Much of the discussion around the impact of Brexit has focused on Irish exporters and the difficulties they will face as a result of new tariffs and delays at ports. But many of those same companies are also dependent on supplies or components and raw materials which either originate in the UK or transit through UK ports on the way here. Those companies could face either supply shortages or find that the additional costs render their products uncompetitive in the market.
This is particularly the case for low-margin businesses in sectors like food, according to Smurfit Kappa general manager Conor Timmons. "Big companies with premium brands and high margins can deal with shocks," he says. "But there is a limit to what low-margin businesses can do."
A hard Brexit is so difficult to play for, you really can't plan. It would result in a short-term massive shock to supply chains
Smurfit Kappa is also in that low-margin space, he points out. “We work on very tight margins, we are not selling iPhones. We import paper from plants in Sweden and the UK and make cardboard boxes out of it. Paper accounts for more than 50 per cent of the cost of the product. Outside of that, you’ve got things like energy and labour. Virgin paper comes from Sweden and recycled paper comes from the UK. If you look at a corrugated box, the outside of it is shiny and smooth and that is the virgin paper. The inside corrugated bit is recycled. If a no-deal Brexit happens, that could be quite an issue for us. There are no WTO tariffs on paper but there is an awful lot of paperwork involved in shipping it.”
The knock-on impacts of a disruption in paper supplies could be severe. “A hard Brexit is so difficult to play for, you really can’t plan. It would result in a short-term massive shock to supply chains. We are all interlinked – if we can’t get paper in from the UK, our customers won’t be able to get their products out of Ireland.”
Building up stocks
Building up stocks isn’t really an option for reasons of both cost and practicality. “There isn’t much warehouse space available in Dublin anyway,” Timmons points out. “Perishability is a factor for the food industry as well. Also, with tight margins, warehousing cost is a big factor. It is difficult to do any significant stock building in those circumstances. Some companies may have more nuanced arrangements with suppliers and might be able to get preferential treatment but will pay for that.”
They are talking about a cost of €30 or €40 per customs declaration. And that doesn't take into account the cost of staff training and the other resources
KPMG partner Glenn Reynolds echoes the point in relation to compliance costs. "This could run to millions of euro annually," he says. "They are talking about a cost of €30 or €40 per customs declaration. And that doesn't take into account the cost of staff training and the other resources that have to go into compliance. What some companies are doing is bringing the declarations in-house. They are buying software and training up staff to do it."
Others are looking at reshaping their supply chains. “Some companies are looking at other suppliers,” Reynolds adds. “Instead of buying from the UK, they might be looking at European suppliers. The next step is warehousing. Some UK businesses are already moving their centralised warehouses out of the UK to mainland European locations. The supply chains might be longer but this does avoid tariffs and customs delays.”