Updated Systemic implications of Brexit (including no-deal Brexit) on warehousing and logistics:

While the polls may define whether we leave the European Union in the very near future or go out to another referendum I am surprised how many people I speak to think we are leaving Europe. It shows how mudded thinking is from both camps and how agendized the rhetoric which has been pushed on people has become. People need clarity and I have tried to be agnostic in as much of my explanation as possible. If any appears biased in anyway please let me know in the comments section. The one thing that business and the markets are joined on is they want clarity and a firm direction of travel (whichever it may be).

As it stands we legislatively have no choice but to leave the E.U. and its treaties unless we withdraw Article 50 or request another extension to it. The E.U. Has said they will only allow another extension based on a firm path to a resolution and there has to be proper justification for it. Labour sit on the fence on which way they would push us (officially they say leave it up to a second referendum to define), Liberal Democrats say they will unilaterally withdraw Article 50 and the Conservatives say they will "get Brexit done". The truth of those statements is; Liberal democrats will not win the election so they cannot withdraw Article 50, Conservatives can win but would need a clear majority to make it seemless and Labour are promising to renegotiate a deal (something the E.U. has said will not happen) and then put it back to the people. The biggest failing in all of these at the moment is they drive uncertainty. Some Labour voters are switching to Conservative based on their Brexit position, but also due to just wanting to look to draw closure to a painful issue for many.

While the exact outcome of Brexit is even more unclear now than when I first looked at (due to the protracted political muddying of all sides and the inability to second guess so many stakeholders), it is accepted that the trading landscape will change whatever happens and it’s simply the scale and scope which we wait for. If you look far enough there are both positive and negative opinions on the future and I would never try to pre-guess those as so many intelligent people on both sides have already tried to do. The thing that will drive it either way is how quickly resolute actions and decisions are made and done.

The Brexit decision was based on the referendum of 23rd June 2016 and then on 29th March 2017 the government invoked Article 50 which gave a deadline for leaving of 29 March 2019, is has since been variously extended until 31st January 2020 (which is the current E.U. agreed deadline for Article 50 to move to the next stage. If an agreement is not made with the E.U. before we leave then we could possibly end up in what the press refer to as a hard-Brexit or no-deal scenario, this is not the case for the 2020 deadline as Boris Johnsons government are behind the deal they are pushing. However the deal that the Conservatives are pushing does have very tight deadlines to agree the full relationship and if that is not achieved during the following year there is potential that could trigger a hard Brexit/ No deal.

The no-deal scenario would see us trading under WTO rules. While E.U. rules refer to WTO at several points in their documents, they are clearly different in the fact they create tariff-free trade as opposed to tariff neutral trade or tariff-controlled trade. Many countries trade successfully under WTO terms now, the issues people who didn’t want to leave the E.U. contend are that we have been trading under E.U. free trade so any tariff-controlled trade will be less beneficial. People who are pro Brexit say it would create more opportunity, more quickly. Whichever is true the scenario scares some people as it forces change on business much quicker.

Theresa May put a deal on the table and tried to get parliament to sign up to it, however it was negatively received by all sides, however business backed it as the least-worse of a bad set of options. Theresa May attempted to win over her side and nominally attempted to add to it through negotiation. It was always unlikely to get through as it has so little support and even the DUP who had some votes they lend to the Conservative party have said there is nothing about it they can go with (which is a rare standpoint but they cannot agree with the proposed potentially never ending backstop). Boris Johnsons version has been described as very similar with the main difference being the way the Northern Irish Backstop is handled (which has meant the DUP are even more against it). The current iteration of the deal has proposed replacing the backstop with a combination of customs, regulatory and border checks which would last for a limited number of years (done away from the physical borders to avoid local issues around that).

What I am going to do is offer some suggestions on potential implications on warehousing and logistics may be, although as every business is different, I would suggest these should be considered locally rather than on a macro level and then the global implication considered separately and causally. And remember all of these are just potentials and may not happen or indeed be directly related to your business model; I will do another report on the potential upside after the election.

Cause: To start with before we get too far in to the warehousing and logistics part we must acknowledge some of the outside implications that may affect general trade and demand. Currency fluctuation can affect manufacturing/ parts import and drive up (or conversely reduce) stock costs.

·        Some potential implications to Warehouse and Logistics:

o  This can result in several related effects as listed below.

§ The need to be even leaner with products and storage space. This can be as simple as the need to bring down stock-turn numbers to reduce costs and will often involve bringing in more sophisticated WMS practices.

§ Warehouse usage may drop as trade is affected by price spikes. This can lead to reduction of staff levels and unfilled warehouse capacity. Again this can be helped by better WMS practice; however mitigation can be achieved by subbing out space to 3rd parties etc.

§ Differing collection/ delivery patterns. Higher costs and lower stocked/ line numbers may affect and lead to the need to change plans or processes around collection and delivery.

§ Manufacturing may be taken in or be taken out of house, depending on where the costs are and would be higher. This could bring more process back on site if the pound dropped against other currencies, however depending on the industry and it could indeed rise which would have the converse effect.

§ Regulatory changes will have a massive effect in that we will need to work in certain ways to trade within Europe as freely as we do whatever happens so this could be a re-imposition of currently established rules, however, could include extra regulation where a country trading from outside the Bloc is expected to act in a different way. Where we might trade with new countries as well their own regulatory framework as well as WTO rules need to be embedded.

§ Labour costs may rise; see more general effects listed below.

§ With the cost of fuel price potentially rising based on currency fluctuation affecting the price we pay for it. This could have the potential to further change delivery/collection practice as well as many other more general business processes. This could be up or down depending on how our currency handles Brexit and afterwards (it’s worth noting that there is a chance our economy could come out of Brexit in a much stronger position, however most people seem to accept the short-term effect will be less confidence in the market which could lead to a short-term decline).

Cause: Labour costs may increase. The potential reduction in migration from Europe could make a difference to available labour pools, seasonal staff and third party labour costs. On top of that there are other economic influences which could put up the cost to employ someone. The Conservatives have for example promised to introduce an Australian style points system for letting people in to work, while Labour have in their mandate offered more open borders. The problem is without a clear majority neither could achieve this.

·        Some potential implications to Warehouse and Logistics:

o  This can result in several related effects as listed below.

§ Seasonal work or zero-hours work which is currently done to manage capacity at peak periods will become more difficult to mitigate.

§ Already hammered overheads will rise and could reduce overall workforce.

§ Automation will become more popular, particularly as the costs of it drop over time. Warehouse businesses have already embraced conveyors at many levels, as well as the more sophisticated storage, retrieval and sortation technology that we see in businesses like Amazon. As the cost/ un-availability of labour increases then the benefit of automation is increased.

§ Skilled work could be hit as hard as unskilled work and where we already have a massive shortage of HGV drivers’ staff availability could drop even further, hitting ability to deliver and even retain business. The current estimated HGV driver shortage in the UK is 45,000.

§ If we do work under separate trade terms and our currency fluctuates massively because of Brexit (for example if it dropped massively against the Euro) we could potentially struggle even more to recruit any labour from abroad either skilled or unskilled. Conversely if our currency increased massively against the Euro there is the possibility that our jobs might be even more attractive than before, and staffing issues would be more about the visa rules introduced.

Cause: Reputational/ loss of business in Europe. Some class of business may be lost automatically due to perceived trade/ cultural differences across Europe, while this might not seem as relevant to someone who doesn’t ship/ supply to Europe from a supply chain affect it could be worth understanding.

·        Some potential implications to Warehouse and Logistics:

o  This can result in several related effects as listed below.

§ Suppliers may put up prices which could bring about some of the other effects already listed.

§ Business overall may drop, however it could increase, particularly as other markets potentially absorb the outer tier trading, or with supplemental trade agreements. Whichever way you look at this it could create a different picture in your warehouse model and transportation eco-structures that have developed.

Cause: Borders and trade regulation. This is too broad a subject for me to cover with any certainty or expertise, however some of the obvious results of Brexit will include; potential bottlenecks in borders/ cost of business with EU countries and red-tape.

·        Some potential implications to Warehouse and Logistics:

o  This can result in several related effects as listed below.

§ Cross border tariffs may apply so business that trade directly with European countries may have to modify their business model to mitigate this.

§ More time for delivery of product/ component parts could potentially be needed. This could add to delivery costs, man-hours and lead times which may need to be mitigated.

§ Red-tape might mean more internal administration needed within your business from accepting goods, delivering within the EU to paperwork you will supply. In your warehouse it might for example require extra pack benches if you have various destination packing, or at least more templates available at goods out and potential time for sign off on goods in.

§ Holistically as part of the way goods move between countries there has also been a lot of discussion about how a no-deal Brexit could affect buildup of traffic at ports and the Channel Tunnel. The government has indicated as part of the emergency planning around the leaving date, Operation stack would be changed to a single lane parking build up (Operation Brock) as traffic queues on the M20 - People have suggested this would turn most of Kent in to a car park and trade could temporarily grind to a halt. Advocates of leaving have said that this is just scaremongering and the pre-authorization and digital up-front management, and visas would stop this being as big an issue as people are making it.

There are many other potential issues to consider with Brexit looming at the end of March 2019, however whichever way you look at it having robust and lean systems in place before then can only improve your chances of managing. If the government decided Tomorrow to withdraw Article 50 (probably 0.5% chance in my opinion) there would still be trading differences and currency fluctuation that would need to be considered.

“Mitigate against as many likely negatives as you can and then all the positives will drive you forwards”.