Brexit Uncertainty Increasing Supply Chain Costs, Says Report

• Brexit uncertainty is causing businesses to pass the increase in costs incurred as a result of supply chain challenges on to consumers, according to new research from the Chartered Institute of Procurement & Supply (CIPS).

Nearly a third (32%) of UK businesses with EU suppliers have already increased their prices as a result of the vote to leave the EU, while two-fifths (41%) plan to increase their prices in the future in order to offset the potential costs of Brexit.

To make matters worse, almost a quarter (23%) of UK businesses said they plan to reduce the size of their workforce to offset Brexit-related costs, potentially leading to an increase in UK unemployment, which rose for the first time since Brexit in February 2018 to 4.4%.[1] Additionally, more than one in 10 (11%) EU companies have moved some of their workforce out of the UK since the Brexit vote.

The CIPS research is the third in a series of surveys which have tracked the impact of Brexit on supply chains since May 2017. This research is the output of a survey of 2,204 supply chain managers* – the professionals responsible for negotiating with the UK’s suppliers and clients at home and abroad.

Currency instability has had a detrimental impact on costs since the Brexit vote with these increases now being passed from businesses to consumers.  With three-in-five (60%) UK businesses with EU suppliers saying that currency fluctuations after the vote have made their supply chains more expensive to manage, consumers are already paying the price of EU withdrawal some twelve months ahead of official departure from the Union.

The confluence of price increases in the supply chain and a lack of new contracts coming from the EU, is causing UK businesses to look elsewhere in order to stay afloat.

EU businesses reduce their ties to the UK

 With still one year to go until the UK’s departure from the EU, 9% of UK businesses with EU suppliers have already lost or had contracts cancelled as a direct result of Brexit. On top of the lost contracts, around one in seven (14%) EU businesses with UK suppliers have already moved parts of their business out of the UK in order to reduce their exposure to any complications resulting from Brexit.

Even more concerning is the admission that almost a quarter (22%) of UK businesses with EU suppliers are having difficulty securing contracts which run after March 2019. These numbers raise fears of an imminent collapse in the UK’s supply chain following Brexit, unless negotiators can give businesses on both side of the channel greater clarity around what the future trading relationship between the UK and EU will look like.

The CIPS research also suggests that, since the Brexit vote, the EU is beginning to reassess the value of UK products. Two-in-five (42%) EU supply chain managers said that they do not think British products ‘stand out from the crowd’. On top of this, a third (37%) of EU businesses said it would be less expensive to work with a local supplier compared to a UK supplier. Negative perceptions of UK products suggest that British businesses face an uphill battle to maintain their contracts with clients in Europe.

However, fewer than one in ten (8%) of supply chain managers from outside the EU said that British products don’t ‘stand out from the crowd’, implying that UK businesses could benefit by targeting markets outside the EU.

To mitigate these challenges, an increasing number of UK supply chain managers are looking to re-shore their supply chains back to the UK. A third (36%) of UK supply chain managers with EU suppliers said they are already looking for alternative suppliers inside the UK.

John Glen, Economist at the Chartered Institute of Procurement & Supply (CIPS), said: “Businesses have little choice but to pass on some of their rising costs to consumers in order to protect their profit margins and stay in business, as a result of the crippling cost of Brexit. However, businesses are still taking the brunt of the impact as there is a limit to what they can pass on to consumers at a time of stagnant wage growth, and rising inflation.

“Businesses are now looking elsewhere to try and recuperate the money they are losing as a result of Brexit. To achieve this, many are also looking to switch suppliers, but they’re likely to have difficulty finding suitable alternatives in the UK. It is therefore crucial they don’t burn their bridges with their EU contacts but instead work to build stronger relationships with European partners. Businesses should also consider other ways through which they can improve the efficiency of their supply chain, such as by embracing new technologies and automating processes.

“In the end, businesses that fail to plan ahead and use this opportunity to reduce costs in their supply chain may not survive post-Brexit.”

[1] ONS Unemployment rate (aged 16 and over, seasonally adjusted, Feb 2018

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