15 May 2017

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

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:

“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.  

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.

Full press release

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