In this article, Alan Griffin, who is our Warehouse Design Consultant, explores what Brexit will mean for warehousing, not only the UK, but also the wider EU. Alan looks at both the threats and the opportunities for warehousing post-Brexit.
Brexit and the Future of the UK Warehouse
Well, we’ve gone and done it this time! Lower the portcullis and raise the drawbridge, retreat back to this sceptre’d isle! For better, or for worse, we have voted to leave the European Union, and strike out on our own – subject, of course, to the vagaries of politicians and the actual triggering of Article 50 of the Lisbon Treaty.
What will Brexit mean for the warehousing sector servicing not only the UK, but also the wider EU? Obviously, no-one can fully answer this, or any other issue currently hanging over this country, like some Sword of Damocles, but let me at least start to proffer up some likely areas of both threat and opportunity.
UK vs EU Warehouse
No doubt, when you set up your warehousing infrastructure, whether in the form of a single warehouse or a network, the locations chosen fitted the circumstances that existed at that time. If you happened to operate across the EU, that may have included a location servicing multiple member states, or sites servicing specific states. With Brexit, does this mean a change in this infrastructure?
There may now be a requirement to bring back UK destined products to a warehouse within its borders or establish a new facility to support your business in the remaining EU member states, which in either case may be your own facility or one operated by a third party contractor.
If doing it yourselves, you need to consider whether you have got the relevant skill-sets and experience already in your company to manage such a project, both in terms of the project and operational management aspects required, and have you got access to all of the necessary assets and funding required to do this?
You also need to ensure that you do not ignore the potential impact of either moving your existing IT systems or implementing new ones, and most definitely do not underestimate the effect that transferring stock to any new facility will have, especially on service levels.
In the case of contracting out, have you contracted out elements of your operations before, and do you understand the process and the pros and cons that go with outsourcing? Have you the skills for running an effective outsourcing procurement exercise, and do you understand all of the potential pitfalls that await the uninitiated? Do you appreciate the major differences between handing over your distribution to a third party and handing over your warehousing? Again, the issues of IT systems and stock transfer should play a major part in your decisions.
Obviously, if you are a third-party contractor, you need to ensure that you are in a position to benefit from this scenario. However, you need to make sure you have the right resources and skill sets available to take advantage of the opportunities that will arise, both in terms of business development, implementation, and operations teams. You may also need to invest in new facilities, infrastructure, fleet, and systems as well, so the availability of funding will need to be considered.
Recent trade press articles have identified a shortage in the availability of good quality B8 warehousing stock across many parts of the country, as well as a short supply of development land with which to create more. Local planning authorities still appear to be resistant to authorising the building of new stock in many parts of the country, especially in those areas which are already constrained. The view that warehouse parks do not bring in high-calibre, highly paid, skilled jobs remains a prevalent view.
In order to get around this, it could require the government, as part of their plans post-Brexit, to consider the development of distribution parks at the more strategically important locations, in order to free up capacity, as well as deliver on such large scale plans as the Northern Powerhouse.
Alternatively, the warehousing sector will have to become more “smart” in their use of existing operations, through such initiatives as the re-development of existing sites, collaboration with other users, resource sharing, improved stock management, and forecasting.
The most successful companies will be those who are willing to make a quantum leap and question the status quo. Who, twenty years ago, could have foreseen the impact an emerging online bookseller would have on the whole logistics sector?
Warehouse Labour – Rise of the Machine?
It has been identified in the trade press on a number of occasions in the recent past that the logistics industry as a whole has suffered with regard to the quantity and calibre of new recruits it is attracting at all levels.
Over the past ten years or so, this has resulted in large numbers of EU migrants coming to this country readily finding employment across multiple warehousing roles. What would happen if, for instance, as part of the new order, post-Brexit, a sizeable proportion of these, very competent and diligent staff, decide that their futures lie elsewhere within the EU?
At the moment, the UK enjoys a low level of unemployment (4.9%), especially in relation to other EU states (6.3% in Poland, 6.4% in the Netherlands, 9.9% in France, 11.6% in Italy, and 20.1% in Spain), so where are the replacement staff going to come from?
One solution that the UK warehousing sector may have to start considering more is the adoption of both mechanisation and automation within the workplace. This is obviously good for the companies supplying this equipment, but these companies are heavily concentrated outside of the UK, which will obviously do no favours for the UK’s balance of trade position.
It should, however, lead to the UK becoming one of the leading countries as far as warehousing efficiency is concerned, resulting in lower costs to serve, which in itself may offset any additional costs that Brexit forces upon servicing the remaining EU states from the UK.
Alternatively, making the warehousing sector a more attractive place to work may be required, involving such things as defined progression plans, improved training, and, yes, higher salaries. The jobs will also have to engage the employees more.
Remember, they are not robots! This will become more important with the ever-advancing age of e-commerce, and the desire for, at worse, next-day, and increasingly, same-day delivery to the customer. This is where the likes of UKWA and the CILT need to step up to the mark and sell the advantages of this vital sector, especially within further and higher education.
Tariffs and Duties
The UK has benefited from an open European market since it joined the EEC, which has removed the need to pay Customs Duty on products imported from or exported to fellow EU states, along with reducing the associated paperwork and bureaucracy that goes with it.
Some things will now change, whether for the better (the UK negotiating free trade deals with non-EU countries) or for worse (EU imposing duties on a portion or all of EU – UK trade). What it does mean is that there will be change. I will leave the pros and cons of this discussion to others, but the warehousing sector will need to consider what impacts this will have.
Firstly, there may be changes in the way product is picked and packed if it is to travel to the EU, which may mean additional labelling and paperwork and requiring IT systems to be adjusted accordingly, not to mention staff training to manage the changes.
It may involve product sourced from within the EU, which now has customs duties applied, being stored within bonded conditions in order to effectively manage cash flow, which again may involve changes to the IT systems as well as the infrastructure and security of the warehouse, not to say the operational processes within.
The imposition of increased customs clearance timescales may lead to the use of alternative delivery methods, i.e. air freight, in order to maintain service levels, which again, may involve a change in the packing and documentation required for the shipments, as well as increased security provisions within the warehouse, such as application of C-TPAT or AEOS. At a more mundane level, this might also involve a change in the shift patterns of your operation.
Maybe your company has little to do with the EU, but you export to the wider global market. In which case, you will probably be looking forward to the establishment of free trade agreements (FTA) between the UK and non-EU nations, which may work to your advantage, with the stripping away of barriers and tariffs.
This, in turn, may lead you to remove some of the warehouse processes that go with them, as well as taking advantage of the potential for increased export volumes, with the associated requirement for more staff and potentially warehousing facilities.
In a glass-half-full versus glass-half-empty world, I prefer to side with the optimists. Yes, there will be changes which are painful to some, and I am sure some businesses will not be able to adapt to the new circumstances and a number may disappear, but for the majority, the changes will be positive, as long as some forethought and consideration is given to the options.