New research from Lockton
, an independent insurance broker, highlights the devastating impact of Covid-19 on UK manufacturers’ Brexit preparedness. In a survey of 500 UK manufacturers, almost half (46%) admitted their supply chain plans have been negatively affected by the Covid-19, with 25% stating they have not made appropriate arrangements with just six weeks left of the transition period.
Just 6% of manufacturers with international supply chains say they have seen no impact on their Brexit preparations, demonstrating the scale of the setback caused by the pandemic. The findings also highlighted how smaller businesses are more exposed to post-Brexit supply chain risks with 30% stating they have failed to put the necessary provisions in place compared to 19% of large companies.
The impact of Covid-19 means UK manufacturers are now exposed to a growing number of supply chain risks, with many ill-prepared to manage these. Of those surveyed, 39% admitted they have not yet taken any action to manage their foreign exchange risk, and a further 36% are unprepared to manage the risk of increased product calls.
More than a third of respondents have also failed to take action to prepare for supply chain delays (35%), risks to administration costs and processes (35%) and the renegotiation of long-term contractual commitments (35%).
The most common action that has been taken is by the 42% of companies that say they have made some efforts to localise supply chains, with a further 20% believing they have made every relevant step they need to in this area.
Meanwhile, reallocating capital to cover extra costs, using data tools to ease customs and tax complications, diversifying suppliers and hiring extra staff have all been adopted to some degree by 38% of the companies questioned in the survey. Alternative supply chain measures
The actions that most companies believe they have completed their preparations for are 24% who have their alternative supply chain measures in place and 21% who have adapted their product offering to limit their reliance on international suppliers.
This exposure comes despite the spiraling bills that UK manufacturers have already amassed as part of their Brexit preparedness planning, which reaches into the millions of pounds for the larger UK companies.
Many anticipate further costs over the next six months, which will be more than double their total spend on altering and securing their supply chain to support their business post-Brexit. While the deadline looms, uncertainty around the terms of the exit and the ongoing Covid-19 pandemic mean that manufacturers foresee further long-term challenges.
More than half (53%) of businesses think they will need to continue to find alternative supply chain options in the first year after Brexit, and a further 50% believing they will have to keep localising their supply chain during this period. The impacts are also expected to be felt by their customers, as 45% of businesses anticipate having to increase their prices for consumers during 2021.
Businesses believe they will still be altering their supply chain for four months after the UK leaves the European Union (EU) in order to adapt to the new regulations and reach a status quo, where they can maintain their business at current levels or grow beyond that.
Debbie Day, Lockton managing partner, said: “This has clearly been a difficult year for manufacturers who have had to adapt to the significant disruption of the pandemic, while trying to overcome the challenges around the uncertainty of the EU withdrawal, which is now only a few weeks away.
“Each aspect of the supply chain needs to be reconsidered and particularly what risks businesses have been exposed to, and to what extent. We have seen that many businesses are taking the necessary steps, in terms of securing alternative suppliers and putting in place the resources to work through the incoming tax and administrative changes, but a significant proportion are still behind where they need to be.
“However, once the final terms of Brexit are settled upon, it is essential for businesses to undertake full supply chain risk assessment, so that they can fully understand their exposure and the cost implications. It is then important to put in place the right insurance cover to ensure that firms are protected against these risks and create a buffer against unexpected losses.”