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Companies prepare for disorderly Brexit as May fails to get talks on track

Big supermarkets such as Tesco and Sainsbury's have been working with suppliers to identify potential delays, shortages or price rises

Reuters  |  London 

Brexit

Big are stepping up their plans in case crashes out of the without a deal as Prime Minister struggles to get talks back on track after a major setback.

is aiming to agree with the on Dec. 14 to move the talks on to the second phase. This would focus on trade and a two-year transition deal to smooth the departure after March 2019. But the timetable has been thrown into doubt after discussions broke down in Brussels on Monday.

Senior executives in the financial services sector, which accounts for about 12 percent of the economy, told Reuters May's efforts to secure a transition deal had come too late and they had no choice but to start restructuring.

Big supermarkets such as Tesco and Sainsbury's have been working with suppliers to identify potential delays, shortages or price rises. They have lined up alternative providers, according to suppliers and sources in the industry.

The uncertainty is particularly painful for the manufacturing sector as low margins make it risky for them to restructure unless it is essential. They have been holding off on investment but are preparing for new certification that would allow them to sell in Europe if there is no deal.

"The delay is so great and the uncertainty is so great that have no choice but to start triggering their plans," the head of one of Britain's largest said.

Paul Drechsler, the president of the blue-chip business lobby group the CBI, said businesses were now having to plan for the worst while hoping for the best.

"No company wants to move jobs or shift production - but business will if it has to," he said. "There's no time to waste. In the immediate term, business needs to know the details of any transition deal - Rome is burning on that issue."

and the are working to get talks back on track this week but the chairman of one large bank said its executives had decided to plan for the worst at a conference call on Tuesday.

"The question is no longer whether we are moving (operations to the EU), it is a question of how big those moves are?," he said.

Like other executives, he had been asked by his board and the government not to divulge their thinking.

FRUIT AND BEEF

The chairman said the bank has started discussions with customers about rerouting client activity to European hubs, including rewriting thousands of contracts.

Senior employees were told last month if they had to relocate to Europe, he said.

Another senior executive at a large U.S. bank said that he was increasingly concerned that May's government could collapse after the Brussels talks broke down over a dispute about the Irish border, adding to the uncertainty.

"We are at the maximum point of danger," he said.

The financial sector needs extra time to make sure its clients are prepared. For instance, a British bank opening a subsidiary in Europe may need its clients to adopt a new sort code throughout their own supply chains.

In other sectors, are making smaller changes that would enable them to operate in Europe after Brexit, from preparing compliance changes to drawing up shadow supply chains and looking for additional warehouse space.

Food retailers are lining up alternative suppliers in or outside the in case delays at borders or new tariffs disrupt deliveries. Around 30 percent of Britain's food and drink comes from the

Some changes would need to be made early next year in time for the 2019 departure. Changing a fresh fruit supplier could require a lead time of a year, depending on the growing cycle.

Ali Capper, a partner in Stocks Farm in Worcestershire, central England, and a chair of the Horticulture and Potatoes Board at the National Farmers Union, said there were signs retail customers were requesting more British produce.

Ireland provides almost 70 percent of UK imports, or 270,000 tonnes a year. Were tariffs or border delays to make Irish less competitive, supermarkets could look further afield, for instance to Argentina.

MANUFACTURING PRESSURE

Many manufacturers are unwilling to sign off on new plans until they know how will trade in the future.

The drugs sector has been among the first to move to comply with regulations. GlaxoSmithKline and AstraZeneca are preparing to set up new facilities in mainland Europe to test batches of drugs made in and many firms are transferring UK product licences to continental offices.

Autos and aerospace firms are focusing on certification. According to the aerospace and defence trade body, ADS, some are considering applying to the European Aviation Safety Agency for a status that would enable them to sell in the if was no longer a member state.

Japanese carmaker Honda, which builds around 8 percent of British cars at its plant in Swindon, is considering increasing its warehouse capacity in and stock levels to counter any new border delays.

Manufacturers reluctance to sign off on big plans has had a knock on effect on in the supply chain.

"The biggest impact we see is a general unwillingness to make investment and capacity decisions as result of the continued uncertainty," said Stephen Cheetham, owner of PK Engineering Ltd of Hereford, a supplier of components to the aerospace and scientific industries.

"We would expect continued paralysis and short-termism until a trade deal is finalized," he told Reuters.

Having a transition deal will allow businesses to survive the two years after by allowing them to defer any big decisions until the final parameters of are worked out, said Andrew Bonfield, finance director of National Grid and chairman of the 100 Group of finance chiefs.

"It's about the avoidance of a cliff edge," he said.

First Published: Thu, December 07 2017. 16:41 IST
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