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Stockpiling for a potential No-Deal Brexit scenario

14 March 2019

So just another day in the office for your local MP.  In rejecting the Government’s Withdrawal Treaty for a second time, we are days away from the very real possibility of leaving the EU without a deal. James Jenkinson, managing director of DENIOS counts the cost for the supply chain.

Our MPs have left us in the business world to get on with it and re-shape our businesses, to account for potentially significant changes in our costs structures, supply chains and administration burdens. And get on with it we usually do…once we know what we are facing.

UK manufacturing companies are preparing for a significant upheaval to British industry. Brexit will be the largest political change the country has seen in the last 50 years, and a no-deal Brexit will, of course, have a far-reaching impact on the import and export of goods to and from the UK. 

While we may now, finally, have somewhat greater clarity on the import tariff regime that the UK Government intends to impose, in the event a No-deal exit, it is far from clear to most companies how they will be implemented, or what additional transport times any new customs and import regulations will impose on goods crossing UK borders. Manufacturing companies that rely on international suppliers, often with a model of just-in-time supply chains, are understandably concerned and have been doing everything they can to protect themselves. 

One obvious way to do this is to stockpile manufacturing materials, chemicals and other important supplies from EU countries. We at DENIOS Ltd, one of the UK’s largest manufacturers of hazardous materials storage and handling systems, have experienced a significant increase in enquiries and orders from UK businesses looking to mitigate the risks of supply chain shortages or delays.

Figures from the UK Office for National Statistics indicate that the import of goods from EU countries has been steadily increasing since the 2016 referendum made Brexit a reality. The rise in EU imports, compared with imports from non-EU countries, caused the Centre for Economic and Business Research (CEBR) to speculate, as early as September of last year, that there was evidence of stockpiling among British manufacturing companies. 

Businesses are stockpiling the goods they’re going to need to continue providing their services, in the hope of riding out the initial upheaval that a no-deal Brexit scenario will bring. Companies within the manufacturing industry are being quick to respond to these impending uncertainties. According to a recent Guardian article, the risks associated with walking away from the EU without a deal has caused British manufacturing companies to “ramp up their stockpiling efforts to the highest levels on record for a major advanced economy.” 

A recent survey published by HIS Markit revealed that the stockpiling of raw materials and finished goods by manufacturing companies reached some of their highest levels in December 2018. At the same time, both employment and the PMI fell. The PMI (Purchasing Managers’ Index) is considered a reliable tracker of performance in the manufacturing sector, and in December was at a 3-month low: the second lowest point that it has hit since the EU referendum result was announced in the summer of 2016. 

The CEBR has pointed out that problems with British imports of raw materials, such as chemicals, and car and aircraft components, will cause the most disruption to the British economy. Around £100bn of the £260bn worth of goods imported from the EU annually fall into these categories. Many UK companies have clearly decided that any logistical, financial, or handling and storage issues created by stockpiling these essential materials, are worth it to protect against the unpredictable supply chain problems that will be created by a no-deal Brexit. 

With the Brexit deadline on 29th March nearly upon us, these are troubling times for British manufacturing businesses. With manufacturing reliant on complex supply chains, stockpiling is becoming increasingly necessary to protect against the unpredictable market that British businesses now find themselves in.