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COVID-19 impacts UK manufacturers supply chain for Brexit: Lockton

27th November 2020 - Author: Katie Baker

Insurance broker Lockton has released a report exploring how the COVID-19 pandemic has impacted the preparations for 500 different UK manufacturers.

In its survey, 46% had said that their supply chain plans have been negatively affected by the pandemic, with a further 25% stating they have not made the appropriate arrangements, leaving just shy of six weeks left until the transition period is complete.

Only 6% of all manufacturers with international supply chains say they have seen no impact on their Brexit preparations highlighting the scale of the setback caused by the pandemic.

It’s important to recognise that it’s the smaller businesses that are most 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.

COVID-19 has impacted UK manufacturers through being exposed to a growing number of supply chain risks, with many ill-prepared to manage these.

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Of those surveyed, 39% admitted they have not yet taken any action to manage their foreign exchange risk, and further 36% unprepared to manage the risk of increased product calls.

Over a third of respondents have also failed to prepare for supply chain delays (35%) risks to administration costs & processes (35%) and the renegotiation of long-term contractual commitments (35%).

42% of companies say they have made some efforts to localise supply chains, with a further 20% claiming they have made every relevant step they need to in this area, making it the most common action that has been taken.

Many businesses 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 in what the next environment should look like.

Whilst the Brexit deadline comes further into sight, the uncertainty around the terms of the exit, along with the ongoing COVID-19 pandemic means that manufacturers are predicting further long-term challenges.

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 Britain leaves the 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, Managing Partner, Lockton commented: “This has clearly been a difficult year for manufacturers who have had to adapt to the significant disruption of the pandemic, whilst 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’ve 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, the final terms of Brexit are settled upon, it’s 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.”

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