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Brexit: The Good, The Bad and The Ugly

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It’s another busy day for supply chain and logistics professionals in the U.K. as they spend most of their days taking calls from clients inquiring about the potential impacts of Brexit.

Will it impact freight costs? Will it impact transit times? Do I need to overhaul my distribution network?

The answer is YES to all of the questions. But not immediately. As of right now, the terms of the Brexit schedule, now outlined, The Target, is to accomplish the exit by March 2019.  

The voluntary decision made by the U.K. to leave the European Union (EU) will mean both positives and negatives for the U.K. and U.S., especially for supply chain and logistics organizations. Although the effects of timing from the event are still yet to be determined, there is one thing everyone can count on a ripple effect that will cause some serious shifts in shipping arrivals and departures. Economists are already anticipating several years of uncertainty for financial markets and economic indicators.

What Brexit means for UK shipping

U.K. businesses would no longer benefit from the EU internal trade access without a bilateral agreement between the U.K. and the EU. Although it is possible to be a member of the European Economic Area (EEA) as an associate state of the EU, it is not clear whether the U.K. would seek to do this or seek to enter into an entirely new free trade or association agreement with the EU. Operating within the EU market may become increasingly complex and consequently potentially more expensive for U.K. operators, as might operating in the U.K. market for the EU operators. Those operating in the U.K. and also in the rest of the EU would face the burden of having to comply with both the EU and U.K. laws on trade, rather than complying with the current harmonized EU system.

U.K. businesses would also not be able to benefit from the network of the EU bilateral and multilateral external trade agreements with other countries, as the U.K. would have to negotiate its own individual trade agreements with those countries. The U.K. would continue to benefit from World Trade Organization agreements, but these would not cover the detailed preferential bilateral arrangements that exist in current EU agreements with other countries. Exporting U.K. goods and services would become a more complex process than at present and, during the U.K.’s negotiations for its own individual trade treaties as a non-EU state, there would likely be uncertainty, possibly for a lengthy period.

U.K. short-term impacts

  • Decline in the value of currency (GBP & Euro)
  • Instability
  • Lowered U.S. interest rates
  • Shrink in IT spending

Possible U.K. long-term impacts

  • Changing trade tariffs and customs duties on U.K. imports and exports
  • Slower U.K. & EU GDP growth
  • Increased U.K. deregulation
  • Changing U.K. immigration and labor restrictions
  • Lack of business confidence

What Brexit means for US shipping

U.S. companies that sell to, buy from, or operate in the U.K. or the EU, or are engaged in their financial or stock markets, are likely to experience some financial effects, but the nature and extent of those effects is still to be determined. It will be important for U.S. companies to monitor the developments as they unfold and stand ready to assess the impact on their operations; preparation is key. Companies need to have a base understanding of the current state so that they can implement change when the time comes.

U.S. short-term impacts:

  • Decline in value of currency (strong U.S. dollar)
  • Repercussions from complicated financial reporting
  • Shrink in IT spending

Possible U.S. long-term impacts:

  • Global uncertainty
  • Low U.S. interest rates
  • TIPP (Transatlantic Trade and Investment Partnership) delays and limited amount of exports, resulting in increased transportation needs
  • Lack of business confidence

How can U.K., the EU and U.S. shippers prepare for change?

It’s impossible to predict how the current situation will evolve as Europe sets about negotiating a new order during the next couple of years as negotiations and official declarations to leave arise. Companies worldwide and their customers will need to learn to adapt to any new procedures put in place between the U.K. and the E.U. and expect increased supply chain complexity, restructured distribution channels and more specific restrictions set in place. As for now, the separation is expected to hit 2019. What we do know is that the U.K. will not stop trading with the E.U. or the U.S. for that matter. So despite the uncertainty, logistics leaders need to focus on their short-term efforts on preparing for change.

Until the uncertainty has somewhat surfaced, focus on these recommendations below to prepare:

  • Review possible supply chain scenarios and develop action plans based on those possible outcomes
  • Review current processes and the types of changes that could affect them
  • Consider opportunities at hand and take advantage (i.e., new trade agreements)
  • Pull together collaborative teams that truly understand the needs
  • Review technology platforms and possible changes to data

It is anticipated that the supply chain, logistics and distribution sectors may be among those seeing and experiencing some of the most dramatic shifts. Most companies that trade across the globe should have questioned how this decision will impact their supply chains in both the long and short term; however, the political fog and uncertainty that envelops this topic does not make it easy to come up with a single answer. The general consensus is that shipping and logistics companies will be forced to deal with supply chain disruptions until updated trade agreements are established.

With all of the associated challenges, here’s to hoping something good comes from Brexit, namely the improved economic safety and security of the U.K.

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