Third of UK firms plan to sever European supply chains

Firms in the UK and Europe are already drawing up plans to sever supply chains across the Channel to avoid post-Brexit tariffs.

A survey of more than 2,100 supply chain managers, carried out by CIPS, found a third (32%) of UK businesses that use EU suppliers are looking for British replacements. Meanwhile, almost half (46%) of European firms expect to reduce their use of UK suppliers.

Gerry Walsh, group CEO, CIPS, said: “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.”

So far, currency fluctuation has been the most pressing challenge for UK firms and two thirds have seen their supply chains become more expensive as a result of the weaker pound. Almost a third (29%) have renegotiated some contracts as a result.

Walsh said: “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.”

The survey found more than a third of UK supply chain managers intend to respond to Brexit by pushing supplier costs lower and 11% admitted part of their operations may no longer be viable. Worldwide, two thirds of respondents felt uncertainty around international trade agreements was making long-term planning difficult.

Walsh said: “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.”

Regarding trade talks, 39% of UK respondents believed Britain was in a weak negotiating position and 36% felt there was a lack of time. A third believed there was a dearth of supply chain expertise and knowledge in the UK to draw upon.

The survey found almost a quarter of UK supply chain managers were strengthening relationships with existing European suppliers in response to Brexit, 12% were pre-emptively increasing costs, but 23% had not done any preparatory work.

Meanwhile, more than a quarter of European respondents intend to reshore all or part of their supply chains to Europe.

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General, Procurement