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18 January 2019

More political indecision would actually be worse for businesses than no deal, say supply chain experts

At this point, many importers would rather bank on a depressing certainty – but for some, even good planning may not be enough.

By Will Dunn

As Jeremy Corbyn tells Labour MPs not to negotiate with Theresa May until she commits to take no deal “off the table” and France implements its own no-deal plan, the people who design and monitor supply chains for the businesses that actually use Britain’s import and export routes for their materials and products are increasingly placing their bets on a worst-case scenario.

“The thing about no deal,” explains Llamasoft’s Mat Woodcock, “is at least you know the end point, or you know a reasonable amount about the end point. It might not be a particularly acceptable one, the tariffs might be high – but at least you can make sure the contingency decisions you make are heading in the right direction. The risk with not knowing is that some of those decisions might have to be reversed, at even more cost. You can plan for disruption; what you can’t plan for is an indefinite period of… something.”

Llamasoft designs supply chains for global companies such as Ikea and Unilever, and Woodcock says he has seen clients deciding to make an “investment in certainty”. Many companies, he thinks, will “weather” a no-deal outcome if they’ve planned well.

Woodcock says some businesses are shouldering the cost of implementing their no-deal plans now because the resources required by supply chains, such as ports and warehousing,  are in limited supply and competition for these will become fierce when circumstances are known. One client, “a high-tech company” has “pushed the button” on its no-deal plan  by “reorganising their warehouses and filling them to the gunwales. They’ve just taken the decision to take the cost of the inventory so that their service isn’t impacted.”

Another client, “a soft drinks company” has, Woodcock says, “made a call on a hard Brexit, rather than WTO – they’ve pushed live the alternate supply links and other contingencies that they’re putting in place now. So they’re bearing the extra costs, too, but they have certainty of supply.”

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“Supply chain professionals want certainty, they want to mitigate risk. So, as unpalatable as a no deal is, if you take the emotions of politics and your own personal views out of it, certainty is a good thing.”

However, Graham Parker from Gravity Supply Chain says that many businesses are woefully unprepared for the “mayhem” that no deal would create.

Gravity Supply Chain helps businesses to track materials and products through their supply chains in real time, and also to analyse the risks posed by situations such as a no-deal Brexit. The retail businesses of the UK’s already ailing high street are particularly vulnerable, Parker says. Most “are not even ready for the world that we now live in”, in that they haven’t caught up to online retailers such as Amazon.

Parker predicts huge disruption of the movement of goods through UK borders in the event of a no-deal outcome. “There will be significant congestion at the ports, and significant disruption to flights… there’s no aviation agreements in place, for example. To get aviation agreements in place, it’s not something that happens over three months. It takes a long time.”

Online retailers, he says, “have the option of sending single products from anywhere in the world, through a courier. I’m not sure whether that’s financially viable, but at least they would be able to keep the consumer happy for a while.” High-street shops, on the other hand, will find that their products are “very close to the border, but not actually in the country… they’re not going to be able to create customer loyalty, they’re simply not going to have the products in place.”

Mat Woodcock agrees that no deal also poses significant risks to complex, just-in-time manufacturing chains, as has been widely reported, but also to any business for which a significant part of the cost of a product is in its logistics – “so, if you think of a lettuce, a lot of the cost of it is just moving it around”.  

“There’s lots of talk of alternative ports, but these ports aren’t set up for the quantities we’re talking. As time goes on, the slightly less favourable option to Dover will get taken up, then the next one, and then it’ll get to a point where you’re using Leith and Edinburgh to bring down goods to the south-east of the UK.”

Businesses are now playing a “juggling act”, says Woodcock, between the cost of implementing their no-deal plans now and the risk of waiting, and potentially losing capacity to a competitor.

“If your competitor has already pressed the button on something, they may have secured the only capacity that’s available for, say, warehousing or a supply route or an alternative supplier. There’s a first-mover advantage in securing supply, but it also comes with a cost.”

The overall effect, he says, is a kind of paralysis, as the “normal day-to-day business of moving goods and developing supply chains” is “pushed back” while whole industries wait, and place their bets, on whether Theresa May will be able to get any form of Brexit past parliament.

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