It is vitally important business understand their supply chain today because, whatever the outcomes of negotiations, there will be changes to navigate including some opportunities for optimising the ways you manage your supply chains. It appeared that the Chequer’s Agreement on the 6th July 2018 of a “third way” would support a shift in the UK Government position as at the core of this proposal is the establishment by the UK and the EU of a free trade area for goods but this is still only a proposal.
What should a business be looking at?
It is an ideal time for companies to map their current supply chain both for supplies and also how goods are delivered to customers. Brexit issues cover a wide range of areas such as:
• Payment or not of VAT
• Supply contracts and use of Incoterm Rules
• Costs and profit margins
• Origin of goods
• Supply chain hubs
• Customs and tariffs
• Lead Times
• Benefits of trusted trader schemes
• Registration and conformity standards on goods
For some businesses the UK being an independent country will bring about very few issues and result in further supply chain opportunities for others it will require some reshaping and reassessment of current procedures to mitigate any impact on the robustness of existing supply chains. If Brexit slows the movement of goods through the supply chain – through customs, ports, logistics – it could change how stock is distributed, the network design needed to cope, and the facilities needed to hold stock.
What do I look at first?
We have divided the Brexit Awareness exercise into 10 areas:
1. What do you ship into the EU27, including goods moving temporarily, goods returned, shipments for and after repair, samples, exhibitions
2. How much do we bring in from EU27 countries (again including goods moving temporarily, goods returned, shipments for and after repair, samples, exhibitions)
3. What delivery terms (Incoterms Rules) do we use on EU movements to and from the UK? Do we buy or sell at the two extremes EXW or DDP – how will the costs change if we have a customs border?
4. Distribution set up – do we move goods out of a warehouse based in one of the EU27 countries? Do we import from outside the EU and supply under free circulation rules into the EU27. Do any of our UK based suppliers bring goods in from the EU27
5. Movement of goods – do we currently export or import by road to/from non-EU countries? Will these movements need customs entries and transit guarantees to move about the EU27 post-Brexit
6. What is the commodity code number for the goods we bring into the UK from the EU? Using the existing trade tariff what import duty rate and special customs measures or licensing/ registrations apply to these commodity codes. Do we currently pay a low or zero rate of customs duty because of an EU preferential trade agreement, eg EUR1, ATR, GSP, etc
7. What is the commodity code number for the goods we send into the EU27 from the UK? Using the existing trade tariff what import duty rate and special customs measures or licensing/ registrations apply to commodity codes.
8. Do we export to non-EU countries that have a preferential free trade agreement with the EU and issue a preference document/ statement, eg Canada, South Korea, Mexico, Turkey, Switzerland, etc? What would the duty impact be on your overseas customs if they had to pay duty because UK was no longer a party to the free trade agreement?
9. Do you issue or receive Long Term Supplier Declarations (LTSD) so that either you can issue preference documents on export outside the EU or your EU customer can use your goods to evidence their exports qualify when sold to non-EU countries
10. Import regulations – supplies to and from EU27/UK will be subject to customs entries and therefore will come the international rules relating to valuation rules (especially how you value free of charge shipments and intercompany supplies), rules of origin and potential impact of additional origin based duties and tariff measures such as import licenses
Unravelling the Supply Chain
Each business will have its own answers to the 10 points about but only when you have answered each of the point will you be able to map the supply chain and understand the potential impact not just on the flow of goods but also on additional areas such as the cost of customs tariffs. We recommend that, if you haven’t already, you begin discussions with your suppliers and customers so that you can begin explore the division of any additional costs a post-Brexit trading scenario may bring. It is also a good time to explore other options such as buying direct from an overseas supplier rather than through an EU based distributor, establishing a closer relationship with a EU27 partner or selling direct to non-EU countries to provide additional support to the overall income of the business.
Article written by Sandra Strong Managing Partner of Strong & Herd LLP