UPDATED: Waiting Is the Hardest Part: Brexit and the Supply Chain

The world was shocked this past June when the people of England voted for in favor of the referendum that would see the United Kingdom withdraw its membership from the European Union. Immediately following the results, alarms began sounding as to the effects, both long term and short term, that this would have not only on the British economy, not only the European economy, but indeed the global economy. Amongst those who held the deepest concerns were global supply chain professionals, who couldn’t help but worry over the impact the ‘Brexit’ (or, British Exit) would have on their industry, since such a large part of it is revolves around international trade. It has now been almost two full months since the referendum passed, so how do things now stand in regards to the Brexit’s effect on the supply chain industry?

There are several factors to keep in mind while considering this. Firstly, it should be noted that Article 50, which would start the formal process of England’s official withdrawal from the E.U., has yet to be invoked. When that does finally happen (and in the wake of drastic shake-ups within the British government’s leadership last month, no one is sure when that is likely), it will set off two-years worth of negotiations surrounding the actual withdrawal. That gives supply chain companies plenty of time to adjust and strategize. The problem is that they can’t know to what, precisely, they should adjust. It will likely be decades before the full weight of this decision is truly made clear.

In the meantime, there are some immediate facts to consider, although because the decision is still so fresh these can’t be considered any harbingers of the long-term effects. Immediately following the pro-exit vote, the British pound dropped 10% against the U.S. dollar and 8% against the Euro. Several British financial firms and manufacturing companies announced their intention to relocate, and many in the government are already calling for stimulus packages. That being said, July spending in Britain far exceeded expectations, although some are saying that could be due to tourists spending more than usual, since their currency now gets them more than it previously had.

There has yet to be any resounding impact on the global supply chain industry, which has put everyone in it into a reflective mode. Supply chain experts have been cautioning calm and stressing the importance of long-term planning and objective analysis. Although forthcoming trade agreements between the U.K. and China and India could be delayed by the Brexit, which in turn could lead to economic stagnation thanks to European business’s concerns, in terms of its actual policy effects on the supply chain industry, most of them revolve around tariff and trade restrictions. It seems unlikely that tariff restrictions will rise, especially in light of precedents set by the agreements the E.U. has in place with non-members such as Norway and Switzerland, both of whom will serve as examples that England and the rest of the U.K. will look to in the coming months and years.

More than how the U.K. leaving the E.U. will affect the supply chain industry, many within it stress that forthcoming changes to E.U. tax policy will have a far more significant impact. As the E.U. seeks to eliminate protective tax havens for companies that have set them up through subsidiaries in other countries, and retrieve what they feel is owed in back taxes, supply chain insiders worry this will disrupt the current flow of business, as companies may look to move their operations to other parts of the world, since it would make more sense from an operational stand point, rather than the financial one they are currently working under. This could lead to a massive shift in personnel and jobs within the European-based supply chain industry.

Overall, this has led to a consensus amongst most supply chain professionals that Brexit is unlikely to have a major impact—at least not right away—on their industry. This is not the case with retailers, however. According to the latest poll from Barclay’s, although a small majority (56%) of retailers say that they believe that the Brexit will have little, or even positive, effect on their industry, the other half (44%) disagree with them, worrying that it will have a negative impact. However, a small majority of total retailers (52%) agree that they are not prepared for the changes, negative or positive, at the current moment.

That 44% of retailers worry about the possibility of increased costs in the supply chain, thanks in large part to the continuous fluctuation of currency, and the inability to control foreign exchange rates. Their ability to find and hold onto a steady labor force against higher costs is another large concern, as are an expected rise in the cost of imports (though exports are expected to remain stable). All of this combines to create a deep pessimism amongst retailers as to their ability to effectively maintain their own supply chains, as well as their ability to outsource to 3PLs (3rd party logistics).

In planning for the Brexit, retailers are looking towards Eastern Europe for future sourcing, as well as to India for purchasing activity. Overall, one thing seems certain: retailers are anticipating on their scaling back when it comes to their supply chain spending, in order to offset potential cost increases (most of which retailers will nonetheless mostly absorb; as will the consumer, who is set to see a rise in the price of goods).

Uncertainty, more than any specific policy change likely to be triggered by the Brexit, is what will have the biggest impact on the global supply chain industry. This could drastically affect credit lines and consistency of ordering, especially amongst smaller 3PL firms. However, to offset this, supply chain management providers may be forced to streamline their operations, leading to a possible increase in efficiency and a decrease in all around cost, which would work towards the mutual benefit of all parties involved.

As it now stands, everyone is still just waiting to see what happens. The key to a smooth transition into a post-Brexit marketplace seems to be one everyone agrees upon: they cannot let the uncertainty become a self-fulfilling prophecy of disaster. Big changes are coming, but so long as everyone deals with them as they come, rather than acting rashly at each one, the supply chain and retail industries may indeed come out the other end of this intact, and possibly even stronger.

UPDATED 11/14/2016: A recent high-court ruling threw the British government’s plans to take the initial steps towards leaving the European Union into disarray, by stating that to do so would first require a Parliamentary approval.

This has slowed down the process, frustrating the efforts of new Prime Minister Theresa May, who had planned on beginning the transition in the coming weeks. Now, although the ‘Brexit’ is still likely to occur, it must go through members of Parliament, many of whom still oppose the measure.

We will keep up-to-date on the story as it continues to develop.