A survey carried out by the Chartered Institute of Procurement & Supply (CIPS) shows that businesses on either side of the English Channel are preparing contingency plans that could sever supply chains between the UK and EU. CIPS says that businesses within the EU-27 are more advanced in their preparations than UK companies with almost half (45%) of EU-27 businesses already sourcing replacement suppliers. This was both predicted and predictable, writes Catherine Feore.

Those who are more positively disposed towards Brexit hail the possible return of suppliers to British soil, since the survey shows 32% of UK businesses who use EU suppliers are looking for British replacements. That may be a necessity, not just because of possible tariffs and customs delays in future, but because of the higher costs of imports following the precipitous drop in the value of the pound following the referendum.

Source: Chartered Institute of Procurement and Supply

According to the survey, more than a third (36%) of UK supply-chain managers plan to respond by pushing supplier costs lower. There seems little hope of this as Brexit is leading to higher prices. Over the coming months we should expect more tales of dastardly foreigners on the continent putting up the prices of household stables like Marmite. Expect further tabloid headlines of the #Marmitegate variety.

Last week, the respected food retailing magazine The Grocer reported that Tesco quietly raised the price of Marmite. The British tabloid The Sun – a leading supporter of Brexit – reported in October that Tesco and Unilever (Marmite owner) had reached a deal over its proposed 10% rise in prices across its entire range, which The Sun said Unilever had “cynically blamed on Brexit”. Expect more failed attempts to keep prices stable.

Gerry Walsh, Group CEO, CIPS, commented:

“Diplomats either side of the table have barely decided on their negotiating principles and already supply chain managers are deep into their preparations for Brexit. Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens. “Fluctuations in the exchange rate or the introductions of new tariffs can dramatically change where British companies do business. The separation of the UK from Europe is already well under way even before formal negotiations have begun.”

They told you so – or ‘Project Fear’

So to take you back to Project Fear, this is what Her Majesty’s Treasury had to say back in March 2016:

“Those businesses which are part of international supply chains would be particularly hit by uncertainty over their ability to move products across borders and the increased costs they could face for being part of international supply chains - this would reduce the competitiveness or profitability of UK businesses in the global market place.”

Helpfully, the Treasury provided some concrete examples, including this one. It is one of the sectors that May hopes will be key to Britain's industrial revival:

“Aerospace - The UK is a world leader in civil aerospace – number one in Europe and second only to the US globally – employing 110,000 people and supporting a further 113,000 jobs. It relies heavily on EU supply chains, both as a buyer and a seller, and even companies that do not directly export produce parts for other exporters. In the UK, Airbus designs and manufactures wings and Rolls-Royce make engines, but many of the aircraft that end-users buy are assembled in continental Europe. Aerospace is an international industry. A vote to leave the EU would result in uncertainty over continued access to these supply chains.”

The Confederation of British Industry provided helpful factsheets, including how EU membership outweighed any costs. On the supply chain they wrote:

"In 2009 $207bn of the UK’s total of $293bn of exports to the rest of the EU-27 was used as inputs to industries, rather than being consumed directly; and the UK imported $161bn of intermediates from the EU-27 in 2009. Imported intermediates are important even to domestically-focused sectors: the health & social care sector used $19bn of imported intermediates (principally of pharmaceuticals and other chemicals)."

There is little satisfaction in saying ‘I told you so’; however, with today’s launch of an unapologetic Conservative manifesto and the Tories' imminent landslide victory there is little else that can be done. Stoical Brits often say 'mustn't grumble', but grumbling is perhaps one of the last gestures of defiance that remains in the toolbox of the 'Remoaner'.

Background

Chartered Institute of Procurement & Supply (CIPS) represents purchasing and supply management professionals. CIPS carried out a survey of 2,111 supply chain managers from across the globe who were asked on their views and reactions towards Brexit. The survey included 904 UK businesses with European supply chains and 117 European businesses with UK supply chains.