BREXIT PLANNING UPDATE

December 2020

The UK and EU reached a Trade and Cooperation agreement that comes into force at 11pm UK time on 31st December 2020.

In terms of the three key areas identified below in our last update below, this mitigates most immediate concerns. The new agreement is tariff and quota free and the markets have reacted with stability in terms of currency.

The one risk remains current is supply chain as distributors may still face delays importing goods with the new arrangements requiring customs documentation. As such we still retain higher than usual stock holdings until we see how it filters through. However, the effects of Covid on the supply chain are much more widespread and hard hitting. 

July 2020

Despite the United Kingdom leaving the European Union on 31st January 2020 there is still a great deal of uncertainty as to what the terms of the future relationship will consist of. As such, firm, definitive planning is very difficult and continually evolving.

However, we wanted to explain the key elements of our Brexit planning to try and alleviate (as much a possible!) the impact of the worst-case scenario of “no deal”. This is by no means a political statement by the company, simply recognising that “no deal” is the outcome that is furthest from the current relationship.

There are three key areas of risk that we have identified:

  1. Supply Chain – the ability to purchase and obtain supply of product from manufacturers.
  2. Introduction of new tariffs & duties.
  3. Foreign exchange. In other words, the value to the £ against the currencies of the manufacturer which, if from outside the UK, is almost exclusively €.

Taking each area in turn:

  1. Supply Chain.

We have prided ourselves in the near 70 years of our existence in building partnerships with our suppliers. Partnerships rooted in trust, honesty and also an understanding of their business challenges. As such, we have not tried to ask for unrealistic guarantees of continual supply but rather asked to see their planning documents to satisfy ourselves they are as thorough as possible. In the vast majority of cases, suppliers are drastically increasing stock holding in UK stores. Most suppliers are increasing by a factor of 3-4 time’s current stock holding. This is designed to protect against the possibility of port delays if a customs border comes into existence. It is not really possible to protect against the introduction of tariffs as that would require storage space and cash that would mean suppliers taking unwise risks to the stability of their businesses. 

We have also spent time mapping alternate suppliers for all key lines, so we have channels to explore in case of supply issues from incumbent suppliers. This includes identifying those who are UK based. However, in the case that supply from the EU was restricted, it would be very likely that supply from UK manufacturers would be exhausted quickly. Also, most products made in the UK tend to have ingredients from within the EU so would be equally effected.

At MKG, we are doubling our stock holding on most key lines. As we pride ourselves on our service levels and trying the limit times we are out of stock, we have always historically run stock levels 50% above most other foodservice companies so this extra stock holding will increase our buffer even further. However, even doing this still means total stock holding is in multiples of weeks not months so cannot be foolproof.

We currently have no plans to ration but if we got to a point that supply was severely restricted into us, and stock holdings were becoming stretched, we would seek to work with all clients to ensure some supply rather than allowing certain customers to take large amounts of stock at the expense of any supply to others. 

We recommend that if customers can increase stock holding of non-perishable items then they should do so well in advance of 31st October.

In addition to our stock build we have been preparing for a “no deal” Brexit in the following ways;

  1. MKG has applied for and received approval of our Economic Operator and Identification (EORI) number. 

This is an operator identification number valid throughout the European Union, specific to MKG, which allows us to register and track customs information, ensuring MKG can move goods into and out of the European Union.

  1. MKG has applied for and received approval of our Transitional Simplified Procedures (TSP) number.

Transitional Simplified Procedures are being introduced by HMRC to reduce congestion at customs checkpoints by allowing MKG and other registered businesses to defer full import declarations and duty payments until after goods have passed through customs. Basically, this will ensure that, other than perhaps up to a couple of days delay, deliveries are made to us on the same timescales as now. 

  1. MKG has instructed a Customs Agent to administrate the importation of products from the EU.
  1. Introduction of new tariffs & duties.

In the deal proposed by the Prime Minister, or indeed if we remained within a UK/EU Customs Union, there would be no tariffs and complete regulatory alignment so there would be no affect if either of those paths were accepted. In the case of a “no deal” or “hard” Brexit, there would be tariffs applied between 0% and 24% (highest we are aware of but may be some products higher). All manufacturers have notified that in this case they would need to pass on such tariffs immediately. MKG would have no option but to pass those on. We would pass on at the exact rate and be very transparent about this process. 

  1. Foreign exchange.

MKG always attempts to purchase all products in Pounds Sterling to reduce the effect of currency on day to day pricing and provide stability to customers. Over 99.5% of our products are purchased in Pounds Sterling. However, in the case of a major weakening of Sterling then all manufacturers have a Force Majeure clause that enables them to increase pricing as a result. MKG would have no choice but to pass that extra charge on as we have had to do at certain points since the referendum result in 2016. However, we would always seek to be transparent and give as much notice as possible. However, depending on the level of the impact, it may be that the amount of notice we are able to give is restricted.

We hope this at least gives a flavour of the work that is going into planning, despite this being a situation that is out of our control in most ways. The MKG team discuss this topic daily and continually review plans. Should you wish to have further discussions on this or around specific products, please don’t hesitate to contact us.

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