Brexit chaos looms larger over UK rubber sector

London – The prospect of the UK crashing out of the European Union looms ever larger with the Westminster government now in near meltdown over the Brexit deal negotiated with EU officials.

The proposed ‘divorce’ agreement looks set to to be voted down in the UK parliament, leaving a no-deal Brexit as the default option for the UK’s departure at the end of March 2019.

Such an outcome would represent a worst-case scenario from many millions of people across the UK and Europe, including those working in the UK rubber manufacturing sector and related industries.

In the new Nov/Dec issue of ERJ magazine, Simon Winfield, chairman of the UK Gasket & Sealing Association, explains the challenges that his member companies are already facing due to the increasing uncertainty around Brexit.

“Attempting to second guess the outcome and having to plan for a ‘no-deal’ in relation to tariffs and administration when negotiating contracts […is] proving to be a major headache for members and the industry,” said Winfield.

“Overall, the fear that the UK will simply be ignored as a place to invest by OEM’s, and the fear that the UK will be seen as a difficult place to do business in as a result of Brexit is high,” he added.

Another area of concern, he said, is “around the risk to cash flow and liquidity should customers delay investment in new activity is high and could be disastrous.”

Meanwhile, UK supplier of rubber sheeting and products MacLellan Rubber is increasing stock levels at its warehouse and distribution centre to mitigate any risks of Brexit-driven supply issues.

This, said director Andrew Onions, would also allow for a notice period in terms of costs, which could significantly rise due to further devaluation of Sterling against the Euro.

MacLellan Rubber, he added, is also in talks with its customers to understand stock requirements and forecasts and with its manufacturing partners in Europe and worldwide concerning future trading relationships.

The aim, said Onions, is to minimise import duties & taxes and delays as a result of extended shipping times and additional export documentation.

Business model

Across the water, European automotive manufacturer and supplier groups have jointly warned that a no-deal Brexit “would threaten their very business model.”

To support ‘just-in-time’ and ‘just-in-sequence’ delivery and production, 1,100 EU trucks cross the Channel daily to deliver to car and engine plants in the UK alone.

The pressing concern is that after Brexit, hold-ups at customs will cause massive logistical problems, disrupting the production process and generating significant costs.

“Our members are already making contingency plans and are looking for warehouse spaces to stockpile parts,” stated Erik Jonnaert, secretary general of the European Automobile Manufacturers’ Association (ACEA)

“However, the space required to stockpile for more than a short time would be absolutely huge – and expensive,” said Jonnaert, noting that some ACEA members are also planning temporary post-Brexit shutdowns.

“But no amount of contingency planning can realistically cover all the gaps left by the UK’s withdrawal from the EU on WTO terms,” said Jonnaert added.

ACEA, he added, is also concerned about the 10% tariff that would be applied under WTO rules to all cars traded between the EU and the UK.

Likewise, Sigrid de Vries, secretary general, European Association of Automotive Suppliers (CLEPA) has highlighted the need to secure friction-less trade in components that often cross borders multiple times in manufacturing processes.

“Any change in the level of integration of the value chain will have an adverse effect on the competitiveness of individual companies and the sector as a whole,” said de Vries.

Smaller companies in particular, he warned, lack the internal systems, IT platforms and staff to deal with customs declarations, tariff classification, customs valuation, or calculations based on content origin.