Developments over the last few days highlight the complexities of agreeing the terms of the UK's exit from the European Union, never mind establishing our future political and economic relationships. The chances of a "No Deal", or an acceptable deal being reached only at the last minute, are increasing. Therefore the next five and a half months are critical if the UK's transport and logistics industry is to be sufficiently prepared to minimise any potential disruption.
Whilst some businesses have been planning for a worst case scenario, a significant number of companies are still hedging against taking action in the hope that a deal will be agreed. However, given that a number of the risk areas are both narrowing, and can be more readily identified, now is exactly the time that preparation for Brexit should be gathering pace.
In particular,
- all companies in the sector rely on deploying an effective workforce but many have significant numbers of staff – drivers, cleaners, vehicle maintainers - who are from the EU
- companies with critical stocks of materials and spares rely on a complex supply chains which cross the UK Border involving multiple contractual relationships
Whether we end up with "No Deal", a version of what started out as "Chequers" or something else, there is work that transport and logistics companies can do now to mitigate against risks in these areas.
Engaging and retaining your EU workforce?
As a result of Brexit, EU citizens, and in fact all foreign nationals, and their family members who are living and working in the UK will need to take action to confirm their immigration status. Although the current rights of EU citizens are protected by the UK and EU, the UK government is introducing a new registration system with applications expected to launch in late 2018. EU nationals will have around 2 years to apply.
Findings of a recent poll by YouGov for the hospitality sector showed that immigration was the top concern for employees, with 23% of workers concerned that they may have to leave the UK.
Punam Birly, KPMG's Head of Employment & Immigration says; "Competition to retain EU national workers since Brexit has steadily increased. Many employers want to offer help and support but are not sure what to do. Similarly, although immigration is a personal matter, the right to work of EU nationals will change and employers have a stake in ensuring compliance of workers in the future."
In response to this, KPMG has launched Brexit Immigration Online. This is a web-based tool that enables employees to self-assess and identify personal immigration options. The Tool helps employers dispel misconceptions and allows their employees to put plans in place that give them and their family reassurance and greater stability in what are uncertain times.
Managing the risks in your supply chain
Many transport companies rely upon a significant number of suppliers providing parts and components whether it be for vehicle manufacture or maintenance.
In the short term, spotting the weak links in the supply chain and understanding which suppliers could potentially pose a risk to ongoing operations, due to the UK leaving the EU is essential. Now is also the time to consider whether storage and logistics footprints might need to adapt in the face of any disruption and additional expense via tariff and extra checks at the UK Border.
KPMG has observed that many organisations have issued 'supplier readiness' questionnaires. However, we have seen huge variability in the quality of these exercises. The strongest examples are highly tailored and automated with pre-defined scoring allowing a clear evaluation of Brexit risk. The least effective are free form responses leaving an organisation with limited ability to rapidly analyse the results across the supply chain.
Understanding contractual risks
From 29 March, the UK effectively becomes a third country, whether any deal or a transition period is secured. A range of issues can be foreseen relating to the certainty of current contracts that were agreed whilst the UK was a full member. For example any reference to EU Regulations and Directives, or to rights that assume the UK is in the EU may no longer be valid.
Additionally, organisations should consider their commercial exposure in existing contracts where current terms are unclear or absent. Examples may include: identifying who is responsible for tariffs if they become applicable, understanding any foreign exchange exposure or determining who is responsible for associated losses if Service Level Agreements are breached due to cross border delays.
Given the scale of the task, and the fast approaching deadlines, KPMG has seen organisations deploy technology to undertake large scale contract reviews. Data visualisation tools can allow rapid analysis of the results of supplier surveys by business area, category or supplier. This enables hot issues and high risk contract partners to be identified and informs the prioritisation activity.
2019 and beyond
Uncovering the risks across these three areas: workforce, supply chain and contractual relationships can enable effective Brexit-mitigation strategies to be developed. However, it is the organisations which are able to not only address risk, but go a step further and develop new ways to optimise their operations in a changing world that be the winners in 2019.
Sophie Weatherley is a Principal Advisor for Transport & Infrastructure at KPMG
