Procurement professionals must ensure they are prepared for the end of the Brexit transition period on 1 January 2021.
Negotiations between the UK and the EU are still in progress concerning a trade deal, but as the deadline draws closer, here’s everything procurement professionals need to know.
1. What is the current situation?
Filip Rambousek, Europe analyst at Verisk Maplecroft, said both sides had shown limited willingness to back a deal that could be interpreted as a political defeat.
“Nevertheless, the economic importance of a deal – particularly at a time of recession caused by coronavirus – will likely trump these considerations and force both sides to make compromises that will see a deal clinched. We therefore remain optimistic that a deal will be reached before 2020 is out.”
2. What happens if there is no deal?
Stefan Tärneberg, director of solution consulting at BluJay Solutions, said: “The sheer volume of customs declarations organisations will need to handle as the UK becomes a ‘third country’ is unprecedented. Subjected to the same regulations on tariffs and import quotas as all non-EU countries, UK companies will need to complete a huge 400 million customs declarations a year. Last year, the figure was five million. That’s an increase of 8,000%.”
Rambousek said: “In the event of a no deal, the immediate practical impact on businesses will be in the form of delays for imports as UK customs officials struggle with the sudden large amount of trucks to clear. This will also result in significantly higher levels of traffic congestion in the south-east of England.”
He added that even if no deal is reached initially, “it is likely that the UK government will make the renewed negotiation of a trade deal with the EU a priority”.
“However, it is currently extremely difficult to predict how ambitious such a new deal would be and therefore also how long its negotiation would last… Both sides will reassess their ambitions and priorities, which could mean that negotiations in effect start anew.”
Without a deal, the UK will default to World Trade Organization tariff rates. It will introduce an average import tariff of 5.7%, with some sectors and products – e.g. vehicles – with a much higher tariff of 10%.
Earlier this year, the UK government said it would streamline and simplify nearly 6,000 tariff lines to make it “cheaper and easier” for UK businesses to import goods from overseas.
Some retailers, including Co-op and Lidl Ireland have reportedly warned suppliers they must foot the bill for increased tariffs. Tesco has warned prices will rise by an average of 5%.
3. What has the government said?
The UK government had urged procurement professionals in the public sector to prepare to use the new e-notification service, Find A Tender, to publish contract notifications from 11pm on 31 December instead of OJEU.
It also announced its Border Operating Model, outlining new border controls which will be introduced in three stages, partially due to coronavirus and to give firms more time to adjust.
The model aims to provide clarity about the end-to-end journeys of goods on the move between Great Britain and the EU.
4. What are the main issues firms could face?
Renaud Houri, senior VP of EMEA at technology firm project44, said: “There will be a production relocation to lower cost regions and a change in suppliers based on location. Pharmaceutical companies in particular may struggle to replace specialist suppliers. Even transportation companies could struggle if labour laws lead to capacity concerns and a driver shortage. A good percentage of drivers in the UK are not UK nationals. Even if only drivers from Eastern EU companies decide to go home because of Brexit, the UK could lose a portion of its driving workforce.
“Also, as ports prioritise food and medicine, items like luxury goods, clothing, electronics will see even more delays.”
5. What does the situation mean for moving goods across the border?
Houri said: “With a closed border between the UK and the EU, we will experience new customs inspections and regulations for shipping. This will result in significant delays.
“A closed border also means the potential for tariffs. With trade between the UK and other European companies shifting from ‘domestic’ under the EU to international, both sides might consider setting tariffs. Either way, this will add further complexity to an already charged situation and might result in the entire ecosystem rethinking how or if they ship into the UK.
“Capacity is another challenge – with more costs likely to be built into the supply chain to account for delays and manage tariffs, finding and hiring the right, accredited drivers will become very difficult. Not enough drivers means not enough trucks, which means it will take even longer and be even more expensive to simply keep up with today’s standards, much less improve.”
6. Should I be stockpiling?
Houri said firms should avoid stockpiling inventory in an attempt to avoid negative consequences.
“While this approach may provide a temporary fix, it strains capacity of warehouses and will not be an effective long-term solution,” he said.
“There are steps you can take to better position yourself for any of Brexit’s possible outcomes. Because any action at the UK border could have a downstream impact, businesses need more transparency than ever before. By gaining more visibility into the supply chain and transportation process, companies are better able to proactively identify possible disruptions.”
7. How does my business prepare for any scenario?
Houri said: “The more UK business leaders do now to proactively prepare for more data-driven, agile supply chains, the more they will be able to mitigate issues, regardless of what happens with Brexit.
“Increasing visibility of a shipment by 80% can, for instance, allow a retailer to reduce the amount of safety stock on hand, saving space in warehouses and possibly releasing millions of currency back into the business.
“An issue at any point in a supply chain will ripple across an entire organization and beyond – as businesses supply chains intersect and interconnect. The preparation is cross-functional and cannot happen in silos. If you can’t see the issue at one point in your supply chain, you won’t understand how other areas could be impacted, and you will have no ability to adapt.”
Tärneberg added that while queues would form on the first day at Dover and Calais, firms should look to reroute via different ports “could be the shippers’ saving grace”.
“While the most popular ports will be over capacity, companies are beginning to explore the potential of smaller ports off the beaten track to skip the queues. Unlike those on the Channel, many of these also come equipped with specialists well-versed in overseas declarations, who can get goods across the line far quicker.”
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