Brexit and the UK’s supply chains: taking stock in uncertainty
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Brexit is nearly upon us without any clues as to what it might actually mean. How are engineering SMEs coping with the situation?
At the time of writing this article, it is still largely unclear exactly what will happen on 29 March 2019. Will Britain leave the European Union as scheduled? If so, will it face either a transition period or leap over the ‘No Deal’ precipice?
In any case, with the prospect of significant changes to trading arrangements imminent, and with the current uncertainty, British engineering firms are already feeling the heat – both as the recipients of goods manufactured on complex supply chains and as links in much larger chains.
Tuffa Tanks, based in Staffordshire, employs 40 people and manufactures large liquid storage tanks. Its biggest customer is a Czech company called Greenchem, which produces Adblue, an additive that makes diesel fuel less noxious, and uses Tuffa’s tanks on forecourts all over Europe – so Brexit is obviously a major concern to marketing manager Mike Salmon.
“The nightmare scenario would be if trade isn’t particularly frictionless and there are delays going out of the UK and if it becomes uneconomic for this client to source UK-made tanks,” he explains.
Has Tuffa made plans for this worst-case scenario? “We don’t really have a ‘No Deal’ strategy in place for two reasons. One is because we don’t know what it’s going to look like. And the other is that we’re praying that some kind of commercial common sense takes over and some kind of frictionless trade deal is agreed in some form.”
‘I can’t see any conceivable upsides to Brexit on a personal, social, commercial or an economic level ... It’s going to be chaos for a long time, isn’t it?’
What makes it particularly difficult to plan around is that, though Salmon recognises why it might be a good idea to stockpile, or persuade customers to take stock in advance of B-day, this isn’t particularly practical for companies of Tuffa’s size: the production line is already churning out goods at full capacity, and is unable to ramp up production any further. “Even if they said ‘Yeah, that’s a great idea, we’ll take stock now’, which would suit us from a sales point of view, we just can’t make [tanks] quickly enough to do that. Even when we put plans in place it is not always easy to execute them.”
Supply-chain worries are also hitting Altrincham-based Farrat, a company specialising in vibration isolation systems used for soundproofing cinemas, for example. CEO Oliver Farrell tells us that his company is currently stockpiling three months worth of stock. He has also recently opened an office in Switzerland, which, while not a member of the EU, has closely aligned with the Single Market and Customs Union through a series of bilateral treaties.
As Brexit day draws closer with little prospect of a deal, Farrell has started to hear from his European partners.
“They’re basically saying, ‘Hang on a minute, it’s all well and good having a product that we can manufacture, but isn’t it going to take, you know, 10 days to get through customs?’,” he explains.
“The trouble with the UK is we don’t really create or produce any raw material in this country of any volume,” says James Henderson, managing director of Cornish firm Teddington Systems. It employs 65 people and turns over around £7m designing and manufacturing temperature pressure switches and control systems, and customers include Britain’s nuclear submarines.
He is worried about the new uncertainties in his supply chain that could impact his business – such as whether it will take longer for goods to reach British shores. He has already stockpiled around 15 per cent more stock than he would normally. At the moment, he says, components from China will take six weeks to arrive, and components from Italy can be here in as little as two or three days. “Is that going to be the same post-Brexit?” he asks. “Again we don’t know.”
Brexit is already making a tangible impact – Henderson is currently reviewing whether or not to launch a new wax engine product into the heating sector, because it relies on components manufactured in Eastern Europe.
“We can live with the extra couple of days or extra week in the supply chain; that doesn’t make a huge difference. But manufacturing businesses at best operate off a 5 per cent margin. And, once you start eating into that too much, then there’s no profitability. And the products very rapidly become just not worth producing at all.”
Henderson’s other concern is centred around the development and engineering side of his business. He says: “Decision-making has slowed down enormously,” explaining that his company typically takes on large, multi-year contracts that require significant investment from his firm in order to win each bid – this entails some risk. Because of Brexit he is being kept waiting by customers: “Companies are having to evaluate very carefully whether they actually want to go ahead with something with us because they don’t really know what the lay of the land is going to be.”
Is the situation entirely bleak? Tim Strawson is managing director of The Bradbury Group, which builds and manufactures metal security doors in Scunthorpe, and he has a rather different outlook.
“I’m not worried about Brexit, [...] I’m quite excited about it,” he says, explaining that his firm has been able to take advantage of the collapse of the pound and has managed to land its first export contracts – something it hasn’t been able to do before.
Like Tuffa, his company hasn’t been able to stockpile because all the security doors it makes are custom-made. In any case, he believes that because most of his suppliers are British his own supply chain shouldn’t face disruption.
That said, he doesn’t think the Brexit process is without friction. “If we find that we’ve got a customer that wants a [door] handle that’s difficult to get hold of, then he is going to have to wait for it. Or we’re going to have to persuade him to use a different handle,” he says with a sense of breezy optimism.
He also recognises that the Brexit process has so far caused uncertainty. “The stupidity of the politicians is killing business confidence,” he laments. “The only way to negotiate is to go in with a ‘No Deal’ Brexit. That’s our only trump card that we have; sadly, the politicians don’t understand that.”
‘The stupidity of the politicians is killing business confidence’
Is Brexit really nothing to worry about? Unfortunately, the other firms couldn’t disagree more.
Asked what type of Brexit would best suit his company, Farrell from Farrat was dismissive, telling us that: “From a business perspective, it would have to be sitting in the customs union, which in the end makes the whole thing a complete farce really as [Brexit] will only make it worse for everybody. Just the fact that people were having to spend time on it means we’re not developing our business.”
“I think you’re better off taking the European Union seriously and changing it from within rather than being belligerent about it,” says Teddington’s Henderson.
Finally, Salmon from Tuffa has perhaps the strongest words, telling us: “I can’t see any conceivable upsides to Brexit on a personal, social, commercial or an economic level.
“I think the medium to long-term future of the country is going to be severely damaged as a result of slowly dropping off the edge of the cliff. It’s going to be chaos for a long time, isn’t it?”
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