New research from Lockton, the privately held, independent insurance broker, highlights the devastating impact of Covid-19 on UK manufacturers’ Brexit preparedness.
In its survey of 500 UK manufacturers, almost half (46%) admitted their supply chain plans have been negatively affected by the Covid-19, with 25% stating they have not made appropriate arrangements with just six weeks left of the transition period.
Just six per cent of all manufacturers with international supply chains say they have seen no impact on their Brexit preparations highlighting the scale of the setback caused by the pandemic.
The findings also highlighted how smaller businesses are most exposed to post-Brexit supply chain risks with 30% stating they have failed to put the necessary provisions in place compared to 19% of large companies.
The impact of Covid-19 means UK manufacturers are now exposed to a growing number of supply chain risks, with many ill-prepared to manage these.
Of those surveyed, 39% admitted they have not yet taken any action to manage their foreign exchange risk, and further 36% unprepared to manage the risk of increased product calls. More than a third of respondents have also failed to take action to prepare for supply chain delays (35%), risks to administration costs & processes (35%) and the renegotiation of long-term contractual commitments (35%).
Localising supply chains
The most common action that has been taken is by the 42 per cent of companies say they have made some efforts to localise supply chains, with a further 20 per cent 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 per cent of companies so far.
The actions that most companies believe they have completed their preparations for are 24 per cent who have their alternative supply chain measures in place and 21 per cent who have adapted their product offering to limit their use of international suppliers.
This exposure comes despite the spiraling bills that UK manufacturers have already amassed as part of their Brexit preparedness planning, which reaches into the millions of pounds for the larger UK companies.
Many anticipate further costs over the next six months, which will be more than double their total spend on altering and securing their supply chain to support their business in the next environment.
While the Brexit deadline looms, 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 per cent) 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.
The impacts are also expected to be felt by their customers, as 45 per cent of businesses anticipate having to increase their prices for consumers during 2021.
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.
Debbie Day, Managing Partner, Lockton comments: “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.
“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.”
‘SME’ refers to companies with under 250 employees, excluding sole traders.
The research was carried out among 500 managers at UK manufacturers with international supply chains by Censuswide between 17 and 23 November 2020.
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