New Brexit deadline only delaying disruption

New Brexit deadline only delaying disruption

On April 10, 2019, if one were to have stood on the streets of London, or Dover, or Teesport docks, or just about any other British town with a vested interest in the import and export of goods, there would, at some point, have been an audible, collective sigh of relief.

Once again, the UK had avoided falling off the Brexit cliff after Brussels granted an extension to London on the UK’s EU withdrawal to Oct. 31, 2019. The sigh of relief was certainly warranted, as the consequences wrought by a hard Brexit have been well documented and there is little uncertainty about the adversity caused by a sudden parting of ways.

Unfortunately, those sighs may have been premature. An extension of approximately six months doesn’t mean a no-deal Brexit won’t eventually become a reality. And — ghouls aside — it also doesn’t mean there’s sufficient time to prepare for the frightfulness that may transpire at British ports come All Hallows’ Eve.

For the majority of British businesses and multinational subsidiaries that have yet to investigate precisely how they will (not might) be affected by a hard Brexit, the extended timeline is a gift and they should take full advantage of it. Six months may seem to be a generous preparation period, but considering that change could come suddenly and with insufficient governmental resources to manage the shift, the degree of disruption could be far more profound than one might imagine today.

It’s also critical to note that the six-month timeline isn’t guaranteed. The new October deadline for Brexit is contingent on the UK participating in upcoming EU elections on May 23. That participation is already being contested, albeit informally, by members of the UK Parliament and the possibility the House of Commons could vote against the UK’s participation is quite conceivable. Such an outcome would force a hard Brexit on June 1, less than six short weeks away.

There are those optimists who continue to hold out hope the extended Brexit timeline is bound to result in some form of compromise amongst London’s legislators. That optimism is admirable and should in no way be discouraged. Indeed, there are currently bipartisan efforts under way to reach some sort of mutually agreeable, cross-aisle framework for the UK’s EU departure.

And yet, the past six months in parliament have left little reason to be hopeful the coming months will yield any substantive resolution to the Brexit crisis. The agreement negotiated by Prime Minister Theresa May remains objectionable to the vast majority of British lawmakers, and the EU is firm in its resolve negotiations will not be reopened. The likelihood of a second referendum on whether or not the UK should leave the EU is also quite low, although a referendum on a specific Brexit deal is possible. Doing away with Brexit altogether is even less likely than a second referendum.

Considered together, these points coalesce into one probable outcome, namely that the situation on Oct. 31 may very well be indistinguishable from April 12 or March 29 (and possibly June 1). As a result, multinationals with integrated supply chains that involve both the UK and EU should be planning today for the strong possibility the UK may still crash out of the EU without an exit strategy that takes those supply chains into account. That’s particularly true for industries that are heavily integrated with European producers, including aerospace, pharmaceuticals, food manufacturing, and automobiles, which are likely to experience a higher-than-average level of disruption.

A hard Brexit will result in an entirely new customs regime that will require new methods of customs compliance, a new system of classification, and adherence to new regulatory policies, all within a single tick of a clock. These sudden changes will not only serve as a challenge to British businesses but also to the customs officials who will be forced to administer them just as suddenly. The inevitable result will be long delays at the border, which increase time in transit and, in turn, shipper costs. These delays also have the potential to impact business reputation and tarnish longstanding relationships with suppliers and vendors across the English Channel.

The more businesses do today to investigate alternative trade lanes, updated classification codes, new customs documentation and processes, and the likely introduction of tariffs, the less impacted they will be by a hard Brexit’s inevitable disorder.

Preparation procrastination is not only unadvisable, but potentially dangerous, given that the timeline isn’t nearly as generous as it appears. Businesses that have yet to do so should be reaching out to their trade services partners, such as carriers, freight forwarders, trade lawyers, consultants, and customs brokers to secure their best chance at mitigating potential disruption and associated loss of business.

While the possibility of an orderly Brexit remains and work is being done to find common ground on how the UK will leave the EU without falling off a cliff’s edge, Britons and their supply chain partners must be prepared for any eventuality.  Whether Brexit is hard or soft, changes to how trade is administered are inevitable.

Inertia is no longer an option.

Mike Wilder is vice president of Managed Services at trade services firm Livingston International, with 30 years of experience in trade compliance. Contact him at mwilder@livingstonintl.com.

David Merritt is a director in the Global Trade Consulting division of trade services firm Livingston International. Contact him at dmerritt@livingstonintl.com.

Comments

Thank you again David.