The art of international trade in a post-Brexit world
Shipping, logistics and customs for businesses in 2021 and beyond.
Watch 'The art of international trade in a post-Brexit world' webinar15 minute read
Catch up on our latest webinar, an in-depth discussion led by Dr Adam Marshall exploring the various import/export challenges businesses are currently facing, as well as the remaining complexities of Covid-19.
Four months into a post-Brexit world, our panel of experts discuss shipping, logistics and customs issues, offering guidance on how to prepare for and overcome such obstacles going forward, including:
• How the new customs controls on importing goods will affect businesses from July 2021
• Why exports have fallen by 50%
• What the impact of differing Covid-19 regulations is in each country
• Lee McDarby: CEO of UK International Payments at moneycorp
• Dr Adam Marshall: Vice Chair of the World Chambers Federation & a Director/Trustee of the Industry and Parliament Trust
• Alex Veitch: General Manager of Public Policy at Logistics UK
• Liam Smyth: Director of Trade Facilitation at the British Chambers of Commerce
• Tom Cotton: Policy-Infrastructure England & Wales at Road Haulage Association Ltd
Watch the full recording here:
Read a breakdown of the questions posed to and answered by the panel here:
With regards to some of the live customs issues that UK export businesses are facing, some government ministers have suggested that post-Brexit adjustment is really just a question of adaptation; learning how to deal with new paperwork and new processes. Is that the case or is it more fundamental than that, and are some sectors facing more challenges than others?
Businesses really only had four days after the trade deal was announced on Christmas Eve to become accustomed to a new border operating model. For some businesses this was an adjustment, for others it was existential. In particular, businesses that buy goods from one market and sell into the EU are finding that they may not be able to have tariff-free trade because the goods don’t originate in the UK. And so, some firms have found that they are actually having to pay tariffs on goods that they are exporting to their customers in the EU for the first time. All of this is margin-eroding, and when you erode margin you bring into question whether the business is ever going to be profitable. So for some, it’s an adjustment, but for others it’s about looking deeper into their business and trying to find a way to continue to trade and to serve their customers.
What practical things can firms do when faced with this new customs challenge?
One of the big things to look at is the origin of the goods that businesses are trading both into and out of the UK. On the face of it, it might look like you can’t reach the origin threshold when trading out of the UK, but actually, an adjustment to the way that you calculate origin can solve some of the issue. There are rules that you can apply to declare a product’s origin and businesses should be looking at their inputs in terms of labour, IP, and other tangible elements of a product, because they may find that they can have tariff-free trade after all, because they can claim UK origin. Another thing to look at is the origin of the goods that businesses bring into the UK, perhaps for processing. Where do they originate? Are there alternatives that might be more appealing in this new environment of a UK independent trade policy, that perhaps seemed expensive before, but aren’t now?
Other than that, talking to a good customs broker or agent is important so that you can understand and navigate these rules. Also, avail yourself of grant funding from the government. It may be modest but it can help you to secure your business and make sure it’s sustainable beyond the next 3 – 6 months and into the years ahead.
The Brexit process really isn't complete as far as imports are concerned, as some of the UK's own controls haven't even been put in place yet. What are some of the issues? Do businesses, both in the EU, in the UK and in the logistics sector itself realise what still lies ahead?
It feels like a never-ending transition, but it was probably for the best that the UK government pushed back the introduction of import controls as it does buy everybody more time to adapt. It will definitely happen, but when it comes to imports, the challenge is much more significant to get things ready. The UK government has fired its artillery in terms of communications, direct phone calls, webinars, and all kinds of support at those bigger firms, and that has worked by and large because we haven't seen the significant delays for the major routes in and out of the EU. In January, we had an historic drop and exports, and everybody was terrified that would persist, but we were encouraged to see it pick up again in February. The real test, however, will be how the monthly trade figures fare going forward.
In terms of issues, what’s also happened is that SMEs have been caught out. They haven’t received the same communication and support that bigger firms have had. Also, there are some sectors such as the seafood industry that have some very significant challenges in terms of exporting to the EU. Going forward, in terms of imports, we need to learn from what’s happened before. The government will need to offer more support to the sectors in difficulty, like SMEs and the parcel and fresh food sectors, and not just to the small number of larger businesses that account for most of the trade. Then we can hope that, by the end of the year, more EU exporters to the UK will be better prepared than some of the UK exporters were ahead of the end of the transition.
Across the EU, governments are broadcasting about changes to procedures when bringing goods into the UK, but would it be even more beneficial for UK companies to talk to their European suppliers and help them to navigate what’s coming?
Sometimes, the information businesses get from their trusted partner is something they rely on more than information from their government. There are some really useful seminars in the UK and so getting our sister organisations on the continent involved in these events could help to get everyone on the supply chain up to speed and on the same wavelength, which ultimately would help new processes to run smoothly. There’s a lot to do between now and January, but there is time to learn and prepare so that, hopefully, we can avoid anything like the logistical nightmare seen at UK ports earlier this year.
One of the big shipping fears after Brexit and indeed after the Covid closures was that the Short Straits – the Dover to Calais route – would break down and that we would see huge delays. The Government assures that the number of lorries going through is very similar to pre-transition times, while other bodies have questioned what’s in those lorries, and whether or not they are carrying any goods. Is this a case of ‘nothing to see here’, or are trade flows still just well below their normal levels for a variety of reasons?
The evidence from the government is that the number of trucks moving is the same, yet we know that the volume of exports has fallen. Whilst there was a bit of a backup in February, they were still down year on year. There are also reports that food trucks are going back empty, so that they have an easy transit out. Traders have been saying since January that the cost of moving goods has increased. So part of this issue of reduced trade flow is to do with paperwork, part of it is to do with delays, and also, many traders are questioning whether exporting goods works for them anymore. This is particularly evident in sectors where volumes that are moved are significant but margins are narrow. It’s not that there’s nothing to see here, it’s more that we haven’t seen the full extent yet. Remember, from the European Union, goods are freely flowing in from the rural ports without paperwork, without delays and without the controls that will come into play from January next year. It’s important, on that note, to remind businesses that the goods that they may have imported from the EU since 1st January 2021 do need to be fully declared 175 days maximum after the import, so businesses are getting delays on their paperwork, not a free pass, which many businesses both in the UK and the EU may not fully appreciate.
The flow of goods into Europe has not improved over the last four months, and we're still seeing delays of weeks into Spain and Ireland, in particular. Are these issues more to do with clearance on the European side?
There have been some issues that have caused delays on the European side, for example, the many challenges at the port of Dublin. There has also been a noticeable drop in flows to Northern Ireland from the Republic, and to compensate for that there has been an increase going through Scottish ports to get to Northern Ireland, which causes difficulties of its own. So definitely some teething problems with trade in Ireland. It’s not always clear to the trader why these delays are taking place, particularly when sending goods to Europe, but also vice versa. It can be most challenging for SMEs, whose goods may be part of a consolidated load within a single truck. It’s often the case that the issue isn’t with their goods or their paperwork, but with another trader who is also part of that load. It can be to do with incorrect paperwork, or often there are different issues unique to different borders.
Did the government do enough to assist UK businesses to prepare for these changes to trade?
The messaging appeared to be mixed, often unclear, and in some cases contradictory. When people were trying to prepare, they were coming up against obstacles that there didn’t seem to be any answers to. There were many reports of businesses having set systems up in preparation for the transition, only to have to change them, which was a huge issue. At very least, a deal that is concluded a week before it comes into force leaves little time for people to get to grips with the practicalities. On the other hand, there are nuances, and the government did a lot to prepare larger firms with significant value and volume moving across borders to navigate the transition. However, for those who are either smaller in size or who are trading in an ad-hoc way, there was less assistance on offer, and so many SMEs feel that they have been under-supported.
What are the current VAT rules for exports to the EU and for intra EU deliveries?
The key change for UK business on VAT is postponed VAT accounting. This means that traders moving goods into the UK from any other country no longer have to account for the VAT on the date of import, they can do so within their ordinary VAT return. Regarding goods going into the EU, it depends whether the goods are going to another entity within the business, for example a branch office or another part of the company. There may be arrangement that can make best use of the VAT rules in both the country of export and the country of import. If it’s business-to-consumer, VAT needs to be paid by someone at the point of import into the country, for example, within the EU, but there would be no VAT charge for the goods on leaving the UK. The most valuable thing to do is to seek guidance from a VAT expert who will take the context of your firm into consideration and give you tailored advice. However, importantly, businesses should be careful not to tactically undervalue their goods to fall below the VAT threshold in order to avoid paying duties, and instead ensure that they properly classify the goods related to the value of those goods in the marketplace.
Trade routes are now opening up directly to Ireland, bypassing the UK. How much of an impact has that had on freight numbers, on UK traffic and on congestion in road transport?
There have certainly been problems with exporting to Ireland in its own right, which also impacts Northern Ireland significantly. However, these issues have seemed to calm down. We have seen reduced flows through Holyhead in Northern Ireland, though the next round of shipping stats will tell us a lot more. On routes that bypass the UK, there has been a 100% year on year increase in the amount of freight moving directly between the Republic of Ireland and mainland Europe, and around eight times more ferries sailing between Rosslare and the continent. The question is, will this persist? It’s common sense to think that by moving goods on this direct route and avoiding the UK, you can avoid some of the issues previously discussed. Fundamentally, the more that the UK government can do to make trade easier, the better. We need to make sure the land bridge that is the UK is still a functioning, viable and resilient route for all traders.
For businesses delivering goods from Great Britain to Northern Ireland that do not have a business address within Northern Ireland, there are now tariff charges payable on those goods. There is a customs waiver that such a business can apply for, but is there another way around this sticking point? If not, can businesses get such an address?
There was a number of businesses who, last year, did opt to set up an address in Northern or the Republic of Ireland for this reason, so that is one option. But the process for accessing the customs waiver isn’t overly complex, and for direct-to-consumer businesses there is also the Low Value Consignment Relief option, but that doesn’t get rid of the tariff. So, the customs waiver is probably the best option to navigate delivering goods to Northern Ireland without a business address there.
In relation to goods getting cleared coming into Germany, there seems to have been a number of issues and delays, despite correct paperwork and following of protocols. Is there a particular reason for this?
There have been delays and issues with one of the big parcels and express operators in a major city in Germany. Unfortunately, it came down to something as seemingly simple as opening hours. They were sticking rigidly to opening hours, which meant that goods weren’t able to be cleared outside of those hours. There have also been problems with the colour of ink used in a particular place to complete paperwork, which has caused delays. These are just examples, but in these scenarios the route that we have to take is to go to the UK Mission to the European Union and request that they engage with EU member states to get more consistent application of the trading rules and processes.
What are the effects on services, in particular hosting conferences or events in the EU, and the UK personnel working in the EU for short periods?
This issue of mobility is a very difficult and vexed one. If you read the Trade and Co-operation Agreement between the UK and the EU, there are hundreds of pages on which type of profession can move to work for short periods of time into the EU. There are reservations from individual countries about who can and who can't, because immigration is still controlled largely at a national level within the EU. We're going to start to see real problems as borders re-open, with companies that provide services along with their goods, for example, being able to move technicians or engineers or architects, or other sorts of personnel around, even for short periods of time. This is unfinished business within the UK/EU relationship, but the hope is largely that mobility arrangements will be put in place for this type of movement in the future.
Have we seen the full impact of the pandemic on trade and trade flows?
No. We have still got more change to go in the way that we trade. Many companies may be watching what’s happened with trade so far over the last year or more, thinking, do I need to diversify my supply chain a bit more? Is resilience better than lowest price? Do I need to bring things closer to home and make my supply chain shorter so that I know I can always get the inputs that I need? These are the things that many businesses will be puzzling through over the weeks and months ahead.