Brexit likely to impact the structure of supply chain and the positioning of inventories
The United Kingdom’s decision to withdraw from the European Union (EU) will cause major upheavals in the multi-billion-dollar annual trades between it and the EU. Among the sectors that will be worst affected by the exit, popularly referred to as Brexit, are supply chain, logistics, and distribution. After Brexit, the UK will have to make new trading arrangements with the EU to continue doing business. The new trading arrangements could, however, come with new trade barriers, which can negatively impact the structure of supply chains and positioning of inventory. Such circumstances would demand more local sourcing; forcing companies to opt for more local inventories, create new facilities and position finished-goods stock in diverse trading areas to overcome obstacles in movement of goods.
Likely impact of Brexit on supply chain and logistics organization
- Retail supply chain operations may become more complex due to the restructuring of distribution channels and specific restrictions.
- The new boundaries could stifle movement of goods, but on the other hand that could generate more demand for services that help manufacturers and retailers in smooth transferring of goods as per the new trade rules
- UK businesses may face new barriers in selling their goods to customers in the European nations; their products could become costly as items entering and leaving the UK will be subject to miscellaneous taxes.
- The Brexit could see businesses in Europe move their corporate headquarters to the UK as the independent sovereign state may have more liberty to form trade agreements outside the EU.
- The UK imports from Europe are far larger than exports; supply chain and logistic companies should be prepared for the magnitude of change that the Brexit decision will usher in. They will have to be ready for longer delivery lead times and cost impact of trade between the UK and the EU.
- The new taxation and trade barriers could shrink demand. Supply chain planning companies should be prepared for a range of different business scenarios as part of their sales and operations planning process.
- Shipping and logistics companies will have to bear with supply chain disturbances until new trade agreements and regulations come into force.
- Transportation and logistics businesses may experience repercussions of the Brexit on their market value. For instance, XPO Logistics Inc., which garners 12 per cent of its revenue from the UK, witnessed a double digit drop in its share prices; it is an indicator of things to come. Some Europe-based logistics and cargo companies have also recorded a drop in their share price.
- The Brexit may benefit retailers in the UK since a weaker pound means cheaper goods for buyers in other countries.
- To cater to the needs of customers, retailers both inside and outside the UK will have to rebuild their distribution channels. There is a possibility that retailers will move their physical stock out of the UK and into EU countries, if that’s where their sales are big, to avoid new taxes and complications.
If restrictions are imposed on the free flow of labour from the European nations to the UK, availability and cost of labour could escalate thereby resulting in change in structure of supply chains leading to fewer sites and more automation.