Why Covid Is a Dress Rehearsal for Brexit

(Bloomberg) -- Faced with the double challenge of Brexit and Covid-19, U.K. supply chains are being thrown into disarray.

The pandemic presented an opportunity for some producers to test the strength of their ability to get the materials they need and ship their products. However, it didn’t necessarily offer them much comfort they can weather Britain’s divorce from the European Union.

Many companies doing business in the U.K. are finding the lingering uncertainty over European Union trade talks has eclipsed the fallout from months of lockdown. The regulatory requirements after the transition period ends on Jan. 1 remain unclear, creating a much bigger challenge than did the panic buying that accompanied the pandemic, said Natasha Linhart, chief executive officer of Italian food supplier Atlante.

The lockdowns drove stockpiling, and this heaped pressure on staff at the company, which supplies prosecco, panattone and other delicacies to supermarket chains including J Sainsbury Plc. She said her teams were able to manage supply blockages at key transit points, such as the tunnel between the U.K. and France.

“I think we are more prepared now that we were during the first wave” of the virus, she said in an interview. But with Brexit, “we see the talks are going on but we don’t know whether there will be a free trade deal or not. So actually getting the company ready for that is the big challenge.”

Christmas Cheese

Bologna-based Atlante has already shipped some Christmas items to U.K. supermarkets, such as seasonal cakes. However the shipment requirements for chilled products such as cheese are creating worries because storage partners in Britain have limited shelf space.

“We fear the accumulated stress on supply chain caused by the combination of Brexit, Christmas and Covid,” she said. “One of our biggest concerns is getting the lorries back from the U.K. in a timely manner so that we can maintain a continuous flow of goods. The regulatory requirements are very unclear so for companies like ours it is difficult to implement changes in our processes and in our IT systems.”

U.K. Business Secretary Alok Sharma wrote to businesses Monday, imploring them to prepare for the end of the transition period. The message was that unless companies act now, they’ll face difficulties.

While food retailers are poised to go into overdrive for the peak Christmas period, it’s a different story in the aerospace industry.

The slump in demand for air travel and plane production has eased immediate pressure on supplies of components. With orders down 40% or more, manufacturers are comfortable to run down stockpiles they had previously built to deal with Brexit.

Supply Flexibility

That’s created more flexibility and leeway in aircraft supply chains, Andrew Mair, head of the Midlands Aerospace Alliance, said in an interview.

“Coronavirus has completely changed the picture, so if a part gets held up at Dover that you didn’t really need because you’re not making very many airplanes, is it going to be very disruptive?” Mair asked. “Probably not”

For Brompton, maker of the folding bike favored by London commuters, the prolonged Brexit process has had one silver lining. Two years ago, it spent 1.5 million pounds ($2 million) on building up extra stocks of components in case of disruption.

With the coronavirus spurring more people to hop on bikes, creating a global shortage of bike parts, it’s had to dip into those emergency supplies to satisfy demand, Chief Executive Officer Will Butler Adams said in an interview with Bloomberg Television.

“The problem now is we really do have Brexit coming and the global pressure on cycle parts is great,” Adams said. “So we do have a challenge coming with Brexit. It may affect our ability to grow as fast over that period. I think we’ll weather the storm.”

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