We pen this Supply Chain Matters commentary on the eve of Brexit.

Tomorrow, January 31, 2020, nearly four years after the outcome of a nationwide referendum across Britain, and amid multiple passed deadlines and extensions, the United Kingdom will be in a state of withdrawal from the European Union.

Let those words sink in.  Brexit

On Wednesday, the European Parliament overwhelmingly approved the newly negotiated exit plan from a re-constituted, now majority ruling Conservative party, paving the way for a state of exit to take effect on 11 pm on January 31, 2020.

What tomorrow really brings a transition period that extends to December 31, 2020. With that, negotiations begin anew to address the various forms of agreement required for the UK to be independent.

When all this information is distilled, one can surmise that the politicians have kicked the can down the road for another time and deadline certain. Hence the added uncertainties.

 

Industry Supply Chain Implications

During this transition, citizen rights and labor laws practices will remain the same as if the UK was a part of the EU. Similarly, the UK will continue to participate in the EU Customs Union allowing near free flow of goods across EU borders. There will be no changes to business financial reporting guidelines in line with existing guidelines.

An agreement related to the contentious Irish border will remain unresolved and subject added deliberations and political debates. If there is no free trade agreement in-place by December, then cross-border trade will likely revert to WTO rules, which implies tariffs and possible border check.

As with any politically driven process, some will celebrate while others will lament.

For multi-industry customer demand and supply networks residing across the UK and the EU, this state of uncertainty continues, with perhaps providing added time for planning and preparation. Whether this is the preferred option is obviously a matter of debate.

Our belief is that in this world of just-in-time inventory and material flows, businesses and supply chain services firms will make their own individual assessments of what the real of Brexit will provide for cross-continent flows and transport segments.

A lot of contingency financial and safety stock inventory investments were incurred over the past several months in preparation for the worst-case hard Brexit, much of which had to be adsorbed as the cost of doing business. Because of fat inventory balances and the uncertainties of a hard or soft Brexit, production levels across the region are on the decline, as is the EU as well.

We suspect that in less than 12 months from today, there will be little or no tolerance for another period of trade negotiation brinksmanship and more contingency investments.

Then again, just like the advent of global warming, this new geo-political world presents many viewpoints and a lot of ongoing debates. These add more to the challenges facing the community of supply chain management, challenges that technology perhaps cannot solve alone.

 

Bob Ferrari

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