Supply chains are fragile in nature. When a world event disrupts the movement of goods, it creates a domino effect that stops factories from producing, keeps products off retail shelves, and keeps cars from coming off the assembly line.
The world is facing two logistical crises that could change the way we move products and do business across borders. If your company is not prepared to navigate these changes, it could create major problems in the immediate term.
Here’s what you need to understand about Brexit and the COVID-19 “Coronavirus” outbreak, and why your company needs redundancy in your supply plan now more than ever.
The Trouble with Brexit: Supply Chain Disruption on the British Islands
After four years of negotiation, the United Kingdom officially left the European Union onJan. 31. Despite this, very little has changed for the logistics industry: during the 11-month transition period, the nation will remain within the E.U. customs union and single market.
How much will change when the transitional period is over? That’s still unknown. Britain’s Freight Transportation Association is calling on leaders from the U.K. and the E.U. to provide details that could directly affect global trade. The questions in consideration include customs formalities, border requirements between Britain and the E.U., and special requirements for entry into Northern Ireland.
Coronavirus: The Illness That Completely Stopped Supply Chains
Illness and death from the Coronavirus outbreak drives an incalculable loss from a humanity perspective. In China alone, officials identified over 40,000 cases of the disease with over 1,000 deaths attributed to it.
As is the case with diseases and other catastrophic events (like weather or conflicts), there are business disruptions. When there are business disruptions in China, there are supply chain and resulting business disruptions across the globe. For example: the Hyundai Motor Company in South Korea stopped new car production, forced by a lack of parts incoming from China. In the major Chinese city of Shenzhen, technology manufacturing is also taking a hit, as Foxconn struggles to open their cell phone manufacturing centers.
Because there are still questions about how Coronavirus is transmitted, Chinese points of origin may not soon re-open. Shipments from China will inevitably be delayed until international health officials fully understand the spread and reach of this disease.
Preventing a Full-Stop From Uncontrollable Situations
In supply chain management, change is a constant. Unknown factors create a constant threat in logistics disruption. Changes in trade negotiations or disease outbreak can force a full-stop at any part of the supply chain. When one link breaks, it creates major problems down the line.
While there’s no prevention to unpredictable situations, contingency planning leading to “smart logistics” can mitigate the issues at hand. By identifying secondary providers and alternate routes, it may be possible to minimize the impact disruption.
Mitigating the Brexit Variables
While there are no major changes today, the relationship is fluid in nature. In the event that both sides don’t come to an agreement before June 2020, the current arrangement could be temporarily extended. This would allow Britain to remain in the E.U. customs and trade zone until a final agreement is worked out.
The good news is that both sides want a free trade deal, which would allow imports and exports to move between the E.U. and Britain without additional tariffs or increased customs scrutiny. This solution could come down to the wire, as all 27 E.U. member nations must agree on any negotiated trade deal with Britain.
If no deal is set, all transportation options are affected. A “no-deal Brexit” in 2021 will force shippers to pay additional tariffs when moving freight, while air transportation costs could rise due to additional taxes and new rules set by Britain.
In 2020, your company needs a Brexit contingency plan to mitigate additional costs. In some situations, sourcing items from other nations or preparing for tariff costs can reduce the shock from a potential “no-deal Brexit” situation.
Keep Coronavirus From Ending Your Supply Chain Plans
While Brexit has hard deadlines in place, the Coronavirus crisis doesn’t have the same liberties. As doctors and health authorities work to stop the disease, exports from China will come to a standstill.
If your company has not developed a contingency sourcing plan, it’s critical to identify secondary supply partners. Creating new relationships can reduce the overall stress on your supply chain and improve flexibility when previous sources shut down. Although it may come with a startup price, losing business and creating unnecessary stress on productivity is an even bigger liability.
It’s equally important to test your secondary source throughout the year. You want to make sure you can access the level of service and visibility you require in an emergency. Actively exercising your supply chain failure plan can help you mitigate any issues before a real crisis.
What’s Next for Your Supply Chain Management?
Your supply chain doesn’t have to suffer when unexpected changes happen around the world. Transportation Insight’s supply chain experts can help you plan for the worst and keep your company operational when disruptions occur. Contact us today to learn how we keep freight moving no matter what happens.