WE (STILL) NEED TO TALK ABOUT BREXIT
Four and-a-half years after Britain voted to leave the EU, the outcome of the final deal between the ‘divorcing’ parties is still not finalised. Just a handful of days before the end of the 12-month transition period on 31 December, negotiators from both sides remain locked away in Brussels trying to reach agreement on the outstanding issues.
Not altogether surprising considering no country has ever left the EU before – and as the EU is the UK’s largest trading partner, there’s plenty at stake. In 2019, UK exports to the EU were £294 billion or 43% of all UK exports. UK imports from the EU were £374 billion, 52% of all UK imports.
So, such complex negotiations were bound to take time but this, of course, is little – or no – consolation for businesses expected to be fully prepared for whatever the final outcome is. In October’s Vigilant, TAPA EMEA’s Vice Chair, Jason Breakwell, shared his insight into the challenges facing supply chains operating between the UK and EU based on his own experience as a senior executive in the road transportation industry. In this second update, he makes no apologies for repeating some of his earlier advice due to its continuing importance…
Whilst we still don’t know if a trading agreement will be reached between the EU and UK, we do know the outcome of the ongoing negotiations will not affect the new controls that will apply to the movement of goods from and to the UK.
These are the facts:
· Regardless of the final deal between the EU and UK, Customs controls will apply from 1 January 2021;
· In addition to Customs declarations for all goods exported and imported, there will be other new procedures which shippers and traders need to be ready for, including mandatory safety and security declarations and changes to Incoterms and VAT rules;
· Similar controls will apply to movements between Great Britain and Northern Ireland from 1 January;
· Due to the very late formulation of requirements, ongoing trade negotiations and no EU-UK road haulage agreement so far, some of the services and systems are not yet tested or available for hauliers and traders to become familiarised with;
· As a consequence, some traders and hauliers will not be ready, and some vehicles will need to stop at borders to complete or correct procedures. This could lead to congestion and, therefore, heightened security risks around ports.
As I stated previously, the UK is nearing the end of a 12-month transition period which was agreed in the UK-EU Withdrawal Agreement. During this transition, the UK is no longer a member of the EU but it continues to be subject to EU rules and remains a member of the single market and EU Customs Union. Once the transition period ends at 23:00 UK time on 31 December 2020, Customs controls will apply to UK and EU trade for the first time since the single market was introduced in January 1993. These controls will be phased in over a six-month period for shipments arriving in the UK. However, all new requirements will apply from 1 January for shipments from the UK to all 27 EU member states and also to Northern Ireland.
In October’s Vigilant I explained some of the new procedures that manufacturers, hauliers, logistics providers and traders need to be ready for. In the meantime, the UK government has published more guidance to help industry prepare including:
- The Border Operating Model, with an updated version expected during December
- Check what declarations need to be made
- Check if you need to make an Entry Summary Declaration
- Guidance for haulage companies and commercial drivers
However, the scale and complexity of the changes should not be underestimated. An Institute for Government report published in the UK last month found business readiness is the biggest problem for the end of 2020, with the Covid crisis leaving many firms less prepared than last year. There is only so much the government can do alone to prepare; businesses too need to be ready for new trading conditions and to comply with new checks and regulations.
Yet, the British government’s own figures paint a worrying picture of just how few businesses are even aware of the changes coming their way, let alone prepared for them. As late as October, a third of small businesses believed that the transition period would be extended, despite the deadline for any extension having passed in June. The economic damage wrought by coronavirus has robbed many of the bandwidth, and cash, to do what is needed. The government’s SUMMARY 6 communication campaign has so far proved ineffective, until recently focusing too heavily on selling the opportunities of Brexit rather than driving the actions that are needed to prepare for new red tape from January – deal or no deal.
And last week, a UK House of Lords committee wrote to Michael Gove, Minister to the Cabinet Office, to say it was “not confident that all necessary technological, physical and welfare arrangements will be in place in time to avoid or mitigate disruption”. It raised concerns voiced by software experts that some key Customs systems are only going live at the end of the month while others are still in development and testing. In the letter, Sandip Verma, chair of the EU Goods Sub-committee, criticised the “default expectation” of the government “that everything will be ready,” which is “reflected in the worrying lack of contingency preparations,” including failure to get all traders ready, including SMEs that cannot afford customs agents.
The UK will remain in the CTC (Common Transit Convention). If you or your logistics partners have access to NCTS (New Computerised Transit System), I recommend you move goods in and out of the UK under Transit to minimise friction at UK borders. I also recommend you appoint customs agents on both sides of the UK border in case you need support with Customs entries or safety and security declarations.
Hauliers driving to the EU through the busy Kent ports of Dover and Folkestone will require a Kent Access Permit for each truck movement to help manage traffic flows and minimise congestion on the M2 and M20 motorways. Any truck arriving in Kent without a permit will risk a £300 penalty.
According to the UK Department for Transport, permits should now be available via the GOV.UK website, a service which commenced on 14 December 2020.
The UK government will phase in Goods Vehicle Movement Service (GVMS) during 2021. The first phase will involve Transit movements to the UK and all movements to Northern Ireland. Whilst not all UK ports will adopt GVMS, hauliers should register as soon as possible. They will need a UK Government Gateway ID and GB EORI number to complete the registration.
GVMS is expected to go live on 23 December.
Hauliers will need to register for access to services in EU countries such as Logistics Envelope in France, PBN in Ireland, Portbase in the Netherlands and RXSeaport in Belgium. Links to these services are in my October article.
Eurotunnel and ferry operators will require proof of Customs declarations in advance of check-in to reduce the risk of delays at borders.
Traders may need professional advice on Incoterms (international commercial terms). If you are buying on DDP (Delivered Duty Paid) terms, the supplier is actually the importer and as well as the export Customs entry, the supplier will be responsible for arranging the import Customs entry and paying any import taxes. To do that, they’ll need an EORI number and a VAT number in the buyer’s country. There is an alternative version of DDP whereby the seller uses an agent in the buyer’s country and the buyer is responsible for import VAT only. Or you may want to consider DAP (Delivered at Place) Incoterms.
If you buy Ex Works (EXW), you or your logistics partner are responsible for arranging the export Customs entry out of the seller’s country as well as the import Customs entry. A better option to EXW might be FCA (Free Carrier). Incoterms are certainly not simple and if you’re unfamiliar with them, I recommend you seek professional advice to find the most suitable terms for you and ensure tax liabilities are fully understood. Also, please note that the UK is offering traders the option to defer import Customs entries for the first six months of 2021 but these entries must eventually be declared.
There are some potential security risks to be prepared for, before and after the end of the transition period on 31 December 2020:
- Any truck arriving at a border without correct or complete declarations will need to wait whilst any irregularities are fixed. This could cause congestion in port areas and, in worst case, queues of trucks on access roads, especially in Kent. Drivers may not be able to reach planned safe zones if they are delayed by unexpected Customs problems. Drivers may need to park until correct declarations have been made and this could reduce parking capacity in the few safe zones available to drivers on routes towards ports in the EU and UK;
- All trucks leaving the UK via Dover and Folkestone should not enter Kent without a permit. You need to ask your haulier where their trucks will park whilst waiting to obtain the permit and also be aware that Kent Police will stop trucks that don’t have a permit.
Similarly, all trucks moving in and out of the UK will eventually need a GMR (Goods Movement Reference) and they will not be permitted to cross borders until they have a GMR. The best practise is to ensure all Customs, safety/security (and sanitary if applicable) declarations are made in advance of arrival at the border. This will enable trucks to access the green channel and bypass potential queues;
- In anticipation of congestion around the short sea terminals at Calais, Dover and Folkestone, some traders are already recommending or even mandating use of longer ferry routes, for example across the North Sea or from/to ports in north west France.
It’s important to note the ports of Calais and Dover and Eurotunnel have confirmed they are fully prepared and don’t expect delays. However, if you will be using alternative routings, you need to assess risks on these routes and plan a back-up in case your truck misses a booked ferry. Most of the longer ferry routes are only operated once or twice per day and there is extremely high demand for capacity, especially for driver accompanied services which have capacity restrictions due to Covid-19 and may need to be booked at least two weeks in advance;
- During November and December, long queues of trucks have occurred on the approaches to Calais due to a combination of extremely high volumes, bad weather and sporadic capacity reductions. During some periods, all safe zones were fully booked and long lines of slow moving trucks were exposed to the risk of cargo theft and migrant incursions;
- Due to the uncertainty surrounding the final EU-UK trade deal, exporters and importers have increased trade volumes, especially into the UK, and this has resulted in extremely high demand for transport capacity and the risk of subcontracting pyramids. There is anecdotal evidence of some hauliers and drivers expressing a reluctance to drive to the UK in 2021 and this could also force buyers to look for new and untested sources;
- Carriers (hauliers) will be responsible for the Safety and Security declarations that will be necessary next year. You may need to implement contractual agreements covering the exchange of data and also liability in case of false or incomplete declarations that could result in demurrage and Customs penalties. You will also need to provide more details of cargo loads which could be shared with third parties such as Customs agents, and which will require an enhanced approach to data protection;
- Customs controls can result in higher levels of criminal activity, for example fraudulent declarations and smuggling.
For any businesses conducting trade or providing transportation services for goods between the UK and EU, 2020 could not have presented more of a ‘double whammy’. We all hope the worst days of the virus are behind us but the impact of Brexit is set to run and run.