Brexit’s Potential Impact on Logistics

Markets around the globe are in turmoil following Britain’s decision to leave the European Union. The British Pound came down more than 11%, stocks fell, and government bond yields entered uncharted territory.

Britain will most likely trigger Article 50 of the Lisbon treaty, which sets the procedure to be followed if a member country leaves the EU. Some high level timelines of the exit are as follows:

• June 2016: Britain votes to leave the EU
• Mid 2017: UK to assume presidency of the EU
• June 2018: Earliest exit after potentially two years of negotiations

The EU is Britain’s largest trading partner, constituting 44% of exports and 53% of imports. Uncertainty will linger for a while, making companies nervous about their next moves in terms of investments and hiring.

Impact on Logistics

Trade barriers in procurement, production and distribution processes could result in trade slowdowns with mainland European countries decreasing demand for logistics services. Across industries, there might be a revenue drop of around 10% and this would be felt more acutely by logistics companies.

Restricted Trade across Borders

Currently, EU members have very limited restrictions that enable fast movement of goods with few cross-border procedures or delays. With Brexit, cross border trade will be slower and have cost implications. End users should be prepared for increases in costs and longer lead times.

Renegotiations on Trade Deals

EU membership allows free movement of goods within its member states. Brexit would trigger Britain to renegotiate some of its existing trade agreements with other member states, leading to higher tariffs. The potential increase in additional tariffs is estimated to be £11 billion on an import volume of £220 billion.

Brexit’s sudden appearance spells difficult times ahead for industrial manufacturing companies who will look for lean supply chains and ways to balance out rising costs. GEP offers spend analysis, procurement outsourcing, and strategic sourcing to help realize rapid and sustainable savings. To learn more about GEP can help, contact us today.