The UK leaving the single market and EU Customs Union means many businesses are likely facing the largest shift in their cost base in a generation – the cost of doing business is set to increase. Costs will include direct costs related to Brexit (e.g., tariffs), the burden of complying with new regulations and knock-on costs (e.g., across the supply chain). Whilst a deal would reduce some costs, additional ‘red tape’ and costs of regulatory processes are inherent. What steps can be taken to reduce these costs? How will businesses’ commercial and pricing strategies need to respond to subsequent cost pressures?
Reducing the cost of increased tariffs
Tariff mitigations are actions businesses moving goods cross border can take to reduce the cost of tariffs. Mitigations will vary by sector and manufacturing footprint. Examples could include changes in supply chains, changes in the sourcing of ingredients, chemicals or processes. Taking mitigations generally offers competitive advantage. However, some of these actions can also entail increased costs as supply chains are re-orientated, local production capacities ramped up or the origin of products changed in order to satisfy the new requirements.
Where to absorb increased costs?
If mitigation measures are not possible or the downside of taking them exceeds their benefits, businesses will need to quantify the increased costs and decide whether they will be absorbed by the business, its suppliers, customers and consumers – or a combination.