Distributorship agreements after Brexit - part one
The idiom nerves of steel or brains of straw might be appropriate to the ongoing Brexit negotiations between the UK and the EU, but it provides little of use to suppliers and distributors alike within the UK and the EU.
For both suppliers and distributors the most important activity to be undertaken during this period of continuing uncertainty is to work out which are the key distributorship agreements for each party.
Easy to say, but not necessarily easy to do.
The reason for the difficulty lies in the underlying premise for distributorship agreements. It is axiomatic that there is a market for the supplier’s goods in the territory which is the subject of the distributorship agreement. From the supplier’s perspective, it could be that the market is not sufficiently large as to justify the supplier setting up its own operation in the territory. Alternatively, the supplier’s priorities may lie elsewhere – either because of the size of the supplier or as a result of it deciding to allocate available resources to other activities.
Whilst these reasons may be applicable to the supplier, they may not reflect the distributor’s position. A territory (and, therefore, a distributor) which is only of marginal importance for the supplier, may be the subject of a distributorship agreement which is of great importance to that very distributor. The converse is also possible in the case of smaller suppliers.
For both supplier and distributor it is a mixture of financial value and strategic importance in the supply chain – but recognising that the other party’s position may be different.
Where key distributorship agreements are identified - by either supplier or distributor - consideration should be given as to whether for the next working day after 29 March 2019 (which many businesses will be April Fool’s Day!) crossing the UK/EU border could result in delay or costs or both. If so, which of the supplier or the distributor should be responsible? More particularly, what does the distributorship agreement provide in terms of, for example, the passing of risk and title and how responsibility for delay is allocated.
Equally, is there a likelihood of export/import controls across the UK/EU border? And what is a customs declaration form???
A specific financial issue is exchange rate risk. Sterling has experienced considerable fluctuation since June 2016. However, this is very likely to be exacerbated in the event of a no-deal Brexit.
Whilst it is understandable that the focus is on the goods which are the subject of the specific distributorship agreement, issues concerning installation, repair, and spare parts will be relevant for some supplier-distributor relationships. Whilst the above points will apply to spare parts, installation and repair may be affected by restrictions on the movement of people.
The next suppliers supply and distributors distribute blog will look at steps which can be taken to mitigate the above risks.
In the interim, if you have the feeling that many UK government ministers should have nerves of steel but seem to have brains of straw (a euphemism), you would not be alone.