With a mere nine weeks to-go before the March 29th Brexit implementation date, it is becoming ever clearer that businesses large and small are exercising definitive supply chain management risk mitigation or alternative sourcing actions.
Likely the most resounding warning came this week from Tom Enders, chief-executive of Airbus, who provided the most direct warning to-date. He characterized the current lack of clarity for businesses with supply network operations within the U.K, a “disgrace,” and sternly warned that: “Britain’s aerospace sector now stands at the precipice.” Directing comments at Brexit hard liners, Enders acknowledged that while Airbus could not alter sourcing of various wing production operations overnight, the aerospace provider could be forced to look at new production sourcing in other EU based countries in the event of a no-deal Brexit.
This week, online retailer Amazon notified British businesses selling goods on the online platform to make contingency plans on the assumption that the “free circulation of goods” between the UK and EU would stop in a no-deal Brexit scenario. The implication is that British sellers would have to stock their inventories in EU located warehouses or customer fulfillment centers. Guidance indicated that that the standard minimum of four weeks of inventory coverage at all times applies, with the implication that retailers may have to execute the transfer of inventory by the end of February.
Honda indicated that it will shutdown its Swindon production facility for six days in April to adjust to any post-Brexit disruption or altered practices. Similarly, luxury automaker Rolls Royce has plans to shutter its production facilities during the first two weeks in April, while making contingency planning arrangements with select suppliers to arrange for parts to be transported by air if the ports become overly congested. Rolls reportedly has only 8 percent of inbound supply stemming from within the U.K.. Ford Motor indicated this week that while that company is still betting on a negotiated exit, a no-deal scenario could results in added costs of $800 million.
Air, Ground and Water Transportation
As highlighted in our last update, air charter and ship operators continue to field multiple inquiries for UK and EU businesses for securing contingency transport services. Ferry operator P&O Lines now indicates that it will register the line’s entire English Channel fleet under a Cyprus registry in order to be able to continue to utilize EU tax arrangements post-Brexit.
Governmental regulators, inspectors and shipping operators are all continuing on developing worst-case contingency planning, including the use of alternative ports, in the event of a no-deal or hard Brexit. Regardless of the planning, the implications for congestion and delay seem unavoidable.
With each and every day that Britain’s legislative leaders delay in providing definitive direction related to Brexit, industry and individual business supply chain networks are forced to have to deal with the worst-case scenarios of a hard, no-deal or additional second referendum related to Brexit and its impacts on just-in-time supply movements. Some companies have now indicated that regardless of Brexit outcome, they will move operations out of the U.K.. The Airbus threat likely adds to such consideration.
The availability of contingency safety-stock warehouse storage space is quickly becoming an expensive option with warehouse operators now demanding longer-term contract arrangements.
The bottom-line remains the same, that businesses, services providers and retail supply chain management teams at this point, have little choice but to initiate worst-case scenario planning in hopes that something could change in the next few weeks.
While British politicians are quick to criticize contingency initiatives and threat actions, claiming that they serve to alarm rather than help, the looming lack of time and shear scope of the potential disruption warrants that worst-case contingency planning begin in earnest.
The lessons of the partial government shutdown occurring in the United States provide a backdrop of the costs of significant disruption to businesses and services. Time is waning, and what does seem ever so evident is that the disruption may well provide 145,000 U.K. businesses with an outlook of costly impacts from a number of monetary and services dimensions.
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