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International Trade: Supply Chain Resilience in Europe

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International Trade: Supply Chain Resilience in Europe 1

By James Crayton, Head of Commercial at leading law firm Walker Morris, discusses the importance of supply chain resilience in futureproofing a business.

As businesses across the world continue to face the extraordinary challenges brought about by COVID-19 and the global economy moves into recession, the sudden shock to supply chains has forced businesses in Europe to consider how they can adapt their supply chains to ensure they can endure future disruption.

As well as presenting unique challenges of its own, the pandemic has accelerated existing concerns relating to the supply chain following political events such as Brexit in recent years. When it comes to the supply chain and international trade, there are two primary concerns for businesses in Europe right now: COVID-19 and protectionism.

COVID-19

Europe is heavily dependent on international supply networks in many industries, from pharmaceuticals to automotive and electronics, and the COVID-19 pandemic has presented an enormous threat to extended supply chains and impacted heavily on international trade; forcing businesses across all sectors to look at their supply chains in a way that they have not done in a long time. The pandemic has led to colossal supply chain interruption – especially to hygiene and medical supplies such as PPE, ventilators and hand sanitiser – and the double blow of hugely increased demand and thin stockholding is not something that will be forgotten in a hurry.

The orthodoxy of supply chains has been challenged by the pandemic. Prior to COVID-19, many businesses across Europe had an ‘out of sight, out of mind’ approach to their supply chains and those businesses have really been hit by the pandemic. As well as having an immediate impact, COVID-19 has resulted in businesses taking a more holistic and long-term approach when considering what is important in the supply chain. Following COVID-19, the most important consideration for business is ensuring their supply chain is robust and resilient. The previous focus on “just in time” is giving way to more focus on “just in case”.

Right now, businesses across the globe need to take a hard look at the way they conduct their supply chains and ask themselves:

  • How robust is our supply chain?
  • What are the worst-case scenarios that I need to cater for?
  • Can we source from alternative suppliers in the event of a natural disaster or a global pandemic interrupting our supply?

Protectionism

James Crayton

James Crayton

Just a few years ago, protectionism may not have been a cause for concern for extended supply chains and international trade, however, in the last couple of years following the Brexit referendum, it appears to be more of a worry for European businesses especially, and it could become a genuine threat to supply. We are already seeing a much greater focus on contractualising supply chains, with more sanctions and tariffs in place and, although Brexit is a big part of that, it’s not the only factor leading to businesses being more critical of supply operations.

While the populist political climate continues, protectionism in a trade sense is likely to continue too. Businesses must adapt their contractual and relationship structures within supply chains to manage existing or potential future protectionist measures. Using Brexit as an example, there’s also the impact on the countries businesses are trading with; some businesses will have acknowledged that those barriers are there to stay and will have already adjusted their supply chain accordingly, looking towards using UK and other non-EU suppliers rather than continuing to use European ones.

Supply chain resilience is a fundamental consideration for businesses in the current climate. Increasing supply chain resilience does potentially come with increased cost and so suppliers and purchasers will need to decide who bears this and whether it is viable to pass it through to consumers. One way to reduce international risk is to diversify and bring supply chains closer to home, although businesses need to acknowledge that as well as being more costly, it will be more complicated to manage.

One benefit that has arisen from the world being sent into lockdown is the positive impact slower living has had on the environment, and – as we approach the other side of this –businesses need to be aware consumers may place even more importance on sustainability than they did prior to the pandemic.

While the global economy is somewhat on hold, businesses must face the challenge of thinking more holistically about their supply chains and make these crucial adaptions while they can. Though challenging, businesses must consider bringing their supply chains closer to home to protect themselves from the threats presented by protectionism and by COVID-19, while futureproofing their supply chains against future interruptions and becoming more sustainable and resilient.

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Battling Covid collateral damage, Renault says 2021 will be volatile

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Battling Covid collateral damage, Renault says 2021 will be volatile 2

By Gilles Guillaume

PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.

Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.

“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”

De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.

The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.

Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.

Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.

The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.

The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.

Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.

“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”

Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.

SHARP HIT

The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.

Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.

The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.

In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.

Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.

Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.

Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.

It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.

De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.

($1 = 0.8269 euros)

(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)

 

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UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 3

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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Discounter Pepco has all of Europe in its sights

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Discounter Pepco has all of Europe in its sights 4

By James Davey

LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.

The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.

Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.

“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.

To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.

The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.

Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.

Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.

That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.

“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.

Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.

Sales rose 3% to 3.5 billion euros, reflecting new store openings.

($1 = 0.8279 euros)

(Reporting by James Davey; Editing by David Goodman)

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