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Forecasting Brexit’s Logistics Implications

APICS CEO

Friday July 1, 2016


APICS-Supply-Chain-Management-Now

Just a week ago, the world received the news that citizens of the United Kingdom (UK) voted to withdraw from the European Union (EU) by a narrow margin of 4 percentage points. Now, after months of speculating whether or not Brexit could be a reality, the business world is forecasting how Brexit will affect global commerce. Shortly after the Brexit vote announcement, The Wall Street Journal published an article about how this political move will influence the European supply chain.

Article authors Paul Page, Robbie Whelan, and Laura Stevens interviewed shipping and logistics operators to uncover a potential two-pronged, near-term effect of Brexit. Although the new boundaries could dampen the movement of goods, they could create more demand for services that help manufacturers and retailers navigate the new trade rules. Once the UK secedes from the EU, products entering and leaving the UK will be subject to duties and other taxes along their routes from manufacturers to end customers. What was once a simple shipping process to nations across the EU will be complicated as UK businesses will have to face new restrictions before they can sell their goods to customers in other countries. 

Retailers both inside and outside the UK will have to rebuild their distribution channels to match the new trade map, the authors note. Mark White, chief commercial officer at SEKO Logistics Worldwide, said in the article that some of the company’s customers are considering moving their physical stock out of the UK and into Holland, Germany, and other EU countries—especially if a large portion of their sales happen on the continent—to avoid the new taxes and complications.

Until the UK’s new trading relationship with the EU is sorted out, logistics companies report they most likely will not change the way they do business to and from the UK. There are exceptions, though. For example, merger and acquisition activity between British and non-British companies likely will come to a halt until everything is sorted out, and companies will be more cautious about investing in the UK and the EU.

One positive economic point is that the Brexit vote could give UK businesses a short-term boost because of the weakened pound. Britain’s currency dropped 11 percent following the Brexit vote and traded as low as $1.32 last Friday. This makes British goods cheaper for buyers in other countries, says Lila Snyder, president for global e-commerce at Stamford, Connecticut-based international shipping provider Pitney Bowes, in the article.

But as the pound took a hit last week, so did the stocks of multiple shipping and logistics companies. Shares of XPO Logistics dropped 14.9 percent, FedEx fell 3.8 percent, and United Parcel Service declined 2.2 percent in New York trading. XPO Logistics was most heavily hit because 12 percent of its revenue comes from the UK. In the European markets, shares of A. P. Moller-Maersk declined 3.1 percent, and shares of logistics provider DSV fell 5.2 percent, even though the Denmark-based company started moving pounds out of its accounts earlier this year.

Forbes cautions that the financial effects of Brexit will continue. A total of $3 trillion dollars was wiped from stock markets across the globe following the Brexit vote announcement. Corporate buyers in China are reducing their orders as China's June Purchasing Managers’ Index dropped to a four-month low. A quarter of British companies are planning to stop recruitment as UK businesses brace for a recession in 2017. Although the situation will not likely cause a global recession, it could quite possibly dampen the growth of the global economy and create years of uncertainty. 

Of course, it is worth noting that this Brexit vote is not legally binding, as the British Parliament still has to pass the laws that will allow the UK to withdraw from the EU. BBC News points out that the UK has to invoke Article 50 of the Lisbon Treaty to set in motion the legal withdrawal process, which could take up to two years. Still, it is best to look ahead and consider the possible risks and implications for supply chains.

Planning for logistics risks

Business Insurance reports that Brexit is now a top risk area for most companies. The article classifies it as an enterprise risk and notes that company leaders need to consider the different business areas that could be affected, including sales, finance, laws and regulations, information, technology, insurance, and people. At this time, firms should consider putting together a risk response plan—which the APICS Dictionary, 14th Edition, defines as: “A document defining known risks including description, cause, likelihood, costs, and proposed responses. It also identifies current status on each risk.” 

APICS offers a plethora of resources to help you do just that. The APICS Risk Management Education Certificate will prepare you to participate in the development of a global risk mitigation strategy. By earning this certificate, you demonstrate your commitment to protecting your employer from supply chain risk and your ability to balance rewards and risks in the decision-making process. Learn more about the APICS Risk Management Education Certificate here.

In addition, the new APICS Certified in Logistics, Transportation and Distribution (CLTD) designation program, which launches today, will help you master essential knowledge and stay up-to-date with global logistics trends and developments. Become one of the first CLTD designees by starting your learning path today at apics.org/cltd.
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  1. kroysanjana July 26, 2016, 04:51 AM
    Thanks for sharing Valuable information

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