With a reliance on just-in-time and just-in-sequence supply chains, the automotive industry is one of the most vulnerable sectors to disruption caused by a disorderly British exit from the EU
A major automotive parts manufacturer has postponed plans for a new headquarters in the UK, another is seeking non-UK producers for input materials, component suppliers are building up stock and companies’ Brexit taskforces continue their work as Britain’s political deadlock goes to the wire.
With a reliance on just-in-time and just-in-sequence supply chains, the automotive industry is one of the most vulnerable sectors to disruption caused by a disorderly British exit from the EU.
The constant refrain from companies is a request for greater clarity – and as soon as possible – on what the UK’s future trading relationship will be with the 27-member trading bloc. The automotive industry either side of the English Channel (La Manche from a French perspective) is highly integrated after 46 years of UK membership of the EU.
The German VW Group is not alone, as a spokesman told Automotive Logistics, in “keeping a very close eye on developments and reviewing the entire spectrum of possible effects. The political standstill regarding a decision on the negotiated deal means continued insecurity and planning uncertainty.”
He added: “We can only appeal to all the parties involved to put all efforts on finding a way for an orderly Brexit.”
That would encourage mutually beneficial trade to continue, a Nissan spokesman said, adding a sudden change from EU trading rules to those of the World Trade Organization (WTO) would have serious implications for British industry.
A Toyota spokesman pointed out: “We, and others, have consistently called for legislators to give business urgently needed clarity and to understand the impact of tariffs and/or logistical delays to our businesses.”
[mpu_ad]The VW spokesman added: “Any further delay in the Brexit decision-making process poses a risk to investments and jobs in the automotive industry which relies on long-term planning security with development cycles of up to five years.”
That has already happened at parts supplier Bosch. The German company has put plans on ice to invest £30m (€35.1m) in new UK headquarters at Denham near London due to Brexit uncertainty.
Meanwhile, the company’s task force has been investigating Brexit’s potential impact in various areas, such as tariffs, law, finance and staffing.
“The aim is to be able to act quickly once a decision is made, and to secure our business and competitiveness,” a spokesman said. “Our current focus is on preserving business continuity and honouring our obligations to supply our customers.”
The company is stockpiling goods in preparation for any challenges should “logistics or other aspects of business life cease to function due to irregularities at Britain’s ports following the country’s EU exit.”
OEMs and suppliers have experience of such disruption when weather and industrial action lead to ‘Operation Stack’ being introduced in Kent, south-east England. Lorries are parked on motorways until space on a ferry is available to take them across to France.
The Bosch spokesman added: “There are also the costs of a possible no-deal scenario, which would run into the tens of millions by the reintroduction of WTO tariffs alone.”
Automotive part manufacturer Schaeffler is cutting back on UK operations, due in part to Brexit. Last November it announced it would close a factory at Llanelli, in south Wales, and move production of mechanical tappets and special-purpose bearings for OEMs and industrial customers to the US, China, South Korea and Germany. The overriding purpose is to improve efficiency by moving output closer to where products are required.
Brexit preparations at German tyre and technology group Continental include stockpiling.
The company’s main presence in the UK is through ContiTech, which provides rubber and plastic products to a range of industries including automotive, plus the import of tyres. Consequently, Continental is closely monitoring exchange rate developments and how the British pound changes against the euro, a spokesman said.
“In terms of total sales, our stake in the UK is relatively limited. But we have to think of the indirect effects, which are almost impossible to assess,” he added.
The Brexit impact will be felt by companies without production sites in the UK, such as Germany’s Hella which manufactures automotive lighting and electronic components and systems.
One of its main concerns is transporting products from plants in mainland Europe to the UK. “We are in close contact with our customers to clarify their exact requirements in more detail and to analyse the respective delivery conditions more exactly,” a spokesman said.
For the company, Britain’s departure will mean an end to the FCA (free carrier) method of getting goods to the UK via a forwarding agent.
“Hella would have to take over the export processing. This would be definitely additional work for us. However, it would be feasible as this is a process that we already carry out today in the case of exports to third countries.” Third countries meaning non-EU members.
“All subsequent steps, for example border crossings and import customs declarations, would lie outside our actual area of responsibility,” he added.
“Thus, besides our own activities, we see a higher activity level on the customer-side with respect to Brexit, for example strengthening of customs departments and know-how. One of the many challenges in the processing chain for our customers will be the border crossing.”
For the relatively few goods it imports from the UK for its own manufacturing, Hella is building up reserve stocks and finding alternative suppliers.
The spokesman also warned that should the number of cars produced and sold decline due to Brexit, Hella as a major global automotive supplier will be affected to some extent given that the UK is one of the Europe’s most important and largest automotive markets.
Finished vehicle transporter Ars Altmann has prepared extra storage places in anticipation of increased requirements when Brexit takes place.
The German company believes there will be greater demand in the spot train and truck markets as a result of intermediate outsourcing by plants at special compounds with extra capacity, a spokeswoman told Automotive Logistics.
But as some business is conducted through ports, Ars Altmann anticipates it will experience challenges, such as delays in customs processing, which will slow down delivery, a lack of general storage and increased need for ad hoc movements.
“We are in contact with customs brokers to offer an all-in-one solution as an LSP [logistical service provider] to move, store and customs-clear vehicles,” she said.
On the OEM side, a BMW spokeswoman told Automotive Logistics that as a responsible employer it must prepare for the worst-case scenario, a no-deal Brexit. Should the UK’s exit be postponed, the German group is examining various scenarios covering manufacturing, logistics, customs processes, IT and sales, particularly supply of customer vehicles and spare parts.
In preparation for any supply disruption after the scheduled March 29 departure, BMW brought forward the annual four-week maintenance shutdown at the 4,500-employee Mini plant in Oxford to April 1 from the summer.
Though a Brexit delay is being discussed, the company’s spokeswoman said the April maintenance period is “now firmly fixed into our planning.”
That point was echoed by Honda, which is suspending production at its assembly plant in Swindon for six days to mitigate the risk of disruption to production. A spokesman said: “The planned non-production days in April are part of a broad set of contingency measures, and are linked to planned production schedules, which cannot be easily changed.”
But the Japanese OEM also warned: “The UK’s departure from the EU without a withdrawal agreement on March 29 would pose challenges to our highly integrated European business.”
Compatriot Nissan has been rooted in the UK since 1986, with British-based research, development and design teams supporting development of vehicles specifically for the European market made at the Sunderland assembly plant.
“Frictionless trade has enabled the growth that has seen our Sunderland plant become the biggest factory in the history of the UK car industry, exporting more than half of its production to the EU,” a spokesman told Automotive Logistics.
“Today we are among those companies with major investments in the UK which are still waiting for clarity on what the future trading relationship between the UK and the EU will look like.”
And Japan’s Toyota, which has two plants in the UK, admitted “there is only a limited amount [of preparation] we can do without clarity on what we’re preparing for.”
A spokesman went on: “Any significant delays at key logistics hubs, such as the port of Dover, would have a serious effect on our ‘Just-in-Time’ manufacturing process.”
PSA of France, which manufactures Vauxhall cars and vans in the UK, was more guarded, saying: “We do not want to comment at this stage on the Brexit process and its assessment by Groupe PSA as it is not at the final step for implementation.
“We are working in an agile mode, as usual, and we have several solutions to address different scenarios. We do not want to elaborate further on confidential matters.”
Daimler, which has Mercedes-Benz Cars in its stable, states its main objective is to ensure goods can continue to enter and exit the UK in a timely manner following the UK’s EU exit.
The German group has plans in place to deal with the supply and movement of goods, customs procedures and logistics to ensure that objective is met should the UK exit without a transition period, a spokesman said.
Despite the current Brexit uncertainty, compatriot VW said Britain, the second largest automotive market in Europe, will remain an important market for the group, as well as an important production and investment location through its British brand, Bentley Motors.
The British government, as part of its no-deal preparations, last week published details of temporary tariffs should no exit accord be reached.
The regime is designed to minimise costs to business and consumers while protecting vulnerable industries, such as automotive where some duties on finished vehicles will be retained.
“Carmakers relying on EU supply chains would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains,” the government said.
Despite all the Brexit uncertainty, some business goes on as before. For instance, logistics provider BCA is handling record volumes of vehicles at Portbury docks in Bristol, and Peel Ports has created 9.3 hectares of additional space for vehicle storage near the port of Sheerness in Kent.
For more on operations at Europe’s leading automotive ports, watch out for this year’s European Vehicle Ports Survey in the April-June edition of Finished Vehicle Logistics.