Many importers and exporters remain unprepared for ‘hard’ Brexit

By Will Waters Oct 22 2019 / Lloyd’s Loading List

Many small to mid-sized (SME) import and export companies remain unprepared for a ‘hard’ or ‘no-deal’ Brexit at the end of this month and remain concerned that a disorderly Brexit could still happen despite apparent progress this month towards a possible UK-EU Brexit withdrawal agreement. 

Andy Cliff, MD of Straightforward Consultancy – whose company manages the freight and customs models for various importers and exporters in the northwest of England – told Lloyd’s Loading List that many businesses were fearful that the UK government would take the UK out of the EU on 31 October regardless of any political attempts to delay. 

He added that, based on requests he had received over the last two weeks from director-level contacts in small to mid-sized companies, and subsequent operational reviews, that customers are definitely not ready for a ‘hard’ Brexit on 31 October, noting that although they may have received assurances from their logistics providers, “not enough preparation and walk-throughs of the new environment have taken place”, and forwarder bulletins are often confusing or incomplete.

In a briefing article published this week in Lloyd’s Loading ListIs your supply chain definitely ready for a no-deal Brexit? Are you sure? –he shared a checklist of questions for cargo owners and their logistics providers, highlighting several key areas that companies may have little or no experience of dealing with.

The guidance mainly focuses around companies who sell on delivered terms to their EU customers and ex-works terms from their suppliers, “as these customers have the most work to do”. For customers selling ex-works or buying on delivered terms, “in our view, the onus for preparation should emanate from your buyer or seller who contracts the transport”, although he said those companies can still extract useful guidance from the guidelines “as all the elements are the same”.

The checklist focuses on three basic questions: Are you as an exporter or importer, prepared? Is your forwarder prepared and have they told you what they need from you? Have you liaised with or informed your suppliers or customers?

He stresses that it is useful to think through all the steps in the logistics process from when a booking is made at origin all the way to delivery, and to do the same for the commercial transaction – from quotation to final sale.

One area highlighted is Incoterms, which “will come into sharp focus in a hard-Brexit scenario, particularly for exporters, where many have traditionally shipped to their EU customers on a ‘delivered price’ basis, often neglecting to quote Incoterms on their sales quotations or export/despatch invoices. In the past, this didn’t matter so much for the forwarders or end customers as EU road freight is usually fully paid by either shipper or consignee – unlike air or ocean – and no Customs clearance was required.”

Under a ‘hard’ Brexit, Cliff said invoices would have to include “a lot more detail so that a Customs declaration can be made, both on export from the UK – as happens now with non-EU exports – and a formal Customs entry on the EU side”.

His observations are consistent with recent updates from the Freight Transport Association (FTA) and an updated report issued last week by the UK’s National Audit Office (NAO), which said the freight and logistics sectors are still some way from being fully prepared for a possible no-deal Brexit on 31 October  – echoing warnings from the logistics sector about structural issues slowing down preparedness, such as the shortage of customs brokers able to support new customs formalities or the lack of clarity on operational details.

The report – The UK border: preparedness for EU exit October 2019 – highlights that “the most significant risks to the operation of the border remain, namely business readiness, EU member states imposing controls, and arrangements for the Northern Ireland and Ireland land border. Although the government has actions under way to influence these, mitigating these risks is now, to some extent, out of its control.”

It added: “It is impossible to know exactly what would happen at the border in the event of no deal on 31 October 2019. Departments face new challenges in monitoring and responding to any disruption that may ensue. This includes supporting businesses and individuals in meeting their new obligations, mitigating risks of the border becoming vulnerable to fraud, smuggling or other criminal activity, and activating civil contingency plans if necessary.”

It continued: “Many of the new arrangements the government plans to implement at the border to facilitate flow on day one would be temporary, and it will take some time for a fully functioning border to be put in place. In determining longer‑term arrangements, the government would need to balance enabling the flow of traffic across the border with introducing appropriate controls to minimise the risk of non‑compliance or criminal activity.”

In response to the report, the Freight Transport Association’s Pauline Bastidon, head of European and global policy, commented: “The NAO report highlights the scale of the challenge for industry. It echoes’ FTA’s messages to government about structural issues that are slowing down preparedness, such as the shortage of customs brokers able to support industry in complying with new customs formalities or the lack of clarity on operational details – not least in relation to how the Irish border would be managed by the Irish Government in a no-deal situation. 

“The situation is particularly challenging for UK exports to the continent and Ireland – especially for agri-food products, where a shortage of veterinarians able to sign export certificates is to be feared. In spite of the industry’s best efforts, delays and disruptions cannot be and should not be excluded, at a time when logistics and supply chain managers are less able to mitigate disruptions due to high demand for transport and warehousing capacity ahead of the Christmas period.”

She highlighted that preparing also comes at a substantial cost, noting: “The government estimated last week that the cost of complying with customs requirements alone would be in the range of £7.5 billion per year for the UK industry, which is significant and will be particularly heavy for SMEs. These investments need to be considered in the context of the prolonged uncertainty around the final Brexit outcome. 

“While funding for industry and logistics training in particular is welcome, financial support came late in the day and will not be able to compensate for the lack of operational details. And while everyone focuses on day one after a no-deal outcome, we should not lose sight of the future: logistics currently has very limited visibility over the medium term as many of these arrangements have been deemed unsustainable, as highlighted in the NAO report, and even arrangements for road haulage and air freight are time limited.”

She said the government had still not been forthcoming with clear information, even to a respected representative body such as the FTA, adding: “The logistics industry is resilient and flexible, but preparedness can only be optimal if our members have full clarity on what is being expected of them operationally and what to prepare for at the border and beyond.”

Indeed, later last week, in response to the new draft withdrawal agreement between the UK and the EU, FTA deputy CEO James Hookham said: “FTA has been very consistent in wanting to ‘Keep Britain Trading’ by making sure that the logistics industry can deliver whatever political solution for Brexit prevails, with or without a deal. It is clear that there is not time now to prepare for a no-deal Brexit on 31 October: there are many unanswered questions about how our borders should work, and no time to implement the answers even if decisions could be reached on important policy issues.

“Therefore, at this stage, leaving with a deal and the accompanying transition period for answering important questions and being prepared for the changes, is far preferable to a no-deal Brexit on 31 October.

“While there is still a chance of a no-deal Brexit, we urge government to continue to respond to the critical questions and issues raised by FTA in our Logistics Dashboard. With big questions unanswered, and no time to prepare, the logistics industry is not ready for a no-deal Brexit on 31 October, and the impact on trade would likely be very significant.”

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