Summary
The Marks & Spencer experience of UK-to-EU supply chain disruption hold important lessons for ACP exporters of fresh and chilled products. It highlights three major areas of impact: the vulnerability of fresh and chilled product supply chains to Brexit related disruptions; the importance of phytosanitary import controls to cross border trade in fresh produce; and the critical important of the trade administration burden generated by new post-Brexit requirements for the movement of goods across EU/UK borders, a dimension which can be the final straw that breaks the camel’s back, in terms of the future functioning of triangular supply chains. The Marks & Spencer experience also provides a foretaste of what can be expected along EU-to-UK supply chains from 1 July 2022. Against this background, ACP exporters need to recognise that by being the first to adjust by shifting over to direct exports to the UK, real possibilities could emerge to pick up new business as traditional EU orientated supply chains fall away.
The decision by Marks & Spencer to close its 11 French high street stores (1), is symptomatic of the significance of the challenges being generated by the application of standard EU third country import controls to goods crossing over from the UK since 1 January 2021. Particular problems have been faced in the fresh and chilled product trade.
The Marks & Spencer’s decision to close the French high street stores followed on from the restructuring of Marks & Spencer’s operation in the Czech Republic, which saw the removal from sale of all fresh and chilled products and their replacement by a doubling of the range of frozen and ambient products (1). Marks & Spencer’s has also removed ‘800 product lines from its stores in the republic of Ireland because of “excessive paperwork” and health controls on food’ (2).
In a statement Marks & Spencer declared ‘Brexit had made it “near impossible” to maintain standards of food supply,’ adding ‘the supply chain complexities in place following the UK’s exit from the European Union now make it near impossible for us to serve fresh and chilled products to customers to the high standards they expect.’ This was seen as impacting on the performance of the Marks & Spencer business (1).
Analysis, reported by the BBC described ‘the export of fresh processed food from the UK to the EU,’ as ‘a classic example of precisely the sort of trade, built up under the single market, that was bound to be challenged by the new post-Brexit arrangements.’ It highlighted how specialist exporters now had to ensure cargoes were accompanied by ‘hundreds of pages of documents including health certificates.’ It was maintained that while ‘giants such as M&S were able to muddle through’ in the early months of 2021, this was now no longer the case.
The extra administrative burden, additional costs and delay induced value losses were now seen as acting as a drag on the profitability of the wider company. According to Steve Dresser, managing director of Grocery Insight, ‘once you add inefficiency into any supply chain, be it trade barriers or bureaucracy, plus the need for extra manpower, there is cost that needs to be absorbed somewhere along the line.’ In this context, given the ‘minimal returns’ obtained on this continued cross border trade, it becomes likely that eventually the numbers simply no longer make sense (1).
An important dimension of this calculation was seen as being the ‘huge amount of management resource’ which Brexit related border clearance challenges absorb (1). Given Covid-19 related supply chain disruptions, it is becoming apparent that across an increasing number of cross border supply chains handling fresh and chilled products, the deployment of such a disproportionate level of management resources to handling UK/EU cross border trading operations simply cannot be justified.
Significantly, the analysis of the Marks & Spencer decision implied the current solution of shipping such produce to the Republic of Ireland via Northern Ireland is likely to be subject to a rigorous cost/benefit analysis once the Great Britain to Northern Ireland goods movement controls, required under the Northern Ireland Protocol, begin to be fully applied (1).
Meanwhile in terms of domestic UK market developments Marks & Spencer’s chairperson Archie Norman has warned supermarkets are facing a ‘perfect storm’ of supply chain challenges in the run up to Christmas.
In response to these challenges the UK government has appointed ‘the former Chancellor of the Duchy of Lancaster Michael Gove, to lead a cross governmental committee responsible for dealing with food supply chain issues.’ This Committee, known as the ‘National Economic Recovery Taskforce (Logistics)’ has been charged with coordinating actions across government departments to get to grips with the current supply chains challenges, (3).
In an opinion piece from the Managing Director of PML, a major UK logistics company, the government initiative was set in the context of the warning the logistics industry had been communicating to the government over the past 12 months. Rising sea freight charges and escalating driver costs were seen as making it inevitable increased costs would need to be passed on to consumers.
This was seen as compounding the trade administration and customs clearance costs which were now an integral part of the post Brexit trading reality (4). PML MD Mike Parr, pointed out how it took years to train import clerks to deal with the new requirements, which includes ‘not just the stringent import regulations but also the approval required to collect goods from a transit shed.’ Against this background, it was argued ‘pointing importers to the government website to help them understand the requirements is just not going to cut it.’
PML MD Mike Parr argued the combined effects of ‘the HGV driver shortage, the customs clearance issues and the impact of the pandemic’ will see the UK facing ‘some very challenging conditions’ in the coming months. He maintained the UK government ‘should have seen some of this coming and prepared for these problems’ and suggested the UK governments had been ‘reactive rather than proactive.’ He therefore called for ‘a long-term strategy’ capable of dealing with all the issues now faced along food and drink supply chains (4).
| Comment and Analysis
Several points of relevance to ACP fresh produce exporters emerge from the Marks & Spencer experience. Firstly, fresh, and chilled products are most vulnerable to Brexit related disruptions of cross border UK/EU trade. Secondly, phytosanitary import controls are a critical area of concern in the fresh produce sector. Thirdly, the trade administration requirements can be the straw that breaks the camels’ back, particularly when other supply chain challenges are placing increased demands on business management capacities. For UK traders, the extra administrative burden, increased costs, and border clearance delay induced value losses, are, on a cumulative basis, undermining returns on cross border trading operations to such an extent they are no longer considered commercially viable. These concerns would appear particularly relevant for ACP ‘re-exported products’ shipped along triangular supply chains, since these ‘re-export’ operations face additional problems beyond those facing UK originating products shipped across UK/EU borders. These additional problems include: the rules of origin/MFN tariff complication, additional phytosanitary certification requirements and the abandonment of low cost ‘groupage’ road haulage operations on which many of the most vulnerable ACP ‘re-export’ supply chains are dependent. In this context, the huge demands placed on management resources which post-Brexit ‘re-export’ processes generate, can act as a drag on core business activities focussed on serving domestic markets. In this context UK traders are abandoning the ‘re-export’ business along UK to EU supply chains, with this being particularly pronounced along direct UK to Republic of Ireland supply chains (see companion epamonitoring.net article ‘Irish Trade Data on Differential Impact of Border Controls Raises Concerns for Future ACP-EU Triangular Supply Chains,’ 9 September 2021). The road haulage crisis in the UK only serves to compound the problem, with the returns on deployment management capacities in dealing with the ‘re-export’ trade being dwarfed by the returns generated by getting to grips with core domestic supply chain issues. An important additional lesson which can be drawn from the Marks & Spencer experience is the foretaste it provides of the likely scale of disruptions along EU-to-UK supply chains once the UK begins to fully implement standard third country border controls on goods crossing from the EU in July 2022 (for an exploration of the UK’s decision to defer the implementation of border controls on goods crossing form the EU see companion epamonitoring.net article ‘UK Announces a Further Deferment of Full Border Controls on Goods Crossing Over from the EU’, 23 September 2021). The recent experience of the EU-to-UK plant sector trade, where a range of UK non-tariff measures are already under implementation suggests, considerable problems are likely to arise which could lead EU traders to seriously re-evaluate the value of continuing their export trade to the UK. This is already the case amongst some Dutch plant exporters which have traditionally serving UK markets (see companion epamonitoring.net article, ‘Lack of Clarity on the Whether Brexit Disruptions of EU/UK Trade in Plants in Impacting ACP Exports,’ 20 July 2021) For individual ACP exporters this raises the important question of the scope for shifting over to direct exports to the UK, with those businesses which are able to make such adjustments, potentially being well placed to pick up additional business, as traditional EU orientated supply chains fall away. |
Sources
(1) BBC, ‘Marks & Spencer blames Brexit as it closes 11 French stores’, 17 September 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/marks-spencer-blames-brexit-as-it-closes-11-french-stores
(2) The Guardian, ‘Brexit caused huge drop in Great Britain to Ireland exports in 2021’, 22 September 2021
(3) Global Cold Chain News, ‘Gove tasked with resolving food supply chain issues’, 17 September 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/gove-tasked-with-resolving-food-supply-chain-issues
(4) freshtalkdaily, ‘Comment: The HGV driver shortage is paralysing the industry’, 17 September 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/opinion-the-hgv-driver-shortage-is-paralysing-the-industry