Beyond Brexit – insight on the industry impact in 2021

09 March, 2021

Robert Walker, PwC UK’s engineering and construction leader, says: “While some firms have invested time in understanding the full extent of their supply chain to minimise any disruptions, they also need to check that their contractors and suppliers have been as thorough. Knowing what’s happening in the wider project supply chain is a necessary step towards preventing a cumulative issue bringing a sudden stop to construction projects, from commercial and residential builds to major infrastructure schemes.

“Cladding, for example, is a vital ingredient in almost every project with much of it sourced from the EU. While a trade deal has been struck, border customs checks could still put stresses on delivery timescales for some time to come, an issue that adds complications and costs. If lead agencies don’t know if their contractors have put contingencies in place to ensure the timely supply of materials such as cement and windows, they run the risk of facing unnecessary headaches and costs should supplies - and subsequently projects - grind to a halt.

“Construction projects rely on a timely flow of supplies to meet investor, business and customer expectations. It’s never too late to ask suppliers and contractors the question, ‘what steps have you taken to manage your supply chain risks?’ It could help to prevent difficult conversations, not only with your contractors but with investors, customers and your own workforce, in the months ahead.” Aerospace and defence is resilient and resourceful but challenges remain

Despite the current landscape, the UK aerospace and defence sector is proving to be resilient and resourceful. Recognised as a world leader, second only to the US, a recent PwC sector report revealed that four in five organisations expect to invest in product and service innovation, with almost half of defence firms looking to government for support. However, economic and COVID-19 impacts could still stifle this status unless action is taken now. Craig Kerr, PwC aerospace and defence partner says: “With a single jet engine containing as many as 220,000 parts, sourced from a range of global suppliers, ensuring each item turns up where it’s needed and on time is vital. Commercial aerospace production has already been heavily reduced by COVID19, and with future travel outlook uncertain, aerospace supply chains are operating well below maximum capacity.

“Some of the short-term delays that will arise from increased border controls have been mitigated already through robust contingency planning; others, once resolved, will be caught up on quickly due to the extra capacity. The more significant challenge remains COVID-19’s impact.

“The UK Defence industry has maintained production in line with national security requirements and a network of bilateral agreements with countries will continue to operate after current EU agreements expire, which should support continuity of supply. Advance stockpiling and the flexibility of longer-term contracts suggests limited short term impact from possible border and transport delays.” Industrial impact on goods and the supply chain No company will be able to respond to the economic challenges in the world without a supply chain that is responsive and flexible. Darren Jukes, PwC UK’s industrial manufacturing and services leader, comments: “8 out of 10 cars made in the UK are exported, with over 50% heading to the EU. Industry will no doubt be relieved that a trade deal has been secured, however significant change is both here now and on the horizon – and tariffs are only one part of the story. Businesses have tried to prepare for the extra administration brought by customs declarations and paperwork, for example, but inevitably there will be teething problems as new requirements come into force. This could create delays and disruption to what have traditionally been well-oiled supply chains.

“Firms will be relieved that there is now some clarity on free trade arrangements. One interesting area are the rules of origin to qualify for free trade under the new agreement. For the automotive industry, the maximum value of parts or materials used in the manufacture of the car cannot exceed 45% of the ex-works value of the vehicle.

“Goods imported into the UK or EU in a finished state and not used in the manufacture of a vehicle will be subject to customs duty on import into both countries (unless another Free Trade Agreement is held with the country of supply). The UK car industry in the long term would benefit from a free trade agreement with the EU that allows for cumulation with other FTAs held by the UK, such as the new FTA with Japan, without which some UK cars may not meet the minimum value threshold rules to benefit from access to the FTA with the EU.

“There is a risk that costs could increase on cars and parts subject to the above, which will ultimately affect the final cost to the consumer. Ongoing negotiation with the EU will be essential to build upon this new trade deal. With the UK Government keen to be a global driving force for Net Zero, any moves that could discourage EV adoption would not be viewed favourably.”

The little discussed impact on manufacturing services and maintenance

Creating value beyond transactions has seen many UK businesses invest in developing enhanced service models that add post-sale value to customer relationships. Which is why it’s vital that organisations fully understand the new immigration rules that will impact business travel in the years to come. Cara Haffey, PwC UK’s manufacturing and automotive leader, comments: “Much of the focus in recent weeks has been on manufacturing supply chains and goods, however a key element that is rarely touched on is the services and maintenance trade that goes along with this. It is a significant part of the industry, with as many as four in five UK firms either developing or already delivering a servitised offering to their clients, such as after care agreements to keep fleets on the road or the ongoing monitoring of sensors in parts and equipment to ensure issues can be identified and rectified before they impact the customer’s business operations.

“Make UK’s International Trade service has also quoted that 35% of exports from the UK are involved in the provision of a service. If firms are to compete in an increasingly customer focused global stage, they need to ensure they are ready for changes to the rules, especially relating to people movement, as areas ranging from work permits and immigration licences to social security requirements may well have been overlooked. Any reduction in this vital after sales service could leave them at a disadvantage in the short term.”

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