Anyone following the winding Brexit negotiations might agree with Bismarck’s observation that laws are like sausages – it’s best not to look too closely at how they are made.
Logistics businesses keeping a careful eye on the daily duels might feel a sense of uncertainty, and wonder how to prepare for a post-Brexit world until there is more clarity about the UK’s future trading relationship with the EU. They might feel justified for hiding their heads in the sand, and waiting to see what kind of deal emerges.
While the negotiations themselves might be out of their hands, businesses that take a ‘wait and see’ approach to Brexit are doing themselves no favours at all. In fact, they are risking operational paralysis, when there’s actually much that can be done to prepare for whatever scenario emerges after the negotiations are concluded.
Will there be a soft landing?
In the months after the historic Leave vote, it seemed as if the UK might secure a ‘soft’ Brexit, involving continued membership of the single market. When this option was still up for grabs, it might have made sense for businesses wait and see, but any hopes of such an outcome have dwindled.
Even if the UK government secures the softest possible landing, the processes that we use to trade with the continent today will be replaced with something new. Current models for trade between the EU and other countries will cease to apply to the UK, leaving logistics providers casting around for a new framework.
Customs entries will be reintroduced for European trade and duty will come payable at points of entry into all European countries, creating a potential “black hole” of regulation concerning everything from VAT to export costs, duty to customs checks.
The pro-Brexit camp claims that technology can solve most of these issues, and will prevent nightmare scenarios such as the prospect of lorries queuing for miles down the M2.
While it’s impossible to know what a final deal will look like (and, consequently, what technologies will be needed to facilitate trade across the new border), there are a number of things that logistics companies can do in advance of the Brexit deadline to prepare themselves for whatever new arrangements are put in place.
While no-one pretends that trade and cross-border transportation will run smoothly in the immediate post-Brexit period, businesses that start preparing now have the best chance of successfully navigating this uncertain new world.
One of the great challenges of the post-Brexit relationship between the EU and the UK is the potential for change in customs declarations, with a parliamentary report warning of catastrophic consequences, such as massive tailbacks at the Channel ports and perishable goods being left to rot at the border.
Certainly, there will be a need to lodge ‘normal’ customs declarations, but there’s no reason why this has to take place in Folkestone, Portsmouth or Dover. In fact, customs declarations are usually completed in the back office before the truck even sets off, and take a matter of seconds to complete.
Whatever Brexit scenario pans out, there will be no need for complex new technology at the border. If businesses don’t have the ability to support customs entry effectively, however, it will likely cause severe bottlenecks in the back office which will be as disruptive as any delay at the border.
Logistics companies should be aware, for example, that the government is replacing its import/export processing system, CHIEF, with the Customs Declaration Service (CDS), which is due to go live in the autumn. The new system requires different data from CHIEF, but the requirements have already been published.
Logistics businesses are wise therefore to ensure that their systems have the capacity to generate and process the required data at speed and avoid creating admin bottlenecks that will delay business. A high-capacity customs solution will also be useful, helping companies to streamline processes.
Tariffs and trade
We may well be entering a new economic era defined by trade wars, not least after the US President announced $50 billion-worth of tariffs targeted at China. Much is being made of the UK’s exposure to EU import tariffs for a range of goods and services.
After Brexit, it’s estimated that customs declarations to UK Customs will increase by a factor of five to over a quarter of a billion each year, while the number of UK firms needing to make a declaration will double to over 270,000.
For sectors such as clothing and cars, tariffs under the World Trade Organisation (WTO) rules range from 10 percent to 15 per cent, and this will naturally represent a big hit on retailers and associated businesses. There are, however, special procedures that business can follow to reduce the impact of tariffs significantly – potentially even down to zero.
While the question of tariffs lies largely in the hands of the negotiators, businesses can get access to the most business-friendly procedures by becoming an authorised economic operator (AEO). This is the gold standard of international trade – a self-policing system that demonstrates that a business has a consistently exceptional level of compliance.
The result for businesses that become an AEO is significantly less hassle at ports and airports, helping to keep goods moving. There’s a good chance that you might not have heard of AEOs, because the UK government is not actively pushing it – yet it could be crucial for logistics firms, especially those that operate across the Irish border.
Currently, only a tiny proportion (less than half a per cent, in fact) of UK businesses have AEO status – ten times fewer than Germany. Logistics businesses are wise to make researching their eligibility and applying for AEO status a priority, especially as it can take six months or more to be accredited.
Logistics and other businesses have reason to feel apprehensive about what lies ahead – but that doesn’t mean that they are powerless to prepare for the future. The only wrong action to take is to do nothing and hope for the best. Now is the time to implement customs processes that can handle the change.
Mohit Paul is VP EMEA at BluJay Solutions