COVID impedes manufacturers' Brexit plans

Pandemic-related disruption has damaged manufacturers’ Brexit plans, according to research conducted by Lockton. The insurance broker’s study of 500 UK manufacturers suggests that about half of UK manufacturers have seen plans derailed by pandemic-related disruption, and that, with just weeks until the end of the transition period, a quarter of the manufacturers surveyed don’t believe they will be ready.

Just six per cent of all manufacturers with international supply chains say they have seen no impact on their Brexit preparations, according to the study.

Smaller businesses are most exposed to post-Brexit supply chain risks, with roughly a third having failed to put the necessary provisions in place.

Across the whole group. 39% admitted they have not yet taken any action to manage their foreign exchange risk; 36% were unprepared to manage the risk of increased product calls; 35% have failed to take action to prepare for supply chain delays; 35% are not prepared to manage risks to administration costs and processes; and 35% are unprepared for the renegotiation of long-term contractual commitments.

Commenting on the findings, managing partner at Lockton, Debbie Day said it’s vital that companies conduct a full and all-encompassing risk assessment.

“This has clearly been a difficult year for manufacturers who have had to adapt to the significant disruption of the pandemic, whilst trying to overcome the challenges around the uncertainty of the EU withdrawal, which is now only a few weeks away.

“Each aspect of the supply chain needs to be reconsidered and particularly what risks businesses have been exposed to, and to what extent. We’ve seen that many businesses are taking the necessary steps, in terms of securing alternative suppliers and putting in place the resources to work through the incoming tax and administrative changes, but a significant proportion are still behind where they need to be."

Continued uncertainty around the terms of the exit and the ongoing COVID-19 pandemic mean that manufacturers foresee further long-term challenges. More than half (53%) of businesses think they will need to continue to find alternative supply chain options in the first year after Brexit, and a further 50% believing they will have to keep localising their supply chain during this period.

Day continued: "However the final terms of Brexit are settled upon, it’s essential for businesses to undertake full supply chain risk assessment, so that they can fully understand their exposure and the cost implications. It is then important to put in place the right insurance cover to ensure that firms are protected against these risks and create a buffer against unexpected losses.”

Businesses believe they will still be altering their supply chain for four months after Britain leaves the EU in order to adapt to the new regulations and reach a status quo, where they can maintain their business at current levels or grow beyond that. Many anticipate further costs over the next six months, which will be more than double their total spend on altering and securing their supply chains.

Lockton's research was carried out amongst 500 managers at UK manufacturers with international supply chains between 17th November and 23rd November 2020.

Taking action (Source: Lockton)

The most common action that has been taken is by the 42% of companies say they have made some efforts to localise supply chains, with a further 20% believing they have made every relevant step they need to in this area.

Reallocating capital to cover extra costs, using data tools to ease customs and tax complications, diversifying suppliers and hiring extra staff have all been begun by 38% of companies so far.

The actions that most companies believe they have completed their preparations for are 24%, which have their alternative supply chain measures in place and 21%, which have adapted their product offering to limit their use of international suppliers.

Image courtesy Swiss Re

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