The effect of Brexit on warehousing

The UK voted to leave the EU but had no idea what it was actually voting for. Four months on and it turns out that still nobody knows. But what we do know is this known unknown - i.e. the uncertainty - is affecting all of us. Travel abroad is more expensive. International business is more expensive. Food prices are going up. Even the availability of some food brands in our supermarkets is threatened.

Uncertainty is the new norm. What does this all mean for warehouses?

Pound goes down, warehouse demand goes up

The pound has taken a beating post-Brexit.

This is GBP/EUR, but the picture is the same for USD and other currencies for key UK trading partners outside the EU. The result: British goods are more attractively priced to foreign buyers. That means exports should rise - and continue to do so whilst the pound remains weak (or competitive, depending on your view point).

As demand for UK goods increases so to will demand for warehousing services, as these goods will need to be warehoused before being dispatched to wherever they are exported to.

Pound goes down, big retailers get squeezed

A large portion of companies who use warehouses are importers or exporters. For them, this fall in sterling means profits are getting wiped out — that 17.5% is huge. Margins are tighter than ever so what are you going to do about it? Pass it on to the consumer? Maybe, but see how that worked out for Unilever. Retailers in particular are stuck in between a rock and hard place.

What you do is look to the supply chain and see where cost-cuttings can be made. Being able to ‘hedge’ against uncertainty by building-in flexibility to your supply chain is what you do. Smart companies do this anyway - a good, very public example is Lidl Vs traditional supermarket model - Lidl are not committed to seeing particular products, they only sell products that they can make a margin on at the time. Supply chains need to be flexible by design, and to a large extent they are - except warehouses. Warehouses are static, they are not dynamic like the rest of the supply chain - but they need to be. Warehouses will get a lot of attention from supply chain specialists in the near future as companies look to address every link in the chain. Those that fail to innovate will be cut out.

Regulatory change: warehouse demand goes down… or up…

Leaving the EU means no free trade agreements with the single market as we currently know them. What the replacements look like is anyone’s guess — the Eastern Bloc may well be friendly, but some of the more heavy weights in the West may want to make a point, particularly if Michel Barnier has anything to do with it. If the EU is hard on the UK and imposes greater barriers to trade then that will mean less demand for warehousing and associated logistics services.

The other unknown is whether or not some unforseen new requirements will be placed on the industry, particularly around the storage of goods. Who knows what could happen but if there are additional requirements then this could increase operators’ costs, and has the potential to disrupt the UK’s supply chains.

Clearly strategies with regards to supply chains will have to be rethought. Will retailers seek to source more home-grown goods? Will Asia, Africa or the Americas benefit as UK companies look for alternative, potentially more predictable partners? Probably.

The need for change

What is certain is that right now there is absolutely no way to predict what any future UK/EU trade agreements might look like and what the actual timeframe for negotiations will be. None of us have any idea what shape either the global economy, sterling or indeed international trade agreements will look like over any reasonable timeframe.

Now is not a good time for businesses to commit to anything long term.

We started Stowga with the belief that there was a fundamental flaw in the current warehouse market and that flaw was the long-term commitment to leases that leads to great inefficiencies in the system. In this environment no one wants to commit to a long term liability like that. Inefficiency can only go one way.

We want to allow companies the flexibility to scale up and down quickly, to build a dynamic solution that reacts to the market. Fixed, rigid, long-term contracts make no sense in the modern world. No one wants fixed costs if they can avoid them. Look around, it’s changing everywhere - on-demand, sharing economy, gig economy - it’s all related - driven by changing consumer demand and technology.

The blind spot in the supply chain is warehouses. This is what we at Stowga are addressing.

Warehousing will change because the customers need it to.