Taking a look at Brexit Supply Chain Challenges—Dual Tariffs, Dual Operations

Editor's note: This article originally appeared in Supply Chain Management Review.

In late December 2020, the European Union (EU) and the U.K. struck a trade agreement after years of negotiations. While a collective sigh of relief may have been heaved on both sides, the reality of Brexit is still full of challenges—especially for logistics leaders tasked with moving goods from one side of the channel to the other. We asked Susan Boylan, Director Analyst with the Gartner Supply Chain Practice, about the challenges of a post-Brexit world for logistics leaders.

SCMR: Many companies in the U.K. are experiencing challenges exporting goods to the European Union (EU) and are therefore looking to establish warehouses and distribution centers on EU territory. Can you explain why this is happening?

Boylan: This is primarily driven by the delays at customs and the challenges with dual tariffs. Dual tariffs are coming into play if you are bringing your product into the U.K. from outside the EU and then re-exporting to the EU. This can result in tariffs both on import - and again once you re-export to the EU. This is leading many transport companies to by-pass the U.K land-bridge and instead move product from Ireland to the EU to avoid delays and customs checks.

SCMR: Which industries have been impacted the most?

Boylan: Statistics have indicated that during January and February, one in five trailers were unable to successfully progress through customs checkpoints due to the lack of correct paperwork, ultimately causing further delays to deliveries and extensions to lead times. This is causing repercussions across industries of all types. While many industries have been impacted, retail, and in particular perishable food products, seem to have been hit first and hardest, particularly with regards to rules of origin requirements. This has resulted in breakdowns in terms of supply and empty retail shelves.

SCMR: What are the structural changes logistics leaders have to make to accommodate operations in both the EU and the U.K.?

Boylan: That will depend on how much the Free Trade Agreement impacts their capability to move product. Some organizations have increased their footprint and recalibrated their network design in the EU to satisfy demand that previously may have been provided by a U.K. distribution network. This is to avoid delays at customs checks and dual tariffs in the event of re-export. Changes have also taken place in how additional and/or seasonal labor is sourced and in terms of IT infrastructure. Several changes were required to the NCTS to align the U.K. to the Common Transit Convention (CTC) requirements and to reflect the change of country status of the U.K. upon its exit from the EU. Her Majesty’s Revenue and Customs (HMRC) has been implementing these changes to the NCTS on a phased basis.

SCMR: Any other challenges?

Boylan: Yes. Successfully navigating the changes to the NCTS system has proved disruptive for logistics operators. Rules of Origin requirements have now placed additional requirements on IT solutions that can track and trace the provenance of product components, whereas HR databases will be required to understand the nationality of the workforces and how to successfully ensure that the labor resource management is fully compliant with the New Immigration Skills Act. Finally, the sheer level of increased administration and paperwork will have an impact on the requirement for additional IT hardware and the personnel required to manage these processes.

SCMR: What’s your advice for EU-based companies exporting to the UK?

Boylan: The U.K. is taking a staged process approach to Brexit – meaning your product may not be impacted today but could be soon.  Make sure to classify your products correctly to understand which stage customs clearance and physical checks your products will be assessed under. On March 11, 2021 the UK government extended its phased approach to customs clearance checks and requirements for UK imports out until March 2022. Organizations will need to understand where their products sit in this new phasing and plan accordingly. They will also need to regularly review the updates from both the EU and UK Brexit guidance platforms for any changes that have been made as progress is continued in the coming months.

SCMR: Looking ahead, do you expect there may be adjustments to the trade agreement this year?

Boylan: As organizations, shippers and freight forwarders alike continue to petition their respective government bodies for amendments to the current services to reduce complexity and speed up the flow of traded goods there could be further changes. The extensions to the soft phasing for UK imports were in response to businesses making “a strong case” that they needed more time to prepare and manage the disruption which has been caused, and is still being caused by Covid and the need to ensure that the economy can recover fully. The Northern Ireland business community’s request for the extension of the grace period on checks of incoming goods has already been granted until October 2021. Recent research indicates that the UK public are unhappy to date with how the first few months of Brexit has gone and if the complexities surrounding the movement of goods does not abate, there could be further representations for change to accommodate swifter and less complex movement of goods.