Hope for the best: plan for the worst

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A basic Brexit deal was supposed to have been agreed by now so that all it could be signed off in time for leaving day – 29th March 2019. But, says Malory Davies, with no deal in sight, businesses need to secure their supply chains.

Friday, 19th October was earmarked as the day that the Brexit agreement between the UK and European Union would be presented to the heads of the 27 EU states and assorted EU institutions so that they could begin the process of ratifying the deal. It would also have opened the way for discussions on the future relationship between the UK and EU – a move that would have started to address the uncertainty that has dogged companies and their supply chains for two years. That didn’t happen, and what we have seen since is a warning from the National Audit Office that UK border operations will not be ready for a no-deal Brexit – and even if there is a deal there are big challenges to ensure the UK border is fully functioning. The Department of Transport has also warned hauliers working on the continent that they might need ECMT permits after Brexit – and that they need to start the application process by 12th November. It is clear that the uncertainty is having a damaging effect. A survey by the Confederation of British Industry found that 80 per cent of companies say Brexit has had a negative impact of their investment decisions – that is up from 36 per cent in October 2017. The survey, covering 101 large companies and 135 SMEs, also found that over 80 per cent will start implementing contingency plans if there is no deal by December- and almost 20 per have already started. Adjusting supply chains is top of the list when it comes to contingency planning, highlighted by 56 per cent of those that said they had formulated their plans. Some 44 per cent plan to stockpile goods – in fact 15 per cent have already done so. Some 30 per cent plan to relocate production and services overseas and 15 per cent plan to move jobs. Worryingly, only 58 per cent of the companies surveyed have formulated contingency plans, suggesting that there are an awful lot of people hoping that it is just going to be all right. CBI director general Carolyn Fairbairn says: “Unless a Withdrawal Agreement is locked down by December, firms will press the button on their contingency plans. Jobs will be lost and supply chains moved. “Many firms won’t publicise these decisions, yet their impact will show in lower GDP years down the line. “As long as ‘no deal’ remains a possibility, the effect is corrosive for the UK economy, jobs and communities,” says Fairbairn. In the light of the lack of progress on a deal, the Freight Transport Association is now advising companies to start preparing for a worst case scenario – a no deal Brexit in which the UK would cease to be a member of the EU on 29th March with no transition period and all trade would have to be conducted on World Trade Organisation terms. Pauline Bastidon, FTA’s Head of European Policy, says: “Given the scale of adaptions required in the event of a No Deal exit, an outcome which cannot be excluded at this stage, we are quickly reaching the point of no return and industry decisions cannot be delayed any longer. “The current state of uncertainty leaves the logistics sector in limbo, as our members are forced to plan for an uncertain future. They face two choices: invest in and implement contingency plans that might not be needed if an agreement is reached, or take no action and risk being unprepared in the event of a No Deal exit. “FTA advises all companies to begin preparing for the worst-case scenario and calls upon the Government to give clear directions to industry, building on the no deal notices and focusing on the points of greater concerns to the industry, from detailed information required to prepare for possible customs formalities to post-Brexit immigration rules. Contradictory signals are unhelpful and risk giving industry a false sense of security.” And given the increased likelihood of No Deal, the FTA is calling on the European Commission and UK Government to better coordinate Brexit preparedness efforts. “The logistics industry needs the legal certainty that trucks, planes and trains will be able to circulate without market access restrictions after Brexit, even in the event of a No Deal exit. Unilateral measures – such as those being contemplated in France – are not good enough and fail to reassure our members.” The motor industry, which supports 82,000 jobs and contributes £4.9 billion to the economy, relies on frictionless movement of goods across Europe. Not surprisingly, it expects to be particularly badly hit by a no-deal Brexit, and the Society of Motor Manufacturers and Traders has created a Brexit Readiness Programme. It argues that SMEs in particular will struggle in a no-deal Brexit world. “New customs arrangements will present a particular challenge, not least the increased paperwork and time required to fill in more detailed customs declarations – customs guidance alone on moving goods outside of the EU stretches to some 88 pages. Furthermore, there could be cash flow implications associated with the payment of tariffs and other taxes.” It has brought together a team of legal and financial advisors who can provide support and advice to companies.

Port delays are the big worry, says Next
Fashion retailer Next could pay an extra £20 million in duty after the UK leaves the European Union. However, it says that the biggest risk to its business is from delays at the ports. In its half year report, it gives a detailed calculation of the risks to its business from Brexit. It said that the value of stock delivered at cost totalled £1.74 billion on which the current duty was £65 million. Some £230 million worth of the total stock delivered would be affected by Brexit result in a maximum potential addition duty of £20 million. On the risk of port delays, the company said: “It is not yet clear how well prepared HMRC systems, customs and other relevant personnel will be for the upcoming potential increase in workload and data capture. “We believe that this indirect risk of interruption to the smooth operation of our ports represents the biggest risk to our business from Brexit. The more information that can be provided by the Government on how they plan to manage and mitigate the increased workload would be helpful. In our own sector there is no reason why goods should not flow with relatively little friction through customs from the EU, in the same way they currently come into the country from non-EU countries. The issue will be the preparedness of the UK authorities and UK businesses.” There are a number of other risks that it has analysed. It estimates that it will be required to make additional payments for customs clearance charges totally some £100,000. Next sells £190m of goods into EU countries. It has set up companies in Germany and Eire to minimise additional duty. It has also acted to minimise the impact of potential loss of GSP relief on EU imports which could increase the selling price of its goods in the EU by two per cent. It said: “Departure from the EU without a free trade arrangement and managed transition period is not our preferred outcome. However, Next is well prepared for this eventuality and we have all the administrative, legal and IT framework in place to ensure that we are able to carry on running the business as we do now. “In conclusion, as long as ports and customs procedures are well prepared for the change, and tariff rates are adjusted to ensure no net increase in duty costs to consumers, we believe we can manage the business to ensure no material cost increases or serious operational impediments.” Strategies to keep goods moving
n the event of a no-deal Brexit, the biggest problems are likely to getting goods through the ports. There have been reports that the government plans to use the M26 motorway as an emergency lorry park should the need arise. BIFA’s director general Robert Keen highlights a number of measures to ameliorate the impact, including: l Stockpiling non-perishable items l Considering what Customs facilitations may be sensible to join such AEO, Inward Processing etc to minimise exposure to tax l Considering the routing of cargo, maybe using more northerly routes, unaccompanied trailers and on occasion short sea l Possible change of suppliers to outside the EU. Keen says: “Brexit has demonstrated how brittle the supply chain is. Depending on the deal that is eventually agreed, “Just in time” could be very difficult in a post Brexit environment the options are: l Slower supply chains with an extra period of time in-built l Increased stock holding in UK l Review cargo receipt procedures to make them more flexible l Determine what supplies are essential and ensure that these are held in sufficient quantities l Monitor the information that is available and regularly updated on relevant government web sites, as well as BIFA’s web site l Ensure that IT systems are sufficiently robust to handle any new procedures. l Make sure that suppliers have the necessary financial arrangements to make the investments that might be required. Xpediator is focusing on two main scenarios, says Shaun Godfrey, group COO of freight forwarding. The first is the introduction of WTO rules. “This will entail a substantial increase in physical processes at key borders and in Dover especially, we have ensured we have custom licences to operate in all major UK ports and we are preparing to have sufficient personnel to manage the processes. The second is the introduction of inland (possibly retrospective) clearances, (the more likely scenario in our view) whereby tariffs will be implemented electronically. “Our preparation for this is focused on testing our existing systems specifically for their competency to manage large volume increases as well as the personnel to process.” But, says Godfrey, there could be no change at all.

 

This feature first appeared in the November issue of Logistics Manager. 

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