Managing the risks of Brexit

There is little sign of the uncertainty that surrounds Brexit – the UK’s departure from the European Union – abating. Matters remain highly fluid with new announcements and negotiating stances appearing almost daily.

Although there remains the possibility that the deadline could be further extended, or even that Brexit could be called off altogether, since the appointment of Boris Johnson as Prime Minister it has been emphasised by the UK government that No Deal remains an option. Contingency planning has been ramped up for an exit on 31 October this year.

According to Mark Bradshaw, Correspondent for Policy and Public Affairs at Hire Association Europe and Event Hire Association (HAE EHA), businesses have been encouraged to prepare by stockpiling, in case supplies are disrupted. He says, “This poses capital and practical difficulties for businesses of all sizes and across all sectors, including rental.”

Chris Cassley, Policy Manager at the Construction Products Association (CPA), agrees that it would be prudent for rental companies to stockpile in case of delays and shortages of spare parts, but says, “We aren’t aware of any rental companies stockpiling equipment”.

Under a No Deal Brexit, there would be no time to bring in a UK-EU trade deal so trade would initially have to be on terms set by the World Trade Organization (WTO). Under this system, tariffs will apply to most goods UK businesses send to the EU. Although the UK government has already said most tariffs will be abolished for EU goods coming into the UK if there is No Deal, the EU does not have to do the same.

Trading on WTO terms would also mean border checks for goods, which could cause bottlenecks at ports.

The CPA has advised rental companies – and other businesses in the construction industry – to open up lines of communication; “This includes working with partners in the construction project chain to improve dialogue and identify potential areas and delays,” says Cassley.

He added, “It’s advisable to work with their partners on projects to see how exposed they are and what risks they face.”

For instance, delays on construction sites could impact rental companies in terms of how long their equipment is out on rent.

In its second quarter 2019 results, Finning cautioned that Brexit uncertainty has been impacting UK customer confidence and that it expects reduced demand for construction equipment in the near term.

Also, speaking to IRN, Riwal’s UK Country Manager Mick Ledden suggests that people have grown tired of Brexit and just want to get on with their jobs. He says, “We know there have been economic headwinds because of it but we’re just focused on trying to make our business resilient.”

One advantage Riwal has is that it operates across a number of countries, and its fleet is fluid and open. This means that if machinery becomes redundant in the UK, it can be shipped elsewhere, to regions where demand is higher, according to Ledden. Although this of course comes with the associated transport costs.

It is also important that rental companies help EU staff take the necessary steps to remain in the UK as part of the settlement scheme. Indeed, it has been estimated that the cessation of freedom of movement could result in the loss of about 200,000 skilled construction workers in the UK, according to Des Duddy, Director at UK tools supplier Protrade.

Five national construction bodies recently wrote to senior ministers estimating that a No Deal Brexit could cost the construction sector £10.5 billion (fall in output) by the end of 2020.

Cassley said, “Rental companies are well aware of how vulnerable the wider construction sector is to a potential downturn. But we should not lose sight of the fact there are still a number of projects being developed that require the plant-hire sector’s input – it is about managing risk.”