Drug and retail firms forge Brexit backup plans

By Suzi Ring, James Paton and Sam Chambers

Companies facing the potential threat of tariffs and other trade barriers, after Brexit, are stepping up contingency planning, with some retailers creating new sites in continental Europe to avoid snags.

US pharmaceutical giant, MSD, also known as Merck, is planning for the possibility of a temporary supply blackout, when the UK leaves the EU, and may stockpile as much as six months worth of goods and revise trade routes, in preparation.

C&J Clark, the seller of Clarks shoes, plans to open a distribution centre in continental Europe. And the Hut Group, which sells beauty, wellness, and luxury products online, is constructing a facility in Wroclaw, Poland — a site that was also picked for protection against potential trade hurdles.

Clarks shoes.

With the UK determined to leave the customs union and single market, businesses are trying to limit their exposure to border checks and delays in moving goods between the EU and Britain, as well as preparing for a potential divergence in regulation. This week, business leaders urged Britain’s prime minister, Theresa May, to get on with key Brexit decisions.

MSD’s contingency plans, outlined in a May report, include factoring in as much as two extra days of travel on routes between UK and EU destinations to allow for delays caused by document checks. The US firm is also looking at adding 30 employees at its Haarlem, Netherlands, facility to cope with regulatory demands.

Global drugmakers have warned of added costs and supply disruptions, due to Brexit’s potential trade and regulatory hurdles.

UK-based AstraZeneca and GlaxoSmithKline have said the rupture may force them to expand their use of facilities in the EU to allow timely testing and release of drugs. Drugmakers have warned that Brexit may raise barriers to patient access to their products, as they contend with the upheaval in the UK pharma sector.

“At this stage, these are just contingency plans and, therefore, may not be implemented,” said a spokeswoman for MSD, declining to comment on specifics. “Our first and foremost focus, at this time, is to develop plans which ensure continued access to our medicines throughout the Brexit process,” she said.

Clarks, which began selling shoes 200 years ago, is reviewing two possible locations for its facility, one of which is in Germany. The site will be run by a third-party logistics provider and will handle the retailer’s sales to customers in the EU.

“Before the Brexit referendum, we had already begun looking at how we could better deliver our products to consumers in our European markets, which includes the option of a European distribution centre,” Clarks said.

The Hut’s Polish facility will eventually handle the bulk of the company’s orders from the EU, which are currently processed by a distribution centre in England, a spokeswoman said. The new site “should facilitate bringing next-day delivery to our eight million customers across mainland Europe,” she said.

The Hut, backed by equity funds, BlackRock and KKR, is a rare success story in the UK’s beleaguered retail sector. In 2017, the company’s sales jumped 47%, to £736m (€840m), 70% of which was outside of the UK.

A departure from the customs union poses particular threats to e-commerce sellers. If Clarks or The Hut handled European orders from the UK, many products would need to be imported and then shipped out again to customers on the continent. If a product were exchanged, it would need to cross borders twice more.

MSD, meanwhile, is considering asking some customers to take on as much as two months of extra stock in advance. While the drugmaker’s plans could change as the UK government’s Brexit negotiations progress, they provide an insight into the options companies are reviewing.

In a corporate filing earlier this year, MSD outlined Brexit risks, including potential restrictions on imports and exports. Glaxo, the UK’s biggest drugmaker, said it started implementing its contingency plan in January, focusing on supply chains.

The drugmaker has estimated Brexit-related costs rising as high as £70m over the next two to three years, due to retesting medicines, transferring marketing authorisations in the UK to the EU, and changing manufacturing licences.

Bloomberg


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