10 Impacts of a “No Deal” Brexit
by Brian Shanahan, Founder & CEO, Informita
Informita’s Brian Shanahan compiled these lists of posts were originally posted on LinkedIn. The purpose of these posts was not to scare anyone but to help businesses to be prepared for the worst outcome. Brian writes, “Please do not assume that we are taking a political view on whether Brexit is a good or bad thing, but we are taking a business perspective on the impact if no deal is forthcoming.”
1: WTO tariffs will apply
The application of tariffs will increase inventory holding costs. For many products, this will be fairly small, but for agricultural products, it will make a significant difference and put additional strain on industries with historically high levels of working capital.
2: Trade Certificates will be required for goods traded between the EU and the UK
For those who are used to trading on WTO terms, this will be no surprise. But many UK and EU businesses have no experience of trading on the world market. How you get trade certificates is different in different countries but you can apply in advance to avoid the rush on March 29. Without the proper documentation, your inventory could be stuck in a port for a considerable amount of time.
3: Technical standards between the EU and UK may not be recognised by either party
Eventually, this problem will be sorted, but in the early days, there is likely to be a lot of confusion as various customs authorities will need to make a decision of how to proceed in the absence of any rules. The biggest problem may be that different countries devise different rules for the same products. Many firms, such as pharmaceuticals, are stocking up to mitigate the potential damage driving inventories of such capital intensive companies to near insane levels.
4: Export departments will need to be expanded to deal with new customs regulations
Many people who used to work in export departments in the EU were let go in the early 1990s as the Single Market came into operation. As a result, there is a severe lack of properly trained and experienced export administrators across the EU today. Getting new people on board will take time and training them will take even more time. So expect delays in order processing as companies get to grips with the additional processing required to send goods to and from the UK.
5: Roll-on Roll-off ferry services will suffer serious delays
A huge amount of goods traffic crosses La Manche on trucks. This trade has expanded exponentially since 1973 and especially after the start of the Single Market. It follows that these ferry ports and the channel tunnel have no space for the large facilities that would be required to do customs checks on even a small fraction of the traffic that comes through these locations. Building such facilities will take years, at best. So expect severe delays for trucking operations coming in and out of the UK.
6: Car industry “just-in-time” inventory flows will be seriously disrupted
It is estimated that components at various stages of manufacture of cars that are finally assembled in the UK cross the Channel at least 3 times. Today shipments can be made in hours between different EU based factories. In the future, the UK can no longer be part of these supply chains as the shipping delays will cause massive increases in inventory.
7: Warehouse capacity in the UK will be under strain
Many firms believe that the inventory impacts of Brexit will be temporary and they may be right. However, the amount of excess warehouse capacity in the UK is extremely low. So if you are thinking of stockpiling product to protect your supply chain, it’s probably too late.
8: GBP is expected to fall at least 10% relative to EUR
There has been much talk of companies passing on additional costs driven by Brexit to their customers. Many companies that import from the EU to the UK had their margins destroyed in 2016 after the referendum as sterling depreciated. Foreign exchange analysts are expecting another large fall in the value of sterling if there is a “No Deal” Brexit. This will also have the effect of increasing the value of inventories coming into the UK. Conversely, this will be a big advantage for those exporting from the UK.
9: Fresh agricultural produce will take longer to process and run the risk of not reaching the customer by the sell-by date
Many products such as lettuce, tomatoes and many other fruit, vegetables and flowers cannot be frozen. If a customs process cannot be devised that can get the product through at the speed that happens today there will be a real possibility that these supply routes will cease. That’s very bad news in the UK if you like a BLT sandwich. But it also means that many EU farmers will need to seek new markets.
10: SEPA: The EPC now agreed that no matter what happens, the UK will remain part of SEPA
This is good because if the UK is not part of SEPA it would be likely to cause delays in payments between the UK and the EU and cause significant short term disruption to payment systems as banks and companies adjust to any new protocols.
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