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Alan McKinnon – Professor of Logistics

THE 
LOGISTICS BLOG

Current issues in logistics and transport

The Forgotten Cost of Brexit Day

Today, the 31st October 2019, was to be Brexit Day, the day of Britain’s departure from the EU after 45 years.   In the 3½ months since becoming prime minister Boris Johnson has insisted that Brexit would happen today ‘do or die’, ‘no ifs and buts’, ‘come what may’ etc.   His EU-departure rhetoric even extended to him saying he would prefer death ‘in a ditch’ to seeing Britain remain an EU member beyond this iconic date.  Three million specially-minted 50 pence coins were to be released today to celebrate the event, rather ironically inscribed with the words ‘Peace, prosperity and friendship with all nations’.  Meanwhile, in preparation for the big day, the government has spent a £100 million on a last-minute information / propaganda campaign using every possible media channel to urge citizens and businesses to ‘Get Ready for Brexit’.

Well, today has come and we are still a full member of the European Union and will remain so at least until the end of January next year.  The EU ‘deal’ that Johnson’s team managed to cobble together with a few days to spare actually received Parliamentary support but because he could not get a majority of MPs to agree to debate and approve the bill in time for a 31st October departure it has now been abandoned in favour of a general election.  Suddenly media focus has swung from Brexit negotiations to the election, leaving the full significance of this critical date for business almost completely ignored.

I can find little reference in the press or news websites to the huge cost, time and effort that businesses across the UK and Europe have had to invest in contingency planning for the no-deal Brexit that could have happened today.  Overnight this would have ruptured Britain’s trade links with the EU, seriously disrupting the tens of thousands of supply chains that are threaded through a handful of Channel crossings, of which by far the most vulnerable is Dover-Calais. The government’s own internal Operation Yellowhammer report explained just how bad things could get: 40-60% reduction in the volume of trucks and 2½ day delays on the Dover-Calais route, not just for a day or two, but for three months.

It is little wonder that companies potentially exposed to a disruption of this magnitude have taken measures to limit the possible damage.  These measures have included stockpiling, often in newly-acquired and difficult-to-find warehouse space, repositioning production and inventory, re-routing freight flows, reconfiguring the sourcing of supplies and rescheduling production operations around the end of October.   All of this has come at a high cost.  It has also had be done twice in 2019 because the same happened prior to the original Brexit date of the 29 March. 

The cost of all this contingency planning and logistical preparation has not been quantified at a macro-level.  The Office of Budget Responsibility undertook a ‘fiscal stress test’ of the impact of a ‘no-deal, no transition Brexit’ which suggested it would increase public borrowing by around £30 billion, even within what was ‘by no means a worst case scenario’.  Large though this figure is, it does not give a true indication of the economic impact of a no-deal Brexit.  The OBR’s macro-economic modelling assesses mainly the post-Brexit effects and largely excludes the expenditure businesses have made in anticipation of Brexit, expenditure that has had to be incurred regardless of whether or not Britain actually leaves without a deal and transitional period.

The OBR report also fails to make any reference to the supply chain bull-whip effect which successive waves of pre-Brexit stockpiling must already have triggered.  UK government economic data for the period January-April 2019 clearly shows a spike in inventories in March and subsequent destocking.  The amplifying effect of this temporary, but pronounced surge in demand is likely to have a destabilising effect on production and distribution systems for months, and possibly years, to come.

The extensive literature that accumulated over the past 20 years on supply chain risk management discusses a huge range of eventualities that can interrupt the flow of goods.  I can’t recall any reference, however, to a government risking this by deliberately taking the national economy to the brink of disaster, supposedly to strengthen its negotiating position with the EU but mainly to fulfil the reckless promises of its prime minister.  In so doing the UK government has shown an alarming failure to understand the supply chain implications of its actions.

Thankfully we have avoided logistical mayhem today, but it may still happen when the current extension ends on the 31 January. Surely businesses will not have to gear up for a no-deal Brexit for a third time!

Posted in Discussion | 2 Comments

2 Responses to The Forgotten Cost of Brexit Day

  1. Bublu Thakur-Weigold, ETH Zurich says:

    Dear Alan, Thank you for this excellent summary. The logistics cost of social changes are routinely overlooked by policymakers. Issues like Brexit are monopolized by social scientists, economists, lawyers, and politicians, whose ignorance in these matters is rarely called out. The know-how of engineers is marginalized. Thank you for weighing in and demonstrating the developmental impact of supply chain design and execution.

  2. Alan McKinnon says:

    Thanks for your supportive comment, Bublu. I wouldn’t, however, want to stoke up to much inter-disciplinary rivalry between engineers and social scientists, especially as many supply chain specialists are social scientists, including me. I’m more concerned about the gulf between macro-level econometrics and the micro-level management of logistics systems and supply chains, where heroic efforts have been made to prepare for no-deal Brexits – efforts that have not been properly recognised or appreciated.

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© Professor Alan McKinnon 2019

Kuehne Logistics University
Hamburg
Germany

contactme@alanmckinnon.co.uk

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© Professor Alan McKinnon 2019

 

Kuehne Logistics University
Hamburg
Germany

 

contactme@alanmckinnon.co.uk

 

Contact me

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