Keylink Brexit Planning

Posted: 11 Jan 2019

With just 11 weeks to go until Brexit and a strong likelihood that the Government’s transition deal will be rejected by Parliament in next Tuesday’s vote, there is a very real and growing possibility of a “no-deal” Brexit, the worst case scenario for business. Regardless of the outcome you are personally hoping for, we believe it is time to start making some contingency plans, if you haven’t already done so.

As many of the products we supply you - chocolate in particular - come from Europe, we are planning to build up our stock levels of key products as much as we practically can to mitigate the disruption in supply that is likely to occur in the run-up to and immediately after March 29^th, if indeed we do end up with a “no-deal” Brexit.

However we are obviously limited in how much we can do by cashflow and storage considerations, as all of us are. We therefore strongly recommend that all our customers should also consider building additional stocks of products critical to your businesses. The stark reality confronting us all is that the unpredictability of this worst case scenario means that everyone at every stage of the supply chain should do whatever you can to prepare as best you can.

One major consequence of a “no-deal” Brexit is the likelihood of significant disruption to the flow of goods across the border due to long queues at Customs. This could result in prolonged stock shortages and higher transit costs. Building up stock levels will help to mitigate these delays.

The other key consequence of a “no-deal” Brexit will be that the cost of imported ingredients, including chocolate, will probably rise considerably. This is down to two main factors:

1. the probable introduction of various import duties (according to WTO rules) across the board. These will vary according to product category but will generally be high for food products. For example, we understand that duties on chocolate will vary from around 10% on dark chocolate, to 15% on milk and 20% on white.

2. Sterling is predicted to crash and this will be reflected in higher costs. So a 10% fall in the EUR/GBP exchange rate will lead to a corresponding 10% rise in prices.

Please note that all these figures are only estimates at present, but you can see that it’s not hard to imagine the cost of imported products going up by 20-30%! If you build up your stock levels ahead of March 29^th, then you will at least buy yourself some short-term insurance against these price rises. If the worst doesn’t happen, you will only end up having bought stock earlier than you otherwise might have.

These are undoubtedly worrying times but if we do crash out of the EU without a transition deal, there could be a genuine silver lining for UK chocolatiers. While confectionery imported from Europe might go up in price by 20-30%, the total costs of confectionery produced in the UK should only go up by a fraction of that. This would make your products that much more competitive and give you some excellent opportunities to win new business!

If you have any concerns that you would like to discuss, please don’t hesitate to call us. We will do everything we can to help you through this challenging period.

With best wishes for a happy, healthy and successful 2019 from the whole Keylink Team!

Sanjeev P. Ramchandani