Brexit will cause a remarkable shakeup within the transportation industry as freight flows and as current policies and regulations face extensive adjustments. What does the withdrawal mean for international shipping and customs brokerage, and how problematic will the new divide become?
What is Brexit?
The United Kingdom's exit from the European Union is transforming trade with the EU and other strategic partners around the globe. What does this mean for transportation and logistics providers?
The shipping landscape of Europe is about to be reshaped — altering the continent-wide flow of goods by all modes. American Shipper warns that supply chains perform best in fluid and stable environments and both are likely to be negatively impacted by Brexit.
On January 1, 2021, the transition period with the EU will end, and the UK will operate an external border as a sovereign nation. The recently released 200-page manual outlines the processes for moving goods between the UK and the EU from 2021 onwards, with additions to be introduced in April and July 2021.
|What’s the status of Brexit?
With time running out before the December 31, 2020 deadline, negotiations have not yet produced a deal.
See the latest Brexit news.
Who will Brexit effect?
Brexit will affect all UK organisations that trade goods with the EU and vice versa.
According to McKinsey, the EU accounts for 54% of all goods imported into the UK, making Brexit a concern for companies with British operations — and a compelling reason for industry leaders to revisit their shipping strategies.
Brexit affects three critical freight flows:
- Outbound products of UK origin destined for other EU markets and countries that have an agreement with the EU
- Cargo entering the UK from EU nations and countries that have trade agreements with the EU
- Transit flows originating in markets outside the EU that currently pass through the UK that are destined to other EU markets (and vice versa)
|What is the Northern Ireland protocol?
One of the key complications of Brexit is the border between Northern Ireland and the Republic of Ireland — once the UK exits the EU, it will be the only remaining land border between the two trade territories.
The 310-mile border — and its over 200 road border crossing points — would be extraordinarily difficult to monitor. And considering the history of conflict at the border, installing infrastructure such as physical barriers and trade checkpoints is an unpopular idea to say the least.
Under the Northern Ireland protocol, goods would not need to be checked along the Irish border. However, the protocol is part of the overall exit agreement that is still under negotiation.
VAT and international shipping implications
The UK currently operates under EU VAT, a common system of value-added tax (VAT) rules for EU member states.
If the UK and EU are unable to negotiate terms, the UK will no longer be part of the EU VAT area and may opt to reform its VAT system. Goods crossing international borders will then become imports and exports, and import VAT and customs duties will apply.
In other words, an estimated 145,000 businesses will be responsible for making import-export declarations for the first time.
For more information about VAT and how it may be affected by Brexit, check out this explainer by the Institute for Government.
|Additional customs resources
Check if you’re established in the UK or EU for customs
Latest import, export and customs documents for businesses
Starting to import from non-EU countries
Trade - European Commission
Are businesses prepared for change?
Our experts predict that as relationships become more stabilised, new information surrounding trade agreements and tariffs will develop and become readily available, but now is the time to start having those post-Brexit conversations about how to get your shipments across borders.
Deal or no deal, changes are on the horizon, and experts say many businesses are tremendously underprepared. Challenges like navigating new IT systems, scaling up for more paperwork, and expanding language capabilities will be key factors in the months ahead.
To make matters worse, the pandemic has produced unexpected setbacks. According to Logistics Manager, COVID-19 has impacted available capital and has derailed Brexit preparations, preventing businesses from investing in new customs processes or stockpiling to protect themselves against disruption to supply chains. An October survey of UK supply chain managers found 46% were less prepared for Brexit than last year due to the pandemic.
Post-Brexit, the UK will no longer be permitted to trade with the EU as a whole; trade with each EU country will require separate customs declarations.
To put in perspective the procedural changes that are coming, the UK’s tax authority has estimated that after Brexit, firms will need to file 400 million extra customs declarations annually. That puts the cost of the new customs paperwork at about 13 billion pounds a year (converted to the US dollar, that’s over $17 billion).
Just as processes have been in place between the UK and non-EU countries, customs procedures will now have to be instituted and complied with at each border within the EU through which a UK export or import passes. Although the specificities of the new requirements for paperwork and border controls are still being defined as trade discussions continue, the surge in paperwork may necessitate as many as 50,000 new jobs.
Additionally, The Load Star warns that if transportation and logistics providers do not follow new regulations and the government issued systems, they will face personal fines and penalties. An example of new regulations: truckers will be required to file shipment information electronically and receive approval from the tax authorities prior to traveling towards the UK/EU border.
Language barriers also pose a challenge for businesses who have never handled import-export declarations before, as miscommunications can lead to costly errors and delays. Considering the EU has 24 official languages, multilingual proficiency will be another necessity moving forward.
How can businesses prepare?
The Brexit guidance being issued by the UK government is to “get someone to deal with customs for you.” However, officials warn that what third parties can do (and who will be liable) depends on the services they provide and the commercial agreement in place.
If you partner with an outside organisation to assist with Brexit-related changes, be sure to choose one that specialises in international shipping and customs brokerage processing with multilingual proficiency. An experienced business process outsourcing (BPO) partner can provide the support your business needs during this transition period and beyond.
Why work with a customs compliance specialist? Read more.
For more insight and advice regarding international trade after Brexit, see this resource page put together by the Freight Transport Association.
Partner with DDC for post-Brexit success
With customs brokerage processing services available in more than 25 languages, DDC has the experience, business continuity and resources available to help transportation providers navigate through unanticipated circumstances from the point of origin and through customs
— ensuring speed and accuracy while reducing the impact of Brexit on your business.
Contact us to learn more about how we can help with your customs brokerage processing needs.