As the United Kingdom hastened to exit from the European Union, restricting access to the European single market that accounted for 50% of imported goods, supply chain disruption was inevitable for UK businesses dependent on EU suppliers. The standard protocol for importing and exporting goods was revised due to Brexit border restrictions and changes to freedom of movement.
The keys to the locks were changed on December 31, 2020, when the transition period ended and the UK left the EU single market and customs union. Economic uncertainty further deepened for the business community as a wave of financial and operational challenges washed upon the shore, instigated by the coronavirus pandemic.
COVID-19 resulted in shortages of the most unlikely commodities, such as microconductor chips, leading to supply chain delays. As scarcity of raw materials and resources became apparent, global supply chains experienced hurdles unlike any ever experienced before.
We assess how retailers are responding and hope to overcome supply chain complications, now further accelerated by the coronavirus pandemic.
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Global Chip Shortage
The coronavirus pandemic pushed microchip manufacturers to cease production and close their doors, creating a mammoth-sized backlog that continues to grow as a result of global shipping disruptions stemming from natural disasters across America and Asia.
Unprecedented demand due to changing consumer behaviour as a result of the pandemic tipped chip manufacturers into disarray. The repercussions continue to be felt by businesses reliant on microconductor chips to breathe life into electrical products, creating a domino effect across a multitude of sectors, including automotive and consumer electronics, including:
- Product price hikes due to the scarcity of chips;
- Manufacturing plants and shipping container ports shutting down to mitigate the spread of COVID-19;
- Production is halting due to a lack of chips; and
- COVID-19 stay-at-home restrictions are spiking demand for consumer electronics and multiplying existing backlogs
As chip manufacturers race to reduce backlogs that Gartner analyst Alan Priestley, says is likely to last a couple of years, the pandemic is topping and tailing supply chains with disruption. While manufacturers are firefighting high-volume requests as a result of advance orders, the car production industry is suffering from the chip shortage and therefore, many car retailers are being forced to temporarily slice output.
Heavy Goods Vehicle Driver Shortage
In the UK, the combined repercussions of COVID-19 and Brexit are resulting in a detrimental shortage of HGV (heavy goods vehicle) drivers that continues to yo-yo across numerous industries dependent on HGV delivery drivers. Brexit functioned as the initial trigger for many European HGV drivers to return to their home towns. The shortage is now being further escalated by trading uncertainty as a result of COVID-19 restrictions, causing homebound HGV drivers to stay put.
Supermarket retailers are reporting dwindling stock levels as a direct result of driver shortages, which is pushing up prices, and popular restaurants are temporarily closing sites following a shortfall of ingredients due to supply chain problems.
To accelerate the entry of new HGV drivers into the haulage industry and tackle HGV driver shortages, the British government is making more driving tests available. A temporary extension to driver hours is also in place, with many retailers increasing wages and offering joining bonuses.
Construction Materials Shortage
As construction material supply chains are being pushed to a standstill due to the coronavirus pandemic, the shortage of building materials is delaying sector recovery and hampering the progress of house builds and constructions. As a response, the price of construction materials spiked by 20% between July 2020 and July 2021, as reported by the Office for National Statistics.
As the UK exited from the European Union, this resulted in increased red tape when importing goods sourced from European countries, resulting in shipping delays following changes to regulations and operational guidance.
Import and Export — a Brexit Conundrum
With Brexit, import and export agreements were overhauled, leading to a key challenge that riddled businesses — the rising cost of shipping containers. This made it unsustainable for many businesses to continue forward without executing drastic cost-cutting exercises or employing formal restructuring strategies from insolvency professionals.
Existing supply chains engineered with efficiency were severely disrupted, shifting the goalposts. Newly introduced tariffs and customs charges pushed businesses to review their expenditures and revise pricing structures to mitigate the Brexit effect. Container shipping times during COVID-19 led to a surge in freight rates due to pandemic related delays that held up shipping containers as ships waited to pass through ports.
As retailers weather the Brexit storm and experience the economic repercussions of COVID-19, more companies are finessing the art of resilience in the face of uncertainty of this unexpected magnitude.
Jon Munnery is a Partner at UK Liquidators, the UK’s largest provider of company liquidation services for company directors in financial distress powered by industry-leading insolvency and restructuring specialists.
