Barriers to trade

As of 1st January 2021, certain trade barriers have arisen in the UK despite the existence of the Brexit trade deal between the UK and EU. Accordingly, all UK manufacturers must have appropriate contracts with both customers and suppliers to deal with the challenges now placed on their supply chain.

Before 31st December 2020, one of the central characteristics of supply chains spanning the UK and the EU was frictionless trade based on the free movement of labour, goods, services and capital. Supply chains were typically based on complex intra-EU procurement and delivery patterns based on limited border delays and manufacturing processes that rely on just in time delivery. Many of the UK’s trading dynamics assumed no tariffs, low transport costs and limited administrative costs.

Reviewing the supply chain footprint

Due to Brexit, many businesses are considering their supply chain footprints and assessing the impact of border disruptions, increased transport costs and non-tariff barriers. In a supply chain context, it is key to evaluate how your business moves its finished goods or raw materials across the UK/EU border and compliance with rules of origin, customs formalities and regulatory checks. This is likely to result in a greater administrative burden, at least during the initial stages of the implementation of the Brexit trade deal.

As the supply chains of many businesses are now feeling the effects of Brexit, consideration is being given to issues in customer and supplier contracts, such as whether:

  • current profit margins absorb new costs;
  • agreed delivery times can be met and whether agreed service levels can still be complied with;
  • businesses are reliant on single-source materials or specialist suppliers;
  • it would be more efficient to move manufacturing activities closer to customers; and
  • intra-EU distribution networks expose businesses to the risk of having to pay duties more than once.

Customer contracts

For these reasons, it is important to carefully consider what flexibilities your customer contracts contain to enable you to adapt to how you operate your supply chain. For example:

  • Are you able to rely on material adverse change clauses?
  • Do your contracts contain periodic price reviews or an ability to unilaterally increase prices?
  • Are you able to vary the delivery terms?
  • If not, can you renegotiate the terms?
  • Is there an option to terminate the agreement and, if so, what is the cost?

If your customer contracts are rigid, there will be a greater need to ensure that your supply chain arrangements are flexible and dynamic. In a similar vein, it is prudent to review supplier agreements to assess whether price increases could be imposed on you and factor this into your discussions with customers.

Here to help

If you are concerned about your supplier contracts, customer contracts or supply chain issues our Corporate Commercial Solicitors can provide advice on the terms of your existing contractual obligations, your rights to vary or to terminate, what changes should be made to deal with your supply chain issues and what can be done to try to alleviate those issues in the future. For further information, you can access our dedicated Brexit Hub or contact us on 0161 941 4000 or email Corporate Commercial Team.