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UK firms buy themselves some time by stockpiling ahead of Brexit

Parliament is in deadlock, and any hope of the UK leaving the EU (either on the 12 April or 22 May) with a good deal is at an all-time low. Faced with a likely cliff edge and no-deal outcome, large firms and SME businesses alike are frantically stockpiling resources in preparation for potential shortages and delays to their EU supply chains. 

 

One retailer, Majestic Wine, is reportedly hoarding an extra £8m worth of wine in its UK warehouses as a contingency against no deal, while Premier Foods hopes to ride out any shortages with £10m worth of stockpiled goods. Another major manufacturer, Bombardier – which is based in Belfast – also announced plans to amass a reserve of essential parts to lessen the impact of any hold-ups to its just-in-time supply chains.

A surge in Brexit-related stockpiling causes a storage headache for UK businesses 

According to the UK Warehousing Association (UKWA), 75% of UK warehouse owners say their storage facilities are now full, with sites close to major cities in short supply. In some cases, warehouses are storing goods beyond capacity and hire costs have escalated by up to 25%, while frozen and chilled food warehouses are fully booked until after April.

As manufacturers and retailers grapple with these unprecedented circumstances (and with the Ocado warehouse fire still fresh in our memories), it's vital that businesses weigh up the insurance implications of stockpiling and take appropriate precautions to protect their assets as a matter of urgency.

Stockpiling risk No.1: Underinsurance

Graeme Trudgill, executive director for the British Insurance Brokers’ Association (BIBA), warned firms engaged in stockpiling that they run the risk of being underinsured. “It’s imperative that it’s disclosed to their broker”, he advises, “so the broker can make the insurer aware, because…. if there’s a claim and there’s a massive amount of stock value compared to what they were insured for then there’s clearly an issue for the claims award they’re going to receive.” 

Businesses, therefore, should not wait until they renew their insurance before telling their insurer that they’ve increased their stock, as there’s every chance a loss could occur before then. They should, instead, make certain that their insurance policy provides the right levels of cover for the volume and value of goods in storage to ensure that they are covered for the correct value. 

Furthermore, in the event of a no-deal Brexit, companies should contact their broker without delay as additional cover or adjustments to existing policies may be necessary to maintain contract certainty and protection.

Stockpiling risk No.2: Exposure to currency fluctuations

Currency fluctuations between sterling and the euro are likely to become even more volatile as mounting Brexit uncertainty among investors continues to impact the value of the pound. The ability of manufacturers and retailers to buy goods from the EU will be affected as the weaker pound drives up the cost of imported goods. 

By the same token, stockpiled goods from the EU may increase significantly in value, and this will have a direct bearing on a company’s sums insured. It is essential that any businesses storing imported goods should contact their insurance broker to make sure that their business and stock are adequately protected throughout the Brexit process.

Stockpiling risk No.3: Cashflow 

While stockpiling may be a pragmatic short-term option for big multinationals to avoid shortages, for small and medium-sized enterprises (SMEs), the additional costs will cut into their cash flow, making it harder for them to keep their businesses running smoothly. 

Commenting on the situation, Adam Morghem, Premium Credit’s strategy and marketing director warned that “SMEs could see the goods they buy becoming more expensive; they may have to spend more on stockpiling, and the cost of storing this could also increase. All of this could make it harder to pay for the essentials needed to run their operations – from paying staff salaries, rent, and insurance.”

Stockpiling risk number 4: Trade credit insurance

Suppliers that are shipping goods to firms within the UK should make sure that they have adequate levels of trade credit insurance available to protect themselves against non-payment and bad debts, as smaller firms struggle to operate in a post-Brexit market. 

Similarly, businesses in the UK importing or exporting to the EU should ensure that they have adequate levels of trade credit insurance because if the UK withdraws from the EU without a deal it will more than likely have its credit standing downgraded and this will hit the value of the pound. In this scenario, imports would become more expensive and exporting more attractive, while rattled business lenders would restrict commercial loan activities, as they did in the financial crash of 2008.

 

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