The British phrase “third time lucky” usually describes the belief that the third time we attempt something, it is more likely to succeed than the previous two attempts. We also use the phrase as a good luck charm – spoken just before trying something for the third time.
UK Prime Minister Boris Johnson’s attempt to take his country out of the political body of 28 Member States on October 31st would be the third effort to do so this year alone! Will Johnson and the UK be “third time lucky”? What about companies trading internationally? Will they be as fortunate?
“We are leaving on October 31st, no ifs or buts.”
When Boris Johnson became Prime Minister of the United Kingdom on July 24th, his first statement clarified that if the EU and the UK cannot conclude a withdrawal agreement by October 31st, then he would take the country out of the EU “without a deal.” Five weeks later, on September 2nd, he reaffirmed: “I want everybody to know – there are no circumstances in which I will ask Brussels to delay. We are leaving on October 31st, no ifs or buts”.1 Despite these confident statements, the opposition to his plans is growing and, at the time of writing, the situation remained fluent and subject to change at any moment. Brexit has become like a tactical game of chess, with no end in sight.
Does the UK leave this time, for real?
Whenever this question is asked, the hashtag #definitelymaybethistime is trending on social media! What we know for sure is that currently, the default legal position is the UK will leave the EU at 11:00 pm on October 31 unless:
- Both parties agree to another extension;
- The withdrawal agreement between both parties is approved and ratified by both the EU and UK; or
- The UK revokes the decision to leave the EU unilaterally.
Will there be a deal on the withdrawal agreement?
Prime Minister Johnson said to get an agreement the EU would need to “scrap” the withdrawal agreement and seek a completely new deal, as minor changes would not satisfy him: “I mean more than a change,” he said. “It’s got to be; we need a new withdrawal agreement – if we’re going to go out based on a withdrawal agreement.“
However, in Continental Europe, there is no appetite for such a drastic change. The EU has ruled out renegotiating the current withdrawal agreement after both parties agreed on a lengthy text at the beginning of the year.
Yet Prime Minister Johnson is “encouraged by the progress we are making.” He believes that “the chances of a deal have been rising,” because, “They can see that we want a deal…they can see that we have a clear vision for our future relationship with the EU…and they can see that we are utterly determined to strengthen our position by getting ready to come out regardless, come what may.”3 An extensive media campaign called “Get ready for Brexit” has also been launched asking businesses and citizens to get advice from the website www.gov.uk/brexit.
Still, many observers believe that it will not be possible to conclude a new deal by the end of October. If no agreement can be reached and the October 31 deadline passes, then Great Britain could “crash” out of the EU.
What does a no-deal Brexit mean for supply chain professionals?
The no-deal scenario will see the country’s exit from a common trading system, established over more than four decades. This system is based on wholly harmonized customs and trade rules without any internal borders. It was an ideal environment for companies to grow and maintain a diverse partner network of suppliers, subcontractors, third-party logistics providers, distributors, retailers, and warehouses across most European countries – and move goods freely between the EU and the UK without trade formalities.
Come Brexit day, these and thousands of other pieces of EU legislation will no longer apply, affecting anything from road transport to product conformity with standards, trade, commercial agreements, IP law, and import and export controls. A no-deal Brexit also means no orderly transition phase. The UK will leave the Single Market, the Customs Union and the European Court of Justice jurisdiction overnight.
- 23 June 2016: A majority of voters in the UK referendum on the membership of the European Union favored the departure by the UK from the EU.
- 29 March 2017: The UK served notice of its withdrawal under Article 50 of the Treaty on the European Union. This began a two-year process whereby the UK would automatically leave the EU on 29 March 2019.
- 22 March 2019: The UK and EU agreed on an initial extension and, subsequently, a second extension until 11:00 pm on 31 October 2019 if no withdrawal agreement was concluded.
Instead of EU law, the UK’s trade arrangements with the broader world will be governed by the World Trade Organization (WTO) rules. These are less detailed and are limited to general trade matters and concepts. Trading on WTO terms will not alleviate the numerous frictions that concern companies. Instead, changing the trading system have the potential to profoundly impact businesses’ supply chain operations. Lengthy and complicated customs clearance procedures will need to be re-established between both regions. Customs and border control infrastructure will build-up again. What will these look like and how will it impact cross-border trade?
Hitting the bottom line
In the wake of a previous Brexit deadline (March 29, 2019), many companies responded by building up buffer stocks in their warehouses to guarantee supplies and continue production, often at a very high cost. When the departure date was pushed to October and supply bottlenecks failed to materialize, holding costs of surplus stock eroded profits. In the worst case, inventory was discarded and destroyed at additional cost. Such uncertainty in supply chain planning and operations is at odds with the mission of today’s drive for optimization of the supply chain. Isn’t there a better way?
Brexit resilience requires a well-orchestrated supply chain
With the Brexit deadline looming at Halloween, supply chain executives are already back to the drawing board. They know they need to have clarity in order to make meaningful decisions concerning Brexit. They must be able to answer the following questions as soon as possible:
- What will the post-Brexit trading environment be like for my company?
- What additional costs can we expect?
- Where are the potential bottlenecks as I move goods?
- How do I need to change my supply chain to avoid disruption?
It is becoming clear that company preparation will be key. An essential starting point is to have a holistic and transparent view of the entire supply chain, to visualize potential hold-ups, to plan for alternatives, and execute on solutions related to Brexit. Next, more communication and even stronger collaboration with suppliers and customers are also essential. This allows them to work with all their supply chain partners to manage and mitigate the impact of potential Brexit disruptions.
Brexit preparedness with timely, accurate, and complete supply chain data
There’s only one way to successfully use supply chain visibility to manage Brexit’s complexities: data! But not just any data. Your data must be timely, accurate, and received from all actors involved in the supply chain.
Getting such data is easier said than done. Most companies operate multiple ERP systems and a patchwork of siloed applications, with spreadsheets and manual processes to pull it all together. In this traditional environment, there is no centralized way to bring all this data together and convert it to be machine-ready and decision-grade. In the context of Brexit, this exposes companies to unprecedented risk on November 1st. In contrast, companies that evolved from the patchwork of siloed applications to a connected end-to-end platform now have all of this data, giving them an inherent advantage to overcome Brexit.
Such a system is not only an excellent planning tool for Brexit. It is a tool for managing any global trade challenges companies face, for example, slower economic growth, rising trade tensions, and increased economic uncertainty. Even without these headwinds, connected end-to-end supply chains are quickly becoming necessary to win in today’s fast-paced world – regardless of how global the stage. Is the third time the charm they need?