Little Time to Adapt
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NEWS
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The United Kingdom and the European Union trade deal began implementation this past January 1st. Now, the United Kingdom is no longer part of the single market and customs union, which significantly alters how the two parties trade with each other. The E.U.-U.K. Trade and Cooperation Agreement means there will be no tariffs or quotas on most goods, which will protect U.K. consumers from higher costs associated with import tariffs. However, there are new bureaucracies, placing pressures on businesses and creating trade friction between the United Kingdom and the European Union. Trade now occurs on more restricted terms. The timing of the announcement came just a week before implementation and left little time for businesses to adapt.
Documentation and Delays Increase
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IMPACT
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The changes primarily involve border checks for customs declarations, rules of origin, product safety certificates, and food inspections on all imported and exported goods. No agreement on conformity assessment or mutual recognition of standards means that checks for product safety and standards will need to be carried out at the borders. Food and animal products will require certificates, and country of origin documents must be provided for all goods. U.K. exporters, however, have been given a year’s grace period for providing country of origin documents. The introduction of these customs requirements has resulted in some logistics companies, such as DPD and DB Schenker, suspending parcel deliveries between the United Kingdom and the European Union because 20% of shipments had incorrect paperwork. Air cargo demand has increased as new bureaucracies force businesses to seek alternative transport methods, including expensive air freight.
Suppliers are now experiencing disruptions in the flow of goods between the United Kingdom and the European Union, with delays at the borders. The European Union accounted for about 43% of Britain’s exports in 2019, so any trade disruptions have a detrimental impact on the U.K. economy. New customs formalities are anticipated to cost U.K. firms GBP£7 billion. The U.K.’s Office for Budget Responsibility predicts that the post-Brexit E.U.-U.K. trade agreement will result in a 4% loss of potential GDP for Britain over the next 15 years compared to E.U. membership. New checks have resulted in long lines of trucks seeking to cross the border. The U.K. government made plans for a lorry park on a 66-acre site with a holding area for about 1,700 trucks and a facility for HMRC customs checks. Construction has been delayed and the site will not be ready until late February. Even when complete, the park may not have the capacity to ease congestion pressures.
The subsequent trade friction from border controls is exacerbated by requirements for COVID testing at most borders, meaning delay times can be considerable. These delays can cause operational issues for just-in-time supply chains, which will have a material impact on time-sensitive products being transported. Potential spoilage of food products is another cause for concern because 62% of fresh food in the United Kingdom is imported, primarily from the European Union. Northern Ireland is already seeing depleted stocks for some food items. Scotland’s fishing industry is said to be losing around GBP£1 million in sales every day. The trade agreement contained annexes to reduce the non-tariff barriers for certain products including pharmaceuticals. The distribution of COVID vaccines should not be significantly affected, but the governments have prepared alternative plans to transport vaccines by plane if necessary.
Business owners have expressed their concern about the consequences of the recent trade deal on their driver staffing. The added pressures placed on drivers of handling new necessary documentation combined with longer waiting times due to border checks may result in driver retention issues and increased resignations. Since this is already a serious issue in the United Kingdom, the new requirements could cause more severe driver shortages.
The staffing problem is heightened by a greater demand for drivers. Despite the new bureaucracies, previous Hours of Service (HOS) rules still apply (after a temporary relaxation), stating that any one driver must not exceed nine hours of driving time in a 24-hour period. With the new risk of prolonged border delays and traffic jams, time spent driving could be drastically reduced, and drivers may not be able to reach their destination within their allotted time limit. Companies may need to adopt a “multi-manning” approach, where more than one driver is present in the truck, and driving time is split between the two (or more). The combination of greater demand for drivers and reduced supply could create significant issues for businesses that trade with the European Union. Alternatively, drivers could take overnight rest periods, but this will result in longer delivery times and further disruption to supply chains.
Preparation, Resilience, and Digitization Needed
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RECOMMENDATIONS
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Despite the inevitable repercussions of Brexit on cross-border transportation, businesses have some options to reduce the trade friction between the European Union and the United Kingdom. Businesses must adapt and create resilient supply chains. With increased difficulty in cross-border trading, companies could consider localizing at least some elements of their supply chain to avoid disruption and improve business continuity. There are practical limitations of this, however, because many U.K. manufacturing industries, such as the automotive industry, need components made in the European Union. The United Kingdom may lack the skills, expertise, and resources to produce these parts with the level of efficiency as other countries, which would affect business competitiveness.
Where this is not possible, traders should be advised to prepare paperwork in advance and ensure all goods are compliant with new rules and regulations. Drivers are now required to have a Kent Access Permit (KAP) to cross the border, and a negative COVID test conducted 72 hours prior to travel. These should be addressed prior to reaching the border. Larger companies with a role in the supply chain can utilize trusted trader schemes, for example, applying for Authorized Economic Operator (AEO) status. This signifies that they are a recognized company in the international supply chain and their customs documents are compliant. AEOs can benefit from simplified customs procedures and fast-tracked shipments. A nationwide use of these options will help ease the pressures on E.U.-U.K. supply chains post-Brexit. Additionally, the U.K. government has planned freeports, which are zones for goods to be imported and re-exported without standard tax and tariff rules, which may include seaports and airports.
Businesses could also use solutions designed to circumvent transit issues associated with Brexit, such as Europa Flow. This product manages the companies’ export and import customs declarations and uses frontier declarations at import entries. This means imported goods will not have to detour to customs points and wait in long queues for compliance checks. The product helps companies minimize transit times and promotes frictionless cross-border transportation and trade. Other options include customs clearance software that can be integrated into ERP and CRM applications including AEB and Freightos (which can add FedEx custom brokerage services). Relative newcomer KlearNow’s AI platform connects customs brokers, importers, and freight forwarders with customs by converting documents into assets to aid in transparency and optimization. The company is close to becoming certified in the United Kingdom, with expansion plans for at least four E.U. countries. Additional digital options ahead could include solutions through the Blockchain in Transport Alliance (BiTA) partners.