The Supply Chain Matters blog provides a follow-up to our prior late August update on the status of negotiations concerning the Brexit transition agreement that is due to expire at the end of this year.

As both European Union and United Kingdom negotiators are set to resume talks this week, it appears that both sides are digging in on specific issues, and prospects for an orderly transition may again be on the timetable of brinkmanship.

Brexit Transition

Since our last update, the EU’s chief Brexit negotiator Michel Barnier has again accused the U.K. of failing to constructively engage in ongoing negotiations and that indeed, time may be running out to plan for an orderly exit after months of ongoing talks.

The two sides have up to now, been bogged down on issues related to allowing EU fisherman access to British waters along with the rights of the government and rules designed to regulate the U.K. undercutting the EU’s economy.

Over the past few days the tensions have escalated as U.K. Prime Minister Boris Johnson has escalated his own threats to

 

complete the separation with or without an agreement in-place, a perceived threat to tear-up parts of last year’s agreement. There are repor

tedly new concerns that the U.K. government has drawn up new laws related to the movement of goods related to Northern Ireland that could weaken the accord reached last year.

With the October 15 deadline looming for a comprehensive set of new trade  and other laws to be set, time might be running out. Without a formal set of trade and other policies, both entities will face what is believed to be costly new tariffs and trade quotas along with the real possibility of chaotic customs checks at various borders.

Logistics Firms Provide Their Own Warnings

While such negotiations drag on, a grouping of eight logistics organizations have collectively warned that government preparations are indeed moving too slowly and required new processes and systems may not be ready for use come the start of 2021.

According to the site Internet Retailing, the logistics bodies have written to U.K. Brexit Planning Cabinet Minister Michael Gove warning of significant gaps in preparing for the end of the ongoing transition period and placing interconnected supply chains at risk. Three key concerns reportedly include the recruitment and funding of additional customs agents, the readiness of respective IT systems including the termed Smart Freight and Trader Support Service, and the pace of delivery of any needed physical border infrastructure.

Noted was that on January 1, 2020, transportation providers will need to access up to eight different applications systems, four from the U.K. side and four from the EU side, in order to move goods to and from Europe. Concerns relate to lack of any user testing that needs to occur after October 15, especially coming during the height of the holiday fulfillment period.

Concerns have further been raised by U.K. based online retailers who have to navigate and conform to any changed tax and duty processes related to the movement of goods related to B2B or B2C transactions.

 

Production and Supply Chain Activity At Peak

While Brexit negotiations drag on, the IHS Markit/CIPS UK Manufacturing PMI® for August 2020 recorded as 55.2 was the fastest manufacturing expansion in over six years as COVID-19 lockdowns were eased and manufacturers ramped-up.

According to the report, underpinning the ongoing expansion was the fastest increase in new orders since late 2017. Noted in the report: “The domestic market remained the prime source of new contract wins, although new export orders rose moderately for the first time in ten months.”

That stated, manufacturing job losses increased for the seventh straight month.

We can perhaps speculate if this latest boost involves nor only satisfying pent-up domestic consumer demand, but once again the building-up of provisional safety stock inventories before the December 31 deadline of the Brexit transition, whether organized or chaotic.

Commenting on the August U.K. PMI report, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply (CIPS) stated in-part:

Companies are looking at how to stay in business for the rest of the year as challenges from the pandemic retreat a little only to be replaced by an imminent Brexit.

 

Additional Supply Chain Matters Thoughts

Such brinkmanship scenarios obviously ring familiar, but a lot has occurred in global economics and supply chain wide disruption since the formal imposition of Brexit and the current official transition period.

Judging from the track record of the parties thus far, a semblance of orderly timing seems to be once again out of the cards. There are far more political issues at-stake.

Once again, with the economic implications of the ongoing COVID-19 pandemic on both economies, the timing of a non-agreement does not bode well in terms of the flow of goods, especially for many U.K. based supply chains. Especially at-stake are the economic factors related to aerospace, automotive and high-tech component supply networks.

 

Bob Ferrari

© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.