Logistics companies began their preparation for Brexit all the way back in 2019. This was a unique situation that the European Union had never experienced before. EU states tried their best to provide ample information to the companies doing business, especially logistics. However, while entering 2020, there were still many uncertainties. Finally, the transition period ended in 2021 and the business were expected to adapt accordingly. Eight months later, we assess how Brexit impacted the logistics industry and the challenges since the beginning of ‘hard’ Brexit.
One of the most significant impacts of Brexit was the change in the regulations regarding the export and import of goods with EU countries. The EU, which was never accustomed to customs checks, now had third country checks without any trade agreements. This meant that the assessments administered for any other country like China, Brazil, etc. will be the same for the EU. Many companies that worked with the UK were unfamiliar with these customs procedures resulting in slower logistics flow and inefficiency.
The UK invested in new staffing and IT systems, developed port and inland infrastructure through 2020 to handle the incoming freight volumes. However, as January 2021 approached, congestion was experienced at all major ports, and the piling traffic delayed the cargo. After the transition period, all EU imports were subject to border checks involving customs declaration, safety and security certificates, and physical inspections of the goods. These even included regulations on wooden pallets, which needed to be checked at the borders of the UK.
Ripple effects of Brexit
Amidst this, the pandemic induced hurdles further complicated the processes, as goods suffered further delays due to lockdowns and mandatory COVID tests for HGV drivers. Due to the growing number of challenges and tariffs, many businesses began avoiding the UK altogether. Almost 56% of haulage companies were first to feel the oncoming changes of Brexit and considered or already moved their operations to the EU. Moreover, many haulage companies were reported to avoid working in food and drinks or agriculture industries due to Brexit complexities. This has affected many small businesses that were dependent on haulage companies and moving goods between the UK and the EU.
One of the biggest challenges was to follow the ‘rules of origin’ for goods moving between the EU and UK. Determining the product’s origin was primary because it might not qualify for preferential tariffs if the product was transformed to a certain degree. This will affect the parts manufacturers in the automotive industry, however, the EU has granted a 12-month grace period which ends in December 2021, to identify the origin of the parts. This also meant that vehicle manufacturers now needed to understand the traffic on the individual components. Many companies are already working towards conceptualizing this reality in their business and getting ready with the paperwork. But it has not just been the automotive industry, the food and drink industry experienced devastating impacts too, especially the Scotch Whisky industry, losing over £ 5 million; however, these numbers are now stabilizing. These effects, in turn, also impacted supplies are local groceries, as people struggled to find milk, packaged water and other food items. Apart from these, another hurdle for trade between the EU and UK has been the mutual recognition of regulatory bodies for the sale of products in the EU and the UK.
Mitigating the effects of Brexit
During Brexit, government and business entities were largely aware of the lack of clarity that came along with the deal and prepared themselves. To limit bureaucracy, the EU and UK now recognize each other’s ‘reliable trades’ for whom the customs procedure can be a lot simpler and faster. As mentioned earlier, new staff and IT systems were also installed in an attempt to ease the customs procedure. In terms of logistics, businesses began preparing for the inevitable Brexit from the beginning of 2020. This included getting in touch with customers to explain the changing regulations, gathering information from the respective governments and branch associations, explaining HS codes to companies unfamiliar with the process and filing proper customs declarations.
One of the first steps was to acquire an Economic Operators’ Registration and Identification number or EORI. All companies exporting from the EU to the UK are required to obtain this number; this can be done through the national customs authorities of each country. Declaration of customs while importing and exporting is now mandatory, and VAT, duties and handling fees must also be processed upon delivery. Apart from this, customs documents must be carefully filled out, and HS codes must be appropriately determined before undertaking the transportation of goods.
In November 2020 we spoke with Bas Verschuren, General Manager Customs at Otentic Customs, one of NSRN's founding members, who at the time was gearing for Brexit. Months later we hear from him again as he gives us a detailed overview of the problems, including unprepared systems that could not handle large amounts of import and export declarations, shortage of drivers, delays at ferry terminals, understaffed customs office, and increased workload for customs brokers. He adds that though the UK authorities offered workarounds and postponements of procedures, it led to a backlog of import and export formalities. However, after the first couple of months, Mr Verschuren reports that customs processes are now running smoothly. At the same time, challenges remain, such as the lack of customs brokers; though they are being hired, they would still require at least a year of training. Similarly, there is a shortage of truck drivers, which might lead to increased wages and thereby increased costs, he adds. If the UK does not address these challenges, Mr Verschuren notes, that there will be some times of stress ahead.
Though the impacts of the logistics industry in the wake of Brexit were plenty, those companies that were prepared to ride the wave made it safely to the shore. This was only possible through meticulous planning, flexibility, the ability to stay on top of changing regulations, and finally to provide their customers with the best possible solution to move their goods to or from the UK. With a boatload of challenges already induced by the COVID pandemic, Brexit posed another one that impacted global supply chain movements and trade.