By Andrew Tavener, Head of Marketing at Descartes.
2020 was meant to be the year of ‘Brexit Preparation’. When the UK left the EU on January 1st 2020, firms involved in trade with the EU were set to spend 12 months on robust planning, maximising the 12 month Brexit transition period to understand the new trade and customs requirements. The transition period provided time to put in place the systems and expertise required to manage trade and the customs declarations that will be required with the EU.
Since March, however, Covid-19 has wrought unprecedented change throughout every supply chain – and many firms felt they had no option but to shelve Brexit planning, and in many cases also use cash and stock initially reserved for Brexit-related disruption, simply to survive. With the deadline fast approaching, however, and the option of a ‘no-deal’ Brexit on the table, the lack of preparedness is beginning to raise concerns.
UK businesses are largely ill-prepared for the customs complexity post-Brexit. Companies need to take action now, or potentially risk supply chain disruption at a level far greater than that experienced during the onset of Covid-19.
Brexit readiness assessed
During July 2020, Descartes commissioned independent research to ascertain supply chain managers’ general expectations around the impact of Brexit. The findings were stark:
- Two thirds of businesses have had their Brexit preparations disrupted by COVID-19.
- Less than a quarter (23%) have high confidence in their ability to cope with the extra administrative burden of Brexit.
- Two thirds (67%) of large firms are very or extremely concerned about longer delays in their supply chain impacting the business post-Brexit.
- Fewer than one in five (18%) of UK businesses are prepared for a ‘no deal’ Brexit.
- Almost three quarters (72%) are concerned about the customs brokerage market’s capacity post-Brexit.
- Two fifths (40%) are concerned about customs declarations impacting their business post-Brexit.
With just a few months until the the end of the Brexit transition period, the lack of certainty surrounding the deal still under discussion between the EU and UK is undermining business certainty. Just over half (52%) think a UK-EU trade deal is unlikely to be achieved in 2020 and only one in ten (10%) supply chain managers claim to have total certainty regarding the impact of Brexit on their business. Furthermore, despite the consensus regarding the likelihood of a ‘no deal’ Brexit, fewer than one in five (18%) are prepared for a ‘no deal’ exit from the EU.
Delays to the supply chain (45%) are the biggest concern regarding the impact of Brexit on cross border trade. However, the larger the organisation, the greater the concern regarding supply chain delays: 56% of supply chain managers in firms with over 1,000 employees are worried about delays to the supply chain. The impact of such delays also raises serious concerns: two thirds (67%) of larger firms are very or extremely concerned about longer delays in their supply chain. Over two thirds (68%) of supply chain managers within healthcare are also concerned about supply chain delays. Tariff payments (40%) and customs declarations (40%) are the next highest concerns.
These findings underline a key fact: those organisations and supply chain managers with existing experience of customs declarations are far more worried about the implications of Brexit on the business than those who have yet to discover the complexity of customs processes. Significantly, with consumer behaviour having fundamentally changed during COVID-19, this inexperience is likely to catch out many smaller sole traders who have moved to an ecommerce model and rely on trade with the EU during the pandemic.
Understanding Customs Complexity
For any organisation hoping for a last-minute reprieve, customs declarations will be required regardless of whether the UK strikes a free trade deal with the EU. Even companies that opt – and are allowed – to defer import customs declarations for six months must still maintain detailed records of goods brought in. Furthermore, many smaller organisations appear unaware that Brexit affects every import or export with the EU: it will no longer be possible to simply load up and drive to another country to deliver and sell goods without paperwork, or for e-commerce traders to simply post goods to a consumer in Paris or Cologne as if it were Birmingham or Manchester. Customs declarations will be mandatory.
There are essentially two approaches that companies can consider: complete declarations in-house or use an intermediary – a customs broker or freight forwarder – to handle the process. Relying on the latter option, however, could be difficult given the expected huge increase in demand due to Brexit. Government figures suggest that British companies trading with Europe will have to fill in an extra 215 million customs declarations a year post Brexit – with a potential cost to businesses of around £7bn a year. There are simply not enough third-party providers to support this huge increase in demand – a fact clearly recognised, with our research confirming almost three quarters (72%) are concerned about the customs brokerage market capacity after Brexit.
Yet when less than a quarter (23%) of companies have confidence in their ability to cope with the extra administration associated with Brexit, and 40% are concerned about customs declarations impacting their business post-Brexit, the options if customs brokers are not available are limited.
It is possible to file directly with HMRC – but how confident is the business in its ability to check the classification and valuation of goods to ensure the right commodity codes are used? Determine the need for licences for restricted or hazardous goods? Prepare and submit the correct documents to ensure there are no delays at the border? And what about taking advantage of customs authorisations, including Inward Processing, Customs Warehousing, Transit and Customs Freight Special Procedures that could simplify the paperwork requirements for importers trading heavily with the EU or moving goods through multiple territories? Any firm wanting to use these procedures will need to be authorised by HMRC. What about the option of a six-month deferment for import declarations, which will require the business to open a deferment account with UK customs?
Any company deciding to self-file should consider a software system that can streamline the process, from data consistency to the use of templates to speed up the creation of documents for routine product import. The Government’s Custom Grant Scheme provides support for businesses needing to invest in both technology and training. Combining a Software as a Service (SaaS) customs solution that ensures all regulatory changes are automatically updated and available, with staff training to achieve in-house expertise, provides a strong foundation not only for handling the complexities of post business activity but also future business development.
One of the key aspects of self-filing is the ability to immediately understand and manage landed costs. Import and export duties and tariffs create a new cost model that businesses need to understand rapidly. With different tariffs applied based on a range of factors, from place of origin to method to transport, the ability to monitor landed costs will provide companies with the chance both to manage the new cost models and take strategic sourcing decisions. With over a third of firms confirming they have or will by the end of 2020 looked for new sources of goods (35%) and imported goods early to protect supply chains (34%), factoring in the landed costs will be key to creating the correct customer pricing model and retaining margin where possible.
For ecommerce businesses, immediate insight into landed costs will be essential to provide customers with accurate pricing. No business wants to risk shipping individual items cross border, all the way to the customer’s door, only for the item to be refused when the courier demands the additional £20 customs duty payment, for example. Being able to integrate customs solutions into the ecommerce platform will support accurate real time pricing information.
Software can also support firms that decide to use customs authorisations, including Inward Processing, Customs Warehousing, Transit and Customs Freight Special Procedures; as well as providing the detailed record keeping required for companies that have deferred import customs declarations for up to six months. Essentially, the software will create the declarations without submitting them, providing a detailed declaration report to the business to deliver essential insight and take control over the new import/export cost model post the Brexit transition period.
Conclusion – Preparing for Change
Growing numbers of organisations are beginning to recognise the implications of the Covid-19 pandemic extend far beyond the extraordinary supply chain challenges faced over the past few months: consumer behaviour has changed fundamentally. Retailers estimate the shift from bricks & mortar to ecommerce has massively accelerated, achieving a change within three monthsthat was previously expected to take at least three years. While companies may have recognised the increase in customs declarations that will be required as a result of Brexit, the shift towards ecommerce and direct to consumer delivery will not only increase those numbers, it is also likely to catch a number of the smaller sole traders by surprise.
With 30% of organisations experiencing major uncertainty with regards to the impact of Brexit on the business and its supply chain, and the end of the Brexit transition period fast approaching, the onus is on business to take action today, and make the changes that can enable firms to become 100% confident with regards to customs declarations from January 1st 2021.