As the likelihood of a no-deal Brexit remains a strong possibility and with a clearly stated intention from the UK government not to ask for a further extension, what will be the immediate impacts on business after 31st December 2020?
End of Transition
The current transition period with the EU will end on 31 December 2020 which, if no agreement has been reached, will leave the UK trading on WTO terms with its largest trading partner.
This means that all exports and imports to and from the EU will require a customs declaration, increasing the number of declarations a year from 50 million to a forecasted 250 million. It is estimated that this additional workload on industry will require an additional 50,000 administrative roles.
To date the UK government had allocated £7.5 million to a customs agent academy to facilitate training of all these new roles. However, at the end of July they have now announced a £50m grant to support building capacity in the industry. Will this be enough to bridge the gap in time for the end of the year? With the UK government statement that import procedures from the EU will be temporarily suspended for 6 months, ostensibly actioned due to Covid-19, the answer must be a resounding no.
Immediately on withdrawal, all trade with the remaining EU-27 will require an export/import license. In addition, any existing licenses used to trade with the EU-27 from 3rd party countries will be invalidated.
Existing EU licenses and certificates relating to trade in hazardous material, drugs, waste, weapons, and military technology etc. will also now be invalid. Our exported products will no longer be able to use the CE quality mark, (the UK government is creating an alternative UKCA scheme).
The impacts on trading are two-fold. Firstly, the potential barriers to trade itself. As well as tariff barriers there are a multitude of other potential issues from quotas, new standards and new bureaucratic delays etc. Secondly, there is the issue of increased business costs and negative cashflow impacts; not only the direct costs of paying the duty costs themselves but also the costs of increasing staff numbers to deal with the additional paperwork, purchasing new IT functionalities and finally the financial and reputation damage caused by the risk of compliance failures.
New Challenges – Admin and Duties
In a no-deal scenario all export and imports to the EU-27 will require the completion of a C88 or SAD (Single Administration Document).
This document enables the export and import of goods, providing proof of authorisation for the country of despatch, as well as for the destination country. The C88/SAD is a complex form and is thus often outsourced to a reliable customs agent to complete. It requires specific details to be completed without error, such as: EORI number, 8-digit commodity code for each product, CPC (Customs Procedure Codes) and details of authorising certificates & licenses. This document along with the commercial invoices, licenses and certificates of origin and related transport documents (CMR, BOL or AWB) must then accompany the shipment itself. It should also be noted that new exporters and importers will need to register to use the new CDS, (Customs Declaration Service), system, which is still in phased rollout as the CHIEF replacement.
For imports, an equivalent declaration has to be made with the obvious additional requirement to pay the duties and taxes due. This will require the set-up of a duty deferment account or the use of FAS (Flexible Accounting System), which is linked with the customs new CDS system. A duty deferment account will allow a regular importer to make only a single monthly payment after the physical goods have arrived rather than an immediate payment of duty on arrival. It will require either the equivalent of a cash sum or a bank guarantee to the value of 2 months of customs payments, although this can be reduced under certain circumstances e.g. by 70% if AEO accredited.
On import there are potentially 2 more simple options which could make it easier. The first is by following what is known as CFSP, (Customs freight simplified procedures), that is already an existing procedure. This will split the declaration into 2 parts allowing a quicker, simpler clearance at the entry port, followed by a subsequent declaration and payment of duty inland. Additionally, there is also the potential re-introduction of TSP, (Transitional Simplified Procedures) for import. This was proposed last year before the transition period was agreed but is currently suspended. It will allow for a simplified declaration and a postponement of duties, whilst any new system is being implemented. Finally, to these challenges must also be added the high likelihood of significant transport and freight delays at UK ports, impacting on supply chain costs and service levels.
As of early August, when this blog was published ambiguity and uncertainty still reigns and this challenging period for international supply chain planning and operations does not look like ending any time soon. So, planning for the future, what conclusions should be drawn from all this and how should supply chain operations respond to these increased risk factors?
Our suggestions are the following:
- Secure a customs administration solution either in house or more likely with a reliable customs agent or broker and take the opportunity now to review/assess your forwarder’s performance. If in-house look at accessing the newly announced grant scheme for training & recruitment
- Review your inventory management processes, make sure you have a tight control of it to start with before we enter the last quarter of the transition year.
- Review your inventory policy, especially with regard to buffering your supply chain to maintain customer service levels.
- Consider plan B options to mitigate supply chain risk i.e. new stockholding points, alternative routings, and the use of bonded warehousing.
- Finally, investigate if there are specific processing reliefs that can be applied for, to mitigate new duty costs.
Looking at these areas will help get your international supply chain in as good a condition as it can be, to allow companies to react quickly and efficiently to whatever the post-Brexit deal actually looks like.