Coronavirus Reveals Risks to U.K. Supply Chains Before Brexit
Coronavirus-fractured supply chains are providing a wake-up call to British business and leaders with just seven months to go before Brexit triggers the biggest shakeup of trading relationships in a generation.
Eighty-two percent of small- and medium-sized manufacturers say the pandemic has affected their supply chains. That’s according to a survey of more than 600 English firms by the South West Manufacturing Advisory Service.
Meanwhile, the government has faced heavy criticism as it struggled to fly in emergency supplies from abroad while U.K. factories were shuttered and workers sat at home. Now, as Prime Minister Boris Johnson encourages the sector to return to work, some say the time is right to look at bringing more supply chains back onto British soil.
Reshoring has been a buzzword for a few years as populist politicians rail against globalization gone a step too far. Johnson included a pledge to encourage government bodies to buy British in his December re-election campaign, promising to ditch “absurdly complex” EU rules on public procurement with their “pointless tendering requirements.”
The pandemic is bringing the issue into sharper focus. Stories about plane loads of protective equipment for medical workers being delayed or having to be scrapped because it’s substandard, and government calls for manufacturers to suddenly turn their skills to ventilator and hospital-gown production are likely to stick in the minds of both the public and leaders.
“Covid-19 has brought home how reliant we have become on overseas supply of strategically critical components,” said Martin Coats, managing director of the Manufacturing Growth Programme, which undertook the survey alongside SWMAS. “We must learn lessons from this and do everything we can to re-establish U.K. production of these parts and protect SME manufacturing now and in the future.”
Blackman and White, a Maldon, Essex-based cutting-machine manufacturer, had to give up trying to produce free protective masks for NHS workers on its own equipment due to a lack of available suitable plastic materials, and has instead switched to hospital gowns.
“This has highlighted a lot of issues,” said Eiko Ichikawa-White, a director at the company. “We were worried about supply chains being stressed anyway with Brexit. Now we’re in a situation once again that poses the same threat.”
The struggle by businesses to remain solvent through the pandemic comes as the U.K.’s departure from the European Union looms. Key talks about the future relationship are stumbling, with few signs of progress ahead of a deadline next month to decide if it’s worth continuing. If Johnson carries through his threat to walk away, Britain could end its transition period on Dec. 31 without a free-trade deal, putting yet more pressure on firms and already strained supply chains.
Complications facing U.K. businesses got a little more real on Tuesday with the government’s announcement of a new tariff regime, which provided a stark reminder of the stiff trade barriers that importers and manufacturers will face if Brexit talks fail. Absent a year-end deal, U.K.-based manufacturers of goods like cars, machinery, pharmaceutical products, plastics, precision tools, and aircraft will face new costs and significant disruptions to their just-in-time supply chains in Europe.
For some, pre-existing worries about possible Brexit disruption have proved useful so far. Rowan Crozier, chief executive officer of metal-pressing firm Brandauer, said his contingency planning for a no-deal departure from the EU meant he had already secured access to multiple sources of the metals he relies on to manufacture tooling and components long before the health crisis began to disturb existing arrangements.
Even so, the Birmingham-based company still faces critical shortages of items like hand sanitizer and protective equipment needed to keep staff safe, and Crozier sees a “totally different” future for supply chains.
“As a country, there will be more focus put on de-risking supply chains, having shorter supply chains,” he said. “There will be de-risking that goes on that means if you can’t get stuff out of Asia, or wherever it’s being made, there is an alternative as a backup. There is support the government could give to encourage that to happen, particularly whenever we do head toward our full departure from the European Union.”
It’s a sentiment echoed by the Bank of England’s chief economist, Andy Haldane, who suggests the need for a greater mix of international and domestic suppliers.
“The fact that we have struggled to manufacture not just ventilators but rubber gloves is quite interesting and quite revealing,” he said in an interview with the Telegraph newspaper. “Might that come at a slightly greater cost? It might. Is that a price worth paying for greater resilience in our economy? I would say that it was, based on the experience of the past few weeks.”
©2020 Bloomberg L.P.