Lyn­don Davies, chief exec­u­tive of Horn­by. 

“As both importer and exporter, we’re hap­py to serve our Euro­pean mar­ket from a Dutch-owned ware­hous­ing facil­i­ty here in the UK and if the EU tar­iff regime hap­pens to change overnight, we will take imme­di­ate steps to switch to an equiv­a­lent facil­i­ty over there.” 

In the long term, the UK could become an attrac­tive base for Euro­pean busi­ness­es look­ing to export through­out the Sin­gle Mar­ket.

A 2020 report by man­age­ment con­sul­tan­cy Alvarez & Marsal pre­dict­ed that more than £4 bil­lion of retail prod­ucts could be on-shored to the UK by the end of this year, equiv­a­lent to the country’s entire cloth­ing man­u­fac­tur­ing out­put. 

We are at the mer­cy of dif­fer­ent cus­toms agen­cies at the moment and it’s a mess

EU warehousing

The Nether­lands and Ger­many are prov­ing an attrac­tive propo­si­tion for many British firms look­ing to beat Brus­sels by estab­lish­ing their own dis­tri­b­u­tion base in the EU, among them JD Sports, or rent­ing ware­house space from sup­pli­ers.

While there can be con­sid­er­able set-up costs involved in employ­ing local ware­house staff or ship­ping an exist­ing team over­seas, once estab­lished, a UK busi­ness can enjoy both fric­tion­less trade and free­dom from the com­plex san­i­tary and phy­tosan­i­tary (SPS) rules designed to pro­tect pub­lic health and ani­mal wel­fare.

“If your EU busi­ness con­sists of many small orders, ware­hous­ing would be a good option and I know of many com­pa­nies that are cur­rent­ly con­sid­er­ing this,” says Philip Roe, chief cus­tomer offi­cer of DHL Sup­ply Chain.

But there is a down­side, as Mike Cher­ry, nation­al chair­man of the Fed­er­a­tion of Small Busi­ness­es, points out. “Small exporters have been hit by a raft of fresh costs and admin as a result of new EU trad­ing arrange­ments, forc­ing many to set up offices on the Con­ti­nent or, in some cas­es, relo­cate there whole­sale. That’s time and mon­ey spent on nav­i­gat­ing fresh rules that should be being spent on adapt­ing and stay­ing afloat in an extreme­ly chal­leng­ing envi­ron­ment,” he says.

Joint ventures

“It was Brex­it and the SPS reg­u­la­tions that has­tened our deter­mi­na­tion to set up a joint ven­ture trad­ing deal with a firm in the Nether­lands and we feel very pos­i­tive about it,” says Jamie Gray, founder of the pro­mo­tion­al prod­ucts brand Bud­dy Burst.

“We can’t export our best-sell­ing seed stick prod­ucts to the EU at the moment because they either get returned or stuck at cus­toms, but whether our part­ner uses our machines to make our lines from scratch or sim­ply fin­ish­es them off, it makes per­fect sense to sup­ply the EU’s £8‑billion pro­mo mar­ket from over there.”

Dan­ny Hodg­son, founder of high-end jeans store Riv­et & Hide, says the £200-plus price tags on his inter­na­tion­al­ly sourced den­im make ware­hous­ing too expen­sive an option. But with half his online busi­ness com­ing from the EU, he and a part­ner firm are hir­ing a spe­cial­ist Dutch accoun­tant and tax advis­er to over­see ship­ments and returns via a local dis­tri­b­u­tion cen­tre. 

“We are at the mer­cy of dif­fer­ent cus­toms agen­cies at the moment and it’s a mess,” he says. “By hav­ing our own Dutch VAT num­ber, we’ll be treat­ed like a domes­tic com­pa­ny in the Nether­lands and, as long as we declare every­thing prop­er­ly, it should all work smooth­ly.”

“In the last six months, I’ve been struck by how well com­pa­nies are work­ing togeth­er in the new trad­ing envi­ron­ment

Wider markets

“We’re tak­ing a hit on the extra duties still being imposed on busi­ness-to-con­sumer exports from the UK to the EU and this inevitably comes off the bot­tom line. But we are hop­ing these addi­tion­al costs are only teething prob­lems that will be solved with­in the next three or four months,” says Robert Ettinger, chair­man and chief exec­u­tive of the lux­u­ry leather goods brand that bears his name.

“We have no inten­tion of desert­ing our very old and long-estab­lished cus­tomers in France or Ger­many, for exam­ple, but we are find­ing the Far East, a more impor­tant mar­ket for us, has coped far bet­ter with the oth­er major headache of the year, COVID, than Europe has.”

While he agrees export­ing to new con­ti­nents is an obvi­ous way for­ward for UK firms, Ettinger stress­es this is “a huge learn­ing curve requir­ing patience and resourc­ing”.

For Swift at OMGTea, it’s a case of slow­ing down in Europe while revving up else­where until the EU fog clears.

“For­tu­nate­ly, we can con­tin­ue to sup­ply our prod­ucts to Euro­pean cus­tomers via Ama­zon, but we also intend to accel­er­ate our expan­sion into oth­er inter­na­tion­al mar­kets, such as Cana­da and Aus­tralia, as part of our future growth strat­e­gy,” she says. 

Watching and waiting

“We are only 40 to 50 per cent through all the changes involved in Brex­it and, with the next phase of imple­men­ta­tion like­ly to coin­cide with recov­ery from COVID, the full adjust­ment peri­od is very far from over in our view,” says Roe at DHL Sup­ply Chain.

Although many busi­ness­es are adapt­ing sup­ply lines for fear of being left behind, he argues the “key pri­or­i­ty is to ensure you have the data you need to com­ply with the new ways of work­ing and to under­stand the impact of these changes on your route to mar­ket”. 

While DHL is able to offer a degree of hand-hold­ing to the many busi­ness­es requir­ing prac­ti­cal help with ful­fil­ment, he believes major post-Brex­it reor­gan­i­sa­tions should be post­poned until the dust has set­tled.

“In the last six months, I’ve been struck by how well com­pa­nies are work­ing togeth­er in the new trad­ing envi­ron­ment, liais­ing with trade bod­ies and with the var­i­ous rel­e­vant author­i­ties, and I see this as a very pos­i­tive sign for the future,” says Roe. 

“Busi­ness­es have a far bet­ter and more sophis­ti­cat­ed under­stand­ing of the intri­ca­cies of logis­tics than ever before and that too is very good to see.”

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