In final preparation for Brexit, and on the back of a very challenging year, we are encouraging the businesses we work with to undertake an in depth assessment of all elements of their business to understand the potential long and short term disruptions of Brexit, including factoring in the possibility that negotiations and uncertainty may persist for years to come.
As of 1st of January 2021 additional controls will be in place for the movement of goods between the EU and Great Britain (GB). The UK government has announced that as a result of the impact of the coronavirus pandemic and to afford businesses time to prepare, these new border controls will be rolled out in three stages on the 1st January 2021, 1st April 2021 and 1st July 2021.
Whilst not all of the details of the new controls, duties and requirements have been agreed, much is already known. Here are our thoughts for some practical areas and questions businesses should be asking themselves in final preparation.
First – Understand the Risks:
- Map your existing supply chains to identify the main risks and/or additional costs including – brokerage, resources, additional duties. Business should be reviewing the footprint of their supply chain and consider changing to local suppliers where possible. It is important that this is a multi-tier audit to identify issues and opportunities based on criticality, not just volumes. It is typically difficult to have visibility on all potential issues we suggest auditing or at least highlighting key suppliers and make sure they are doing the same.
- Commodity codes and Customs duties – Importers will be required to ensure that duties applicable to goods under the new “UK Global Tariff” are paid. Finding the right commodity codes and determining the origin, classification and customs values is a critical step in this process. Exporters of goods should familiarise themselves with the changes in duties and customs procedures of the countries they export to. You can do this using the ‘Check How to Export Goods’ tool.
Second – protect value in the business:
- Commercial contracts and Incoterms arrangements – Businesses should be completing a comprehensive review and appraisal of all individual contractual incoterms terms to determine commercial risk and their ability for renegotiation. Once the changes in Customs duties are understood, you should undertake and analyse the budgetary impact of the changes. Is there an opportunity to revisit this with customers and suppliers including the contractual pricings terms? A benefit, as well as risk could be present here so it is important to review on an individual customer/supplier basis.
Third – Scenario planning
- When facing uncertainty, it is important to ensure your plans can adapt to deal with multiple scenarios. The UK government has released a comprehensive UK operating model guidance for the import and exporting of goods. This includes the specific requirements for all types of goods, what does this mean for your business? Including an assessment of the primary risks associated with potential disruption and delay of movement of goods. For example, the government is introducing “smart freight”, what would the impact be if implementation of this is delayed? We are advising clients to develop contingency plans including building in longer lead times for delivery (as well as changes in contractual terms) to account for delay.
Fourth – Develop and implement pragmatic risk mitigations:
- Finished good dispatching and preparation of buffer stock – What can reasonably be achieved before the 1st of January and how can you prepare buffer stock? What mitigations are in place should buffer stock not be available?
- Internal systems updates – inevitably changes in the classification of products, new guidelines and contract requirements will result in the need to update internal systems. This may include – reporting, labelling, payment terms and codes, VAT implications etc. We are advising clients to map each change throughout the system to avoid disruptions internally from 1st January.
- Customs Declarations – understand the details of import and export requirements. Do you have the skills in house or is a customs intermediary/broker needed to understand the new requirements? Have you identified what controlled goods are required from the 1st of January 2021 and the options available for deferring customs declarations for non-controlled goods.
But most importantly, the management of stakeholders and the relationships you have with your customers, suppliers, teams, peers and contractors will be paramount to navigate unexpected surprises and uncertainty over the coming months. Maintaining open and active communication with stakeholders will make what is expected to be a bumpy ride, that little bit smoother.