February 5, 2019
The Deal (or No Deal) with Brexit: How You Can Plan for Impact on Your Supply Chain
As the deadline for the UK to leave the EU approaches on March 29, it is advised that any businesses importing to or exporting out of the UK be prepared for a no-deal Brexit.
If the UK leaves the EU without a trade deal in place, the UK loses access to the European single market with its free movement of goods. The UK’s trade with the EU will operate on non-preferential, World Trade Organization (WTO) terms. Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to any trade taking place between the UK and the EU.
What could this mean for your business? And what can you do in the event of a no-deal Brexit? Here’s what you should know and some actions you can consider to prepare for and mitigate the impact of Brexit on your supply chain.
Assure business continuity and customs compliance
In advance of the deadline, it’s important that you consider what your business might need in order to maintain operations in the event of a no-deal Brexit.
If you’re importing goods from the EU to the UK: you’ll need to register for a UK Economic Operator Registration Identification (EORI) number and Value-Added Tax (VAT) number.
If you’re importing goods from the UK to the EU: you’ll need to either incorporate your business within the EU, or find a third party established in the EU who is willing to act as the importer of record.
You may also want to seek out customs brokerage services if you’ve only ever traded between the UK and the EU and are unfamiliar with Customs classifications. 180,000 importers are expected to need to clear Customs for the first time after Brexit, which will likely cause significant delays at UK and European borders.
Plan for delays across the region
Thorough inspections on goods imported from the EU have not been required at the UK border up to this point, so each port only has the customs capacity for the non-EU goods it processes (which only account for about half of imported goods). In 2017, 55% of the international tonnage that traveled through UK’s ports were from the EU. The total amount of customs declarations made at UK ports is expected to grow 5X, from 50M to 250M declarations a year, but declarations are expected to increase 100X at ports like Dover where 99% of conducted trade is with the EU. The UK government has anticipated that 5,000 more customs officials will need to be hired and trained to handle the increase in declarations.
More lorries move between the UK and the EU through the UK’s major ports each year than do container shipments to and from anywhere else in the world. Right now, these lorries are only showing passports and boarding information at the border, and are able to keep moving within minutes to maintain short dwell times. In a no-deal Brexit scenario, however, the Road Haulage Association (RHA) expects that “movements will rapidly grind to a halt as vehicles back up waiting to be processed by customs authorities.”
European borders will also be negatively impacted: the Port of Rotterdam alone anticipates the need to hire 800 more staff to handle the increase in Customs declarations from the UK post-Brexit. We can also look back at previous border delays for an idea of what to expect: more than 7,000 lorries were parked on the M20 in Kent in 2015, unable to pass through Dover because of a strike on the French side of the border. Businesses lost an estimated 21M worth of stock, and the Kent economy lost 1.5M each day of the delay.
Play the long game and partner up
You should also start reevaluating your supply chain for the long term now. Like companies navigating the uncertainty of the U.S.-China trade war on their transpacific shipments, you may have several strategies you can consider to mitigate the impact of Brexit and, in the process, further optimize your supply chain. For example:
- You may want to reevaluate the location of your warehouses to minimize border crossings and delays when delivering to your final customers.
- You might consider setting up mixed bonded and free circulation facilities, to avoid double payment of duties when fulfilling the whole of Europe from one location.
- Or you might re-evaluate where you source and manufacture altogether to shorten lead times and optimize for future tariffs.
In all instances, working closely with your freight forwarder to discuss planning and forecasting will be critical. That means assessing what your demand will be for this year and aligning it with how a freight forwarder can potentially support you with different service options. It’s also important to work side-by-side with your customs brokers to ensure compliance and to keep your shipments moving.
You can also subscribe to our weekly Freight Market Update, where we’ll be tracking all activity, including potential congestion and or freight delays in the UK and across the EU.
February 26, 2019 update
In a no-deal Brexit, the European Union will require that pallets shipped from the UK into the EU meet the standards set for non-member states. The UK currently does not have enough of these EU-approved pallets available, which will cause delays if UK companies are forced to wait for new pallets to be manufactured.