As the day of the vote gets closer, uncertainty across all industries grows as businesses consider the impact that a Brexit would have on their operations, writes Stuart Godman, Chief Strategy Officer, at independent mail, parcels and logistics end-to-end network operator DX.
With the logistics sector inextricably linked with international commerce, there is likely to be a significant knock-on effect for delivery firms if the UK votes ‘Out’ in the EU Referendum on 23 June.
Exchange rate turmoil
Increased demand from overseas shoppers, in addition to competition in the UK market, has seen many retailers expand their services internationally. Efficient logistics operations have enabled retailers to enjoy success from cross-border trade, without having to set up physical bricks-and mortar stores overseas. However, recent currency fluctuations caused by political uncertainty is wreaking havoc for retailers.
Since November 2015, the pound has fallen 7% against the dollar, and 10% against the euro, with a Brexit likely to result in further falls in the short term. Exchange rate variations are not unusual, but the changing value puts retailers in danger of losing margin. This in turn impacts the logistics partners making the cross-border deliveries, who must be wary of the potential financial effect their partners might be facing.
UK-registered logistics companies that offer cross-border deliveries via air, road or sea currently benefit from EU membership. Becoming independent from the EU could see the industry hit by the introduction of fees for cross-border trade and transportation, with the likelihood that tariffs would be introduced against certain goods – similar to the USA tariffs on books and shoes.
The cost of overseas delivery is therefore likely to increase dramatically if the UK votes out of the EU, with retailers needing to assess their pricing models for consumers, and logistics providers needing to reassess how much they charge for their own operations.
In terms of time, in the event of an ‘Out’ decision, customs restrictions would become tighter in efforts to claw back taxes, meaning there would likely be delays in transit times. Retailers are locked into an ever-growing battle for the cheapest and fastest deliveries – with many offering free or next day delivery – but this balance would likely be overturned by a Brexit.
Slower transfers would mean logistics firms need to adjust their offerings with a predicted drop in demand for international delivery due to the rise in costs and delays in delivery times.
Several large retailers, such as Asda, have recently paused on European expansion plans due to EU membership uncertainty and the impact that the changing circumstances might have. Concern from these industry giants creates a ripple effect in the sector, with many smaller retailers and ecommerce traders becoming nervous and putting their plans on hold.
With logistics being so closely tied to retailers and their decisions, it is crucial that delivery firms are communicating with retail partners and are aware of their concerns, as this could have a direct impact on partnerships and contracts.
With all of this in mind, considered planning and close communication with retail partners can help ensure the logistics industry is ready for the outcome in June – whichever way it may go – and manage the market changes through the potential challenges to come.