Brexit & Supply Chain
The implementation of the Maastricht Treaty in 1992 marked a positive change for trading relations between the United Kingdom and the European Union. It enabled companies to trade freely unencumbered by customs checks, tariffs and the administrative burden previously associated with inter-European trade. The seamless trading relationship is about to change as a result of the UK’s decision to leave the European Union in March 2019. The referendum result and its consequences means that companies operating in both jurisdictions now need to consider their next steps to ensure that they need to take to ensure that they can continue to manufacture their products and to trade with minimal interruptions.
In our fourth Brexit whitepaper entitled ‘What’s Next?’ we published the results of our survey of 243 regulatory experts. At that time (end of Q1 2017) 27% of those surveyed said that their company had no plan in place to handle the issues that might emerge as a result of Brexit. It is logical to surmise that now (end of Q1 2018) that the figure would be smaller and that more companies would have carried out some form of scenario planning on the issue. Nevertheless, we are still aware of a cohort of companies that are adopting a ‘sit & wait’ approach to Brexit.
In an era of ‘known unknowns’ one thing (for now) is certain. The UK is leaving the customs union. As such, supply chains will be deeply impacted by this mostly political decision. Further to that, there is an expectation that in the fullness of time that regulatory standards will diverge adding to the complexity of the issues that life science and supply chain professionals will have to contend with in a post Brexit world.
Supply chain professionals should begin scenario planning for life after Brexit. Actual planning may be difficult as the nature and terms of the UK departure need to be negotiated. Therefore, specialists are best served by assessing the impact of Brexit on their businesses by looking at the various trading options that have been suggested by the main protagonists in this endeavour.
Put simply, Brexit has the capacity to wreak havoc on the life sciences supply chain. Business relationships with API manufacturers, finishing plants, warehousing/distribution centres and other elements stand to be impacted. Transactions within the supply chain will need to be analysed to consider the possibility of tariffs, additional taxes such as VAT and other customs duties. All of these elements need to be identified when identifying and dealing with suppliers.
Let’s look at the potential implications of Brexit on three distinct areas within the realm of supply chain:
Customs & Tariffs
Brexit has the potential to negatively impact your profitability. The creation of new borders (technological or otherwise) will undoubtedly lead to increased costs. Companies shipping from a European centre to the UK will face duties on goods that are entering the UK (and vice versa).
Administratively, the ‘paper’ trail will increase as a number of documents that have not needed to be completed since the inception of the aforementioned Maastricht Treaty will need to be completed. Documents such as Certificates of Origin will need to be completed and signed by an authorised Chamber of Commerce. There will be a financial cost to this as well as an increase in the staffing costs as people will need to be employed to create and file such documents. This will, therefore, impact upon the overall cost of manufacturing. For some companies (most likely in the SME category) this will test the very viability of their product(s) and they might decide to cease shipments from the UK to Europe or vice versa.
While certain quarters of the political establishment in the UK are painting such obstacles as an opportunity for products to be manufactured and distributed within the United Kingdom, this is generally not regarded as being a viable option for most companies. Therefore, the presence of duties and additional paperwork will play a part in the new trading relationship for all life science companies.
The Supply Chain
At this time, with only one year to go (at the time of writing) until the UK departs from the EU and enters (or possibly not) into a transitional arrangement all life science companies need to be aware of every step in their supply chains and how they might be impacted by Brexit. Doing so is an essential exercise in determining availability of product and also ensuring that additional traiffs are factored into the cost of manufacturing or distribution.
The issue of time also needs to be considered at this juncture. Ports that have previously carried out minimal checks (if any) on inter EU shipments will now need to take time to examine shipments and paperwork to ensure regulatory compliance, to ensure that tariffs are accurately calculated and collected and that all documentation is in order. These reintroduced checks will lead to more protracted timescales for companies seeking to source raw materials or deliver finished products.
The Role of the Responsible Person (RP)
The European GDP Guideline of November 5th 2013 requires that wholesale distributors have to appoint a Responsible Person (RP) for Good Distribution Practice. The RP must be resident within the EU and, as such, companies using the services of a UK based RP for their European distribution centres will have to source a new RP or seek to relocate their existing RP into one of the remaining EU 27 countries.
We have noticed an increase in the number of companies seeking RP and GDP specialist services in the EU countries for this specific reason.
Time to Market
As already referenced, the likelihood of increased customs checks coupled with additional administrative responsibilities will result in longer lead times. Again, referring to an earlier paragraph, this will lead to increased costs.
Now is the time to carry out scenario planning if you have not already done so. Manufacturers and other participants in the supply chain might now need to identify new suppliers.
In closing, we are recommending that companies, irrespective of location with the currently constituted EU and elsewhere consider the following:
Map out your entire supply chain to consider transport routes and delivery times.
Consider your current arrangements for GDP compliance. Who is your Responsible Person?
What are the likely financial implications in terms of tariffs and increased administrative costs?
Assess the viability of your product(s) in light of the above answers.
We can assist you with issues relation to regulatory compliance and Good Distribution Practice, including the supply of RP and Deputy RP services. Contact us today to see how we can help.