Hammond's Late-Night Call Fails to Ease Company Brexit Fears
(Bloomberg) -- Less than two hours after his government’s Brexit plan suffered a crushing defeat in Parliament, U.K. Chancellor of the Exchequer Philip Hammond jumped on the phone. On the other end of the line: executives and business lobbyists alarmed by the prospect of Britain crashing out of the European Union without a deal in a few weeks.
During the hour-long conference call with the country’s top business groups and executives from companies including Amazon.com Inc., Siemens AG and Airbus SE, Hammond sought to soothe frayed nerves, assuring them that Parliament is working to avoid a chaotic exit and floating the prospect of a delay to the end-of-March departure date.
He was met with another outpouring of disappointment and concern from corporate leaders. Several have decided to ramp up contingency planning, even as Prime Minister Theresa May pledges cross-party talks to break the impasse.
“Businesses must continue to be ready for no deal,” said Lucy Fergusson, a partner at law firm Linklaters LLP. “We are running out of time.”
Adam Marshall, director general of the British Chambers of Commerce and one of the attendees on the Hammond call, said after the vote that businesses he represents were frustrated, impatient and angry. He called it “a high-stakes political roller-coaster ride that shows no sign of stopping.”
Since the initial shock of the Brexit referendum in mid-2016, companies have slowly adapted, moving more operations to the continent or stockpiling supplies in the U.K. in the expectation that flows of goods and people will hit a road block after March.
Here is what industry groups are saying following May’s defeat on Tuesday:
Airbus’s future chief, Guillaume Faury, said it’s preparing a backlog of wings and parts to keep production running for “weeks” in the case of no deal; trouble is it would like enough to last three months. The Toulouse, France-based company has been forced to stockpile at its factory in Hamburg due to a shortage of warehouse space in the U.K., with a plan to move parts across the border in a single shipment to limit delays.
Carmaker Vauxhall Motors, which is owned by Peugeot parent PSA Group, said it was “extremely disappointing” that the threat of a no-deal Brexit hadn’t been removed. Vauxhall’s French owners have been weighing whether to close one of its two factories in the U.K.
Japan’s Honda Motor Co. said a no-deal Brexit would seriously impact its European operations, even though it is implementing countermeasures. New checks at the border could disrupt its logistics systems, while tariffs on goods moving between the EU and U.K. would hurt competitiveness, it said. Ford Motor Co. said a no-deal Brexit would be catastrophic for its manufacturing operations in the country.
Kuehne + Nagel International AG, the world’s largest sea freight forwarder, said a disorderly Brexit would be the “worst solution” and that it’s working to secure alternative trade routes with Europe outside of the busy Kent corridor. It also said it’s started recruiting additional customs clerks.
The lobby for Europe’s pharmaceutical industry said the ongoing impasse in Westminster is a real and immediate threat to patient safety and public health in the U.K. The drugs industry has long warned that leaving the EU without an agreement could cause medicine shortages as shipments pile up at the border.
Nathalie Moll, director general of the European Federation of Pharmaceutical Industries and Associations, said the U.K. and the EU should “put politics aside” and “put measures in place to prevent patients being harmed by the consequences of Brexit.”
Novo Nordisk A/S, the world’s biggest maker of insulin, has reserved space on airplanes and plans to boost stockpiles further to ensure diabetes patients in the U.K. don’t run out of the life-saving medicine. The Danish company said it started planning for different Brexit scenarios about three years ago.
“While we have stockpiled, the issue then from a supply point of view is how quickly can we replenish that stockpile, because we anticipate there could be some delays,” Pinder Sahota, Novo’s U.K. general manager, said in an interview. “This is a major logistical challenge for the industry.”
German conglomerate Bayer AG and Swiss pharmaceutical giant Roche Holding AG have also been stockpiling medicines in the U.K. and Bayer said May’s defeat in Parliament meant “great uncertainty for all stakeholders.” Bayer said it is working with British customs authorities on the smooth shipping of drugs that have a very short shelf life and can’t be stockpiled.
The Scotch Whisky Association said a “no-deal Brexit would damage our industry by forcing cost and complexity into the production and export of Scotch whisky, and must be avoided.” Scotch whisky accounts for about a fifth of U.K. food and drink exports.
Julianne Ponan, chief executive of superfood maker Creative Nature, said she’s stockpiling items like hemp seed from Germany and choosing to source goji berries from China instead of the EU to avoid any potential disruption to production. Ponan voted for Brexit in the hope it would bring more export opportunities. “I didn’t think that we’d be 10 weeks away and not have anything on the table,” she said by phone.
The Food and Drink Federation, whose members include Unilever Plc, Nestle SA and Mondelez International Inc., said the government should change the law to make a no-deal Brexit impossible and help businesses avoid spending tens of millions of pounds on no-deal preparations. “It just shows how completely out of touch with business needs the government is,” said Ian Wright, the group’s chief executive.
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Publishers and paper manufacturers are stockpiling newsprint, ink and other supplies.
Phil Dobree, chief executive of animation studio Jellyfish Pictures, which worked on the visual effects for the last two Star Wars films, said a second referendum would be “the quickest way for business to get a conclusive result.” 40 percent of Dobree’s 200-strong workforce are EU nationals and he is considering setting up studios on the continent if immigration becomes more difficult.
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