The Supply Chain Matters blog provides readers an update on Brexit’s ongoing impact to multi-industry supply and demand network plans and ongoing actions. Our belief is that June will provide the final tipping point.
One of this week’s Supply Chain Matters blog themes is the increasing global trade and tariff impacts on multi-industry supply and customer demand networks. Earlier, we posted our editorial view on the current souring trade conflict involving the U.S. and China and our argument that tensions are at a rather concerning turning point.
In this week of European Parliament elections, we would be remiss to our European and United Kingdom readers without weighing in on the current Brexit dilemma.
After two prior delays, European Union leaders agreed to now postpone this week’s prior Brexit deadline until the end of October to allow the ruling British government more time to convince Parliament to approve some form of a formal exit plan. Parliament has previously rejected a plan on three prior attempts. The fear remains that the U.K. could crash out without a separation agreement.
Since the second delay, Prime Minister Theresa May has been in talks with the rival Labour Party in attempts to come-up with some form of compromise agreement. The news from the across the pond is that negotiations have now broken off, and the Prime Minister’s power and leverage is quickly waning.
There will likely be a last-ditch effort to secure another vote from Parliament, and concerns are growing that that U.K. legislators have little ability to endorse an exit plan. It reportedly includes added concessions and the potential for a second Brexit referendum.
The U.K. Pound continues to fall against both the euro and the U.S. Dollar amid such concerns, a direct financial impact to the country’s businesses.
This week, British voters head to voting booths to elect legislators for the European Parliament. The latest polls indicated that a newly created Brexit Party is well ahead in voter sentiment and could gain more votes than the two existing Conservative and Labour parties.
Business and Multi-Industry Supply Chain Impacts
As noted in our prior update two months ago, the longer extension that drags on the specifics or uncertainties of trade practice agreements among the UK, the EU, and other nations invariably leads to the need for added, more definitive decisions related to production supply sourcing and distribution. While the political drama and brinksmanship play out, the reality of keeping supply and customer demand networks operating at peak efficiency are increasingly at-odds.
The reality of such a condition hit home this week with the news that British Steel, the country’s second biggest steelmaker has been placed in compulsory liquidation, placing 5000 jobs at immediate risk with another 20,000 jobs among associated suppliers at-risk as well. The company was seeking a government financial bailout, but those talks ended without an agreement. Some in the opposition Labour Party are calling for the business to be nationalized.
The firm’s more recent troubles have been linked to a slump in orders from European Union customers due to uncertainty over the Brexit process, compounded by the ongoing U.S. and China trade conflict and added steel and aluminum tariffs placed on EU exports to the United States.
This week’s Bloomberg Businessweek features a report on the continued toll that Brexit is taken on U.K. businesses and farmers alike. Profiled is parts and precision mold supplier Cradley Heath, and how Brexit has cost the company about £2 million after multiple German buyers cancelled orders. European customers are already taking actions to source supply outside the U.K. to avoid the uncertainty or disruption of added customs checks, once Brexit is enabled.
The overall business environment is described as one of consternation brought on by high uncertainty. As noted in our prior commentaries, added capacity and inventory contingency plans for the prior March Brexit can only be economically sustained for so long. External investment is waning, and many other EU businesses are now making strategic decisions.
Upwards of half of U.K. farmers reported some crops left to rot last year because fewer EU contingent workers returned. Farmers continue to be creative in attempts to recruit seasonal labor from outside the EU to prepare for this year’s Spring and Fall seeding and harvest needs.
As to which firms are benefiting from Brexit, it is clearly logistics firms, shipping and warehousing firms and customs specialists.
What This All Means
Similar to the ongoing U.S. and China trade conflict, businesses are already taking contingency or permanent actions to circumvent supply network disruptions related to a post-Brexit, regardless of outcome. The contentious political climate and the added uncertainties of Britain crashing out of the EU are too great a risk to ignore.
We believe the real tipping point will come in June, if the U.K. Parliament and the ruling party cannot come to a consensus on a cogent Brexit plan.
The uncertainty will be too great to warrant risking ongoing supply network disruption.
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