Brexit supply chains shift to crisis mode

Brexit supply chains shift to crisis mode

Cargo entering or exiting the UK after the country leaves the EU on March 29, 2019, will be subject to customs inspections in the event of a no-deal Brexit. Photo credit: Europa Worldwide Logistics.

Trade tariffs with Europe, finding huge numbers of qualified customs officers for cargo inspections at border crossings, and averting inventory shortages are shaping up as the greatest supply chain threats facing the United Kingdom as the country careens towards its European Union exit without reaching a deal.

Just 100 days remain before the UK leaves the EU on March 29, but in an ominous sign, the British government has written to 140,000 UK companies warning them to deploy their contingency plans for a no-deal Brexit.

This has not been well received by business groups in the United Kingdom. A joint statement issued by the British Chambers of Commerce, the Confederation of British Industry, manufacturers' organization EEF, Federation of Small Businesses, and the Institute of Directors said, “Businesses have been watching in horror as politicians have focused on factional disputes rather than practical steps that business needs to move forward.

“With just 100 days to go, the suggestion that ‘no-deal’ can be ‘managed’ is not a credible proposition,” the joint statement said. “Businesses would face massive new customs costs and tariffs. Disruption at ports could destroy carefully built supply chains.”

The no-deal scenario will be costly for shippers, who have told JOC.com they are concerned at a rise in tariffs and the need to carry additional inventory costs as they build up stocks in preparation for border delays. Forwarders say they will struggle to pass on all the costs of long waiting times for trucks and cargo at border crossings, diverting trucks, and securing additional space at warehouses. Ports are concerned at lengthy dwell times for containers creating rising congestion and whether there will be enough customs personnel available for the rise in inspections. 

Should the UK leave the EU without a deal, all trade with Europe will then be on World Trade Organization (WTO) terms. Under WTO tariffs, UK goods exports to the EU — which account for 48 percent of total exports — would be subject to a trade-weighted average tariff of 5.7 percent, while EU exports to the UK (16 percent of total EU exports) would face 4.3 percent tariffs, according to trade research company Atradius.

Non-tariff barriers to trade as well

“There would also be significant non-tariff barriers to trade, including customs controls, new border checks especially on food and agricultural products, and regulatory barriers,” the researcher noted.

Andrew Baxter, managing director at UK-based Europa Worldwide Group, advised customers to make their own judgement as to whether they needed to hold stock differently than they did today. But he said if the UK left on March 29 with no deal, there would be significant disruption to the movement of goods.

“This would mean slower transit times, and it is impossible to really understand how much slower, less capacity due to trucks being tied up in queues, and increased prices due to transport costs increasing due to delays. It would undoubtedly be very difficult for a sustained period,” he warned.

Baxter said Europa has plans in place to ensure it was ready to switch to a full customs clearance on March 29 if that was required, has expanded capacity at its hub facility to create space for freight that may be slowed down by the clearance process, and has reviewed varied options for alternative shipping routes.

“We are as ready as we can be. Unfortunately, the biggest issue will be whether the UK and EU customs would be ready for a no-deal scenario. Personally I doubt it,” he said.

The UK government appears to have finally recognised that it will be woefully understaffed should border checks become necessary. Her Majesty’s Treasury announced this week that it was making available 8 million pounds ($10 million) in a government funding plan for customs intermediaries and traders aimed at supporting training and the upgrade of IT systems.

The plan is intended to help support the extra demand for customs brokerage services associated with the UK’s departure from the EU, as well as to tackle issues associated with the replacement of the current system used to process customs entries.

Robert Keen, director general of the British International Freight Association (BIFA), said he had highlighted the concerns of members in meetings with the treasury and customs departments regarding the capability of customs to increase capacity at a time when it was already facing a shortage of qualified staff.

“We emphasized that it could take up to a year to train staff to be fully conversant to prepare a range of basic customs declarations, even if there were a sufficient number of trainers to train those staff, as well as relevant courses for them to attend. So, the news of this funding is very welcome,” Keen said.

Additional customs checks will dramatically reduce capacity at the Calais-Dover trade corridor, impacting the 75 percent of all roll-on, roll-off freight from Europe that passes through the Dover Straits, or more than 4 million accompanied trucking units, i.e., truck, trailer, and driver. An estimated 14,000 trucks cross the UK-EU border every day, and 53 percent of UK imports originate in Europe.

To offset the delays that will be caused by additional customs and documentation checks for UK imports, some shippers are steadily building inventories ahead of March, but in a report studying Brexit contingency options, Liverpool-based UK port operator Peel Ports warned that there could be negative consequences of building contingency stock and introducing a warehouse into the UK supply chain routing.

The port operator said that although the plan would mitigate delays at border control, it would lead to increased mileage by causing trucks to deviate from their normal route. Cargo would need to be handled at least twice more, driving up labor and material handling equipment costs and increasing the risk of damage. It was also unlikely that warehouses for most companies would be available on a flexible basis, and the contingency plans could require long-term lease commitments of five-plus years.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.