All industries seek certainty in their trading environment, but the lifesciences sector is especially risk averse. Medtech companies are built on creating certainty and validated repeatability in their products and processes.
How might Britain leaving the European Union impact the certainty of raw materials supply and the distribution of finished products? How might complex intra-company transactions be affected by the United Kingdom-Europe breakup?
The EU was founded on principles of free movement of goods, capital, and people. How might the United Kingdom’s departure from Europe’s integrated supply chain impact the free movement of medical device raw materials and finished goods?
In U.K. and EU companies, working committees are currently assessing the impact of a “Hard Brexit” – a scenario that would unfold if the United Kingdom and EU fail to forge a new trade deal. In such a circumstance, the United Kingdom would essentially become a “third country” under World Trade Organization rules, obliging EU members to treat British goods and services as alien.
Negotiating a trade deal normally takes many years of diplomatic efforts. In this case, the EU and United Kingdom have until March 2019 to negotiate a deal. The EU has trade arrangements with other countries such as Norway, Switzerland, Canada, and Turkey but none of these models are likely to work for the United Kingdom. Here’s why: The United Kingdom will want access to European markets—particularly financial markets—but unlike other countries (Norway or Switzerland), it is more than likely unwilling to contribute payments for market access.
Medical device companies should stress test their supply chain infrastructure to determine the impact of a “Hard Brexit” by asking themselves some difficult questions:
- Will sourcing products from the United Kingdom require a calculated tariff rate for those components?
- Will a tariff rate on U.K.-sourced materials impact the cost of goods?
- Does expertise exist within the company to classify goods sourced from the United Kingdom?
- Does selling to the United Kingdom automatically subject products to tariffs?
- What impact will customs inspections have on lead times if products are transported through the United Kingdom?
- Should the United Kingdom be bypassed as a transit point?
- Will products continue to have U.K. regulatory approval?
- Will U.K.-based employees need visas?
Brexit might have its greatest impact on global supply chains in Ireland, a country with a healthy mix of branded medical device developers and contract manufacturers. Supply chain networks there flow openly from the United States, Canada, Mexico, China, Singapore, Malaysia, Switzerland, and the EU, among other regions. Irish manufacturing sites access major European markets through U.K. transport routes; goods destined for distribution centers in the Netherlands or Germany must first be trucked across the United Kingdom. Raw materials and components sourced in Europe go through the United Kingdom as well, with some likely destined for Ireland.
A hard Brexit could have a dramatic impact on Irish-based medical device supply chains. A 2018 report from Dr. Ke Han of Imperial College in London estimates that a four-minute delay in paperwork inspection would cause a 40 km tailback of trucks in the U.K. port of Dover.
Obviously, there is still a lot of uncertainty around the United Kingdom-EU breakup. A hard Brexit might have a significant impact on supply chains, but a last-minute agreement between the United Kingdom and EU could deliver a much more workable solution.
This blog is adapted from Dan O’Mahony’s article ‘Brexit: D-Day or the Y2K for Global Supply Chains?’ featured in the April 2018 edition of Medical Product Outsourcing.
About the Author
Dan O’Mahony leads customer engagement within the lifesciences portfolio of Exertis Supply Chain Services. He helps medical device and pharmaceutical firms outsource non-core activities. He has more than 20 years of experience working with companies to create robust supply chains and sales channels across EMEA markets.