It is said that two things are certain in life: death and taxes.
Perhaps some things are still uncertain about Brexit, but the UK will leave the EU. And it is likely that there will be new trade barriers leading to significant supply chain disruption and yes … potentially new taxes.
These new barriers are likely to impact businesses that trade between the UK and the EU, and trade between the UK and countries around the world that have free trade agreements (FTAs) with the EU. The nature of the new barriers will depend on what the future UK-EU relationship looks like, and the impact will depend on an organization’s specific circumstances.
From a procurement and sourcing perspective, imported goods from the EU may incur tariffs (for example, under a “no deal” scenario), as may goods from other countries (where the UK has not negotiated FTAs for itself and no longer has the benefits of the EU’s FTAs). Movement of goods between the UK and EU may be subject to customs formalities, unlike now. HM Revenue and Customs (HMRC) has estimated that the number of customs declarations could rise from £55 million to £255 million annually.
The high cost and risk of not preparing
Importers will likely need to provide adequate documentation to demonstrate the origin of imported goods to benefit from any preferential tariff treatment under an FTA, alongside a host of other information on customs declarations.
For companies that may have to comply with customs formalities for the first time, compliance could entail a significant amount of new, unfamiliar, time-consuming, manual, clerical work. This could lead to increased costs, reduced profits, and clerical bottlenecks that further stall the movement of goods. The requirement to submit import/export declarations with respect to trade with the EU may now require businesses to complete around 50 fields of information, compared to the 10 required for Intrastat reporting currently required on the intra-EU movement of goods. Even for companies that are familiar with the processes, the increase in scale for declarations on UK-EU movements of goods could incur additional time and resource costs.
Failure to meet the challenges of the changing trade landscape may lead to additional costs and supply chain disruptions.
What organizations can do to prepare and reduce risk
Organizations should start preparing now to position themselves for any eventual outcome. They should examine their existing supply chains and conduct an impact assessment to determine the scale of the requirement for compliance with the changing requirements for UK/EU trade. Then, to mitigate the likely impact, they should prepare changes to their systems and processes. There are two key focus areas where businesses can use technology to prepare.
First, organizations should focus on automating the international trade compliance processes. This can be achieved by deploying trade automation solutions. Such solutions integrate with enterprise systems and allow companies to streamline export and import processes, centralize trade-compliance data, manage tracking and determination of origin requirements, provide functionality to manage multiple FTAs, and provide flexibility to adapt to the changing international trade environment. They then use certified customs interfaces worldwide to help automate import and export declarations. For example, for UK customs, customs solutions can communicate directly via electronic messaging with HMRC’s CHIEF system. Many companies are implementing this e-filing capability with the UK customs authorities to reduce the cost of continuing to use third parties to manage customs declarations – especially given the anticipated increase in declarations that will be required on trade with the EU.
Second, organizations should focus on alternative sourcing for strategy agility. This is because changing UK/EU trade environments may reduce the profitability of businesses that continue to use pre-Brexit supply chains. Businesses could look beyond the EU, or even within the UK, to optimize supply chains. In the future, the UK may strive to create multiple new independent trade agreements with non-EU countries. Changes could be dynamic and rapidly evolving, and it is increasingly likely that cross-border trade will become more complicated.
Many organizations are not equipped to deal with large-scale and rapid sourcing events. Such organizations should consider deploying an automated, cloud-based source-to-contract solution. Businesses will require guidance and support on defining new category strategies and running sourcing events, as well as constructing new supply contracts. Sourcing solutions can help with the strategic assessment of supplier risk, as companies review their supply chains beyond Tier 1 to understand how to optimize them post-Brexit.
The hidden benefit: improved efficiency
Failing to prepare and taking a “wait-and-see” approach is risky, and time is quickly running out. There is no certainty yet about the proposed transition period, and the UK may be leaving the EU on 29 March 2019, with trade barriers effective from then. By preparing now, businesses can gain a competitive advantage. Brexit is not just a risk to manage, but can also be an impetus to improve efficiency more generally.
Join our Webinar, “Integrating Supplier Risk Management into Your Procurement Processes” on Wednesday, October 31, 2018, at 10:00 a.m. GMT / 11:00 a.m. CET.