A no-deal Brexit or clean-break Brexit is looking increasingly likely. This is because the UK government, while it is actively pursuing a deal with the EU, has pledged to take Britain out of the EU on the 31st October.
With the publication of Operation Yellowhammer, described as a ‘reasonable worst-case planning assumptions’ document, some of the challenges the UK and businesses in the country are laid bare.
In this article, we’ll discuss some of the major issues unveiled by Operation Yellowhammer and discuss damage limitation strategies that might help.
Talking tariffs and relationships
The crux of the whole issue surrounding Brexit is Britain’s relationships with the EU. Since the UK joined in 1973, it has enjoyed a host of benefits designed to foster free trade; a concept that doesn’t restrict imports and exports inside a trading bloc.
In this instance, the UK freely allows goods from itself and the EU to enter and exit its borders seamlessly; unlike non-EU countries whose goods and services are subject to customs checks and tariffs.
Customs is the part of each country that implements taxes and tariffs on goods as they enter a nation. Tariffs are placed on goods for a variety of reasons. For instance, Donald Trump, in his trade war with China, has levied tariffs on a range of Chinese goods to put them under pressure to sign a new trade agreement with the United States. Other reasons include collecting taxes from multi-national organisations to line government coffers and to protect domestic industries from being undercut by cheaper imports.
Either way, as a part of the European Union, Britain enjoys a discount on goods entering and leaving the country. Unless a deal is agreed, the UK will:
- transition to World Trade Organization (WTO) rules, resulting in an immediate hike in tariffs when trading to and from with the EU, with leading economists estimating this may add up to 40 – 50% on the price of certain goods;
- experience significant delays as goods enter and leave the country, with Operation Yellowhammer estimating that lorries could be waiting to enter/leave Europe for 1.5 – 2.5 days as French and British authorities check goods through.
According to data from the UK Parliament, Britain exports 46% of its goods to the EU. It imports 54% of its goods from Europe. These statistics demonstrate that half of the goods we exchange with our European neighbours will be subject to customs checks; likely to cause significant disruption.
Breaking down Operation Yellowhammer
With context as to why Britain will experience disruption in the event of no-deal Brexit, we can digest the contents of Operation Yellowhammer. The five-page executive summary details 20 scenarios the UK government is preparing the country for.
The document details potential scenarios from civil unrest to food shortages, traffic disruption and crucially, supply chain challenges. In fact, almost all the challenges presented by no-deal Brexit are centred around logistics and supply chain integration.
Here are three critical scenarios:
Operation Yellowhammer details a situation where the UK will experience serious medicine shortages, for up to six months. Three-quarters of UK medicine supplies come via ferry over the English Channel, which will be subject customs checks on the French and UK borders.
The key issue is that supply chains for medicinal goods are highly regulated and require unique measures such as temperature control for drugs like insulin. Some medicinal goods can be stockpiled for a period of time, but others cannot because of their shelf-life; they’ll spoil if not used within a certain time frame.
Diabetes UK warned of this problem in a news article in July 2018. According to the piece, over a million people rely on insulin in the UK and all our insulin supplies come from outside of the UK.
Three companies, Novo Nordisk, Lilly and Sanofi supply UK insulin, but every single one of them uses myriad EU countries as part of their supply chain process, for things such as manufacturing and packaging before entering Britain.
Fresh food supply challenges
Yellowhammer doesn’t seem to envision food scarcity being a major issue for the UK. Instead, the report predicts that Brexit will “…reduce availability and choice of products and will increase price…”
It cites Christmas and the end of the growing season in the UK as major challenges retailers will have to contend with, in their pursuit of managing a no-deal Brexit. In addition, consumer behaviour such as panic buying will almost inevitably cause or exacerbate food shortages across the UK.
30% of the UK’s food supply is provided by the EU, with 50% provided by UK farmers. On paper, a simple solution would be to increase domestic production, but further analysing the data illustrates why this wouldn’t work.
The UK exports £1.2 billion of fruit and vegetables to the rest of the world. However, it imports £11.1 billion, of which, the majority comes from the EU. Quite simply, the UK doesn’t output enough in the agriculture industry to satisfy demand. It relies on imports from overseas to backfill this requirement.
With customs checks set to become mandatory on both sides of the channel, and tariffs to be levied against imports and exports, British consumers will find their weekly shop more expensive and limited in its range. Ferries, lorries and shipping containers full of fresh goods will simply be waiting to go through customs, decreasing their shelf life.
Point nine of the Operation Yellowhammer summary details that the EU and the UK have yet to reach a ‘data decision’ regarding the flow of personal data between Britain and Europe.
A framework has been proposed in the thrice-rescinded withdrawal agreement Theresa May and her administration negotiated. But in the event of no-deal Brexit, no such agreement would exist. This will have serious repercussions for organisations in the UK and the EU.
According to legal firm Pinsent Masons, right now, personal data can flow freely between the EU and Britain because of pre-existing agreements between the UK and Brussels. However, a no-deal Brexit will see UK data protection law, supersede the agreement in place between Britain and the EU.
Once Britain becomes a third country, the EU will treat the UK like any other third country and place restrictions on the transfer of data outside of the European Economic area. There are nations which the European Commission consider as having ‘adequate’ data protection standards in place.
At the time of writing this is limited to 12 territories, including Canada, US, New Zealand and others. However, for the European Commission to ratify such a decision, it can take years as the Operation Yellowhammer report alludes.
What can you do to ready your supply chain?
Even now – just six weeks away from the Brexit deadline – we still aren’t in a position where we can give explicit advice to prepare for leaving the European Union. The UK government, shortly after Operation Yellowhammer was published said it will publish specific advice and risk mitigation strategies closer to the deadline.
But with just six weeks to go, preparations – if they haven’t already – must begin immediately.
#1 – Stockpile additional goods
Where possible you should start stockpiling a surplus of goods to remain competitive after no-deal Brexit. Begin by clearing appropriate warehouse space or by setting up temporary storage facilities to cope with the additional goods you’re planning to store.
#2 – Anticipate buyer demands and needs
Operation Yellowhammer assumes that in the event of no-deal Brexit, there will be panic purchasing for staple goods. Spend time now identifying what these essential items are and order additional stock of these items to bolster your stores. This way, you’ll be able to meet demand more readily.
#3 – Brief workers and your supply chain on the contents of Yellowhammer
Hold briefing sessions about the contents of Operation Yellowhammer and disseminate the contents of the report throughout the business. Ask suppliers what they’re planning to do to tackle the challenges of no-deal Brexit and what assurances they can give that they’re appropriately trained and prepared their staff for it.
#4 – Consider identifying contingency suppliers
For items with a limited shelf life, identifying alternative suppliers in the event of no-deal Brexit could be something for you to consider. With delays expected at ports between Kent and Calais, identifying suppliers that can provide continuity is something worth considering. Run appropriate sourcing events to identify appropriate vendors.
#5 – Lobby your local MP for additional clarity
Finally, consider writing to your local or local authority for clarity on what government intends to do to help businesses manage the impact of no-deal Brexit. Ask for details of what they plan to do ensure goods flow freely between UK and EU borders.
Sit tight and wait for more information – but be prepared
At this stage, businesses around the UK and Europe don’t know what kind of Brexit the UK will opt for. Both Britain and Brussels, stress that opportunities for striking a deal remain a possible in the coming weeks.
The UK government have stated that they will release additional information and risk mitigation strategies for a no-deal Brexit in the coming weeks. So, until we have more information there’s little, we can be certain about.
We recommend remembering what former British Prime Minister, Benjamin Disraeli said in his book, The Wondrous Tale of Alroy:
“I am prepared for the worst, but hope for the best”.