Retailers and their suppliers are stockpiling ahead of a potential October 31 no deal Brexit, although their capacity to do so is limited by the availability of both space and cash, logistics and finance industry businesses suggest.
A no deal would mean changes to customs tariffs – the latest Government draft figures, published today, show that while 88% of goods by value coming into the UK would be tariff-free after a no deal Brexit, 22% would have new tariffs payable when coming from the EU. Import VAT would be liable to be paid on goods worth up to £135 sold to UK buyers. There are also predictions of delays at the borders as new customs checks come into effect, and that the value of sterling would fall. That means that goods imported after Brexit could take longer to arrive and could cost more in sterling for retailers, the manufacturers who supply them and ultimately customers.
Business advisor Duff & Phelps says that FMCG (fast-moving consumer goods) manufacturers of are stockpiling raw materials for production as well as finished goods as they look to make sure they can meet customer demand in case of no deal.
But, says Jimmy Saunders, director, restructuring advisory at Duff & Phelps, “This is placing a further burden on working capital which is locked up in stock at a time when investors are cautious about increasing lending.”
He added: “In the event of a no-deal Brexit, which is still very much on the table, suppliers will also have to deal with fluctuations in forex and additional tariffs which could impact raw materials coming in from Europe.
Meanwhile capital investment continues to be put on hold as company directors wait and see what happens next. Saunders added: “The Brexit ambiguity seems to have whipped up the perfect storm, with manufacturers and suppliers of FMCG currently facing several other challenges. Following an increase in supermarkets’ use of discounting and double-up promotions, suppliers have found themselves increasingly vulnerable and under pressure to fund their customers’ promotional activity through buying premium shelf space or funding discounted products. Although this may lead to a short-term spike in sales, the constant race to the bottom on pricing is predominantly funded out of the supplier’s pocket.
“Navigating the uncertainty of Brexit and the commercial relationships with supermarkets are going to be challenging tasks for manufacturers and suppliers of FMCG. However, with clarity coming imminently on the nature of the UK’s future relationship with the EU, there is optimism that businesses should be able to start making plans for investments in driving productivity and adapting to the UK’s new business landscape.”
Materials handling business Midland Pallet Trucks says while that stockpiling in March and April gave a small but positive boost to the UK economy, it’s unlikely to have the same effect at the end of October, when warehouses are already at capacity ahead of peak trading.
Its managing director Phil Chesworth said: “Brexit is scheduled to take place less than two months before Christmas, so it’s obviously very natural that retailers who rely on goods from the EU will be keen to secure those items that are typically in demand over the holidays, such as alcohol, at fee-free prices.
“Clearly, stockpiling is far from over, but we are keen to reiterate that stockpiling is a plaster on a wound, and that we must look at longer term solutions to prepare for whatever situations we may find ourselves navigating post-Brexit.”