Businesses preparing to sever supply chain ties between the UK and the EU to avoid Brexit tariffs

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Businesses either side of the English Channel are preparing contingency plans which could sever supply chains between the UK and EU, according to the Chartered Institute of Procurement & Supply (CIPS).

A survey of 2,111 supply chain managers found that 32% of UK businesses who work with suppliers on the continent are actively looking for alternative suppliers based in the UK as a response to the referendum. Businesses within the EU are even more advanced in their preparations. Almost half (45%) of EU businesses who work with UK suppliers are in the process of finding local replacements.

With exit negotiations in their early stages, the most pressing supply chain challenge for UK businesses thus far has been currency fluctuation. Almost two thirds (65%) of UK businesses have seen their supply chains become more expensive as a result of the weaker Pound, with nearly a third (29%) re-negotiating some contracts as a result.

Gerry Walsh, Group CEO, CIPS, commented: "Diplomats either side of the table have barely decided on their negotiating principles and already supply chain managers are deep into their preparations for Brexit. Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens.

"Fluctuations in the exchange rate or the introductions of new tariffs can dramatically change where British companies do business. The separation of the UK from Europe is already well underway even before formal negotiations have begun."

In the long-term, European supply chain managers appear more confident about their ability to respond to any tariffs that result from the final negotiated settlement by re-shoring their supply chains within the Single Market. Almost half (46%) of European supply chain managers expect a greater proportion of their supply chain to be removed from the UK, with just over a quarter (28%) intending to re-shore all or part of their supply chains to Europe.

While European and British supply chain managers agree that the number one priority for negotiations should be keeping tariffs and quotas to a minimum, the UK supply chain managers responsible for brokering international deals for their organisations believe negotiators face serious hurdles. When asked about the major challenges facing UK negotiators in the trade talks, 39% said the UK has a weak negotiating position and 36% believe there is a lack of time, but 33% believe there is a dearth of supply chain expertise and knowledge in the UK to draw upon.

How are UK supply chain mangers preparing for Brexit?
Already mapping the potential costs of new tariffs 28%
Strengthening our relationship with existing European suppliers 23%
Performing a risk analysis exercise 44%
Looking for alternative suppliers outside of the EU 21%
Looking for alternative suppliers inside the UK 32%
Pre-emptively increasing costs 12%
We have not done any work to prepare 23%

This pessimism is also apparent when it comes to managing the financial costs of Brexit. More than a third (36%) of UK supply chain managers plan to respond by pushing supplier costs lower, while 11% admit that part of their operations may no longer be viable. Worldwide 67% of respondents felt that the uncertainty surrounding international trade agreements were making long-term plans difficult to confirm.

Gerry Walsh added: "We have already seen high profile disputes between British retailers and their suppliers as a result of currency fluctuations. We now know that this pattern is being replicated across the UK and is likely to escalate.

"The reshoring of British supply chains in advance of Brexit could provide an excellent opportunity for small businesses looking to win new contracts, but it also comes with significant challenges. 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."

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