How does Brexit affect Australian Supply Chains?
As a born and bred English(wo)man and with friends and family dotted all over Europe, Brexit is an important part of my life and one that will undoubtedly change my future.
And while for Australia the problem may be 9,442 miles away, the UK has consistently been in our top five trading partners meaning Brexit will also change any international trading involving Great Britain.
With such uncertainty and debate around the Brexit decision, it is a particularly unsteady time for supply chain managers. After the adjustment period or ‘grace period’ (which is scheduled to end in January 2021, but at this point who knows?!), all trading arrangement with the EU will be nullified for trading with the UK. Renegotiations may or may not involve additional tariffs, but without clarity over the latest trade rules, you are more likely to be confronted with unpredicted penalties. This is essential to know.
As a supply chain manager, it is important to start budgeting for any unanticipated costs, delays and complexities during and after the grace period, as it may be catastrophic for business if unprevented. Increased tariffs may mean less demand for Australian exports leading to excess of goods, lower prices, less value on the AUD and profit loss in our domestic market.
According to the Department of Foreign Affairs and Trade Australia’s-UK’s trade and investment relationship in 2017-2018 states the top exports to the UK most likely to be affected are:
- Alcoholic Beverages
- Pearls and Gems
The top imports from the UK most likely to be affected are:
- Passenger motor vehicles
- Medicine and Pharmaceutical products (including veterinary)
- Alcoholic Beverages
If any of these apply to your business, see how can prepare below.
Avoid complacency and the notion that this won’t affect you. Invest in a thorough understanding of the latest trade rules; prepare and budget for higher tariffs; see the EU and the UK as two separate entities and expect supply chain interruptions.
Before the grace period ends, you may consider importing a larger volume of goods from the UK to delay affect if tariffs increase.
The UK is one of Australia’s most important investment and trade partners, and the EU is one of the largest marketplaces in the world – it is estimated that the split will economically impact up to 10% on world markets. The British economy will take a blow after owing the EU an estimated $72 billion for the divorce, so budget for any increase in costs and tariffs.
However, it isn’t all doom and gloom and it certainly isn’t fixed. In an ideal world, tariffs might actually decrease. This will mean more demand for Australian Exports, which in turn increases the demand and value of the Australian Dollar. Moreover, a better result for your business.
No matter your industry, if your business performs trade with the UK and EU it is essential to expect supply chain disruption. Identify the volume of trade you currently have with both and the possible supply chain implications. Establish any extra guidance you may need, undertake a stress test to identify any areas of risk and opportunity, confirm your understanding of your supply chain model, its cost drivers and review your sales on a periodic basis.
Whatever the outcome may be, for better or for worse in the face of uncertainty, ignorance could be your downfall.