New trade agreements are bound to shape the business landscape and logistics, not just in Europe but around the world. As with most changes, it is likely to present us with both challenges and opportunities. So, what does the post-Brexit trade deal mean in practice for the Retail and Lifestyle industries?
Even though the deal has passed, Brexit continues to pose significant ambiguity for many companies operating in the UK. All this comes on the back of already-high levels of global uncertainty since March last year, when the Covid-19 pandemic wrought unprecedented changes throughout every supply chain. Legislators and businesses became consumed by the pandemic, pre-occupied with the immediate issue at hand, to the detriment of Brexit preparations.
Lines in the sand
Lawmakers in the EU and the UK were already under pressure to reach a deal. Months of lockdown had hit economies hard, and neither side was willing to inflict more damage. On Christmas Eve, the UK government signed a last-minute agreement (the Trade and Cooperation Agreement, or TCA) with the EU approving the zero tariff, zero quota deal and effectively safeguarding consumers on both sides of the Channel from billions in import tariffs on everyday items.
High-profile industry bodies, including the British Retail Consortium and Logistics UK, welcomed the news but cautioned that the deal needed further analysis. Despite being a weighty booklet, the TCA postpones some essential elements of the agreement for later, adding another delay to the Brexit chapter. Moreover, the deal will not prevent all disruptions to trade from and to the UK; British goods will still be liable to checks at border points, adding to bottom lines and delivery times.
Maersk Expert Tip: Preparation is key
Businesses should continue to get ready for the new trading conditions as they were since the recent trading relationship will require many of the same preparations. This would include the introduction of customs declarations and additional checks on food and livestock. Leaving paperwork to the last minute, or ignoring it, may cause delays and bottlenecks in supply chains further down the line.
As January comes and goes, organisations need to make sure they have the systems and processes in place which allow trading to continue uninterrupted. An increasing number of logistics companies claim to be “Brexit-ready.” However, most of the customers I interact with have the same question: what does the new Trade and Cooperation Agreement between the UK and the EU mean in practice for online and multichannel retailers?
Turning tides – What the deal has changed
Brexit’s ‘rules of origin' regulation has sparked a trade confusion. Many British businesses are swiftly discovering that they must now pay duties on exports bound for the European Union. At the heart of the agreement, which came into force on January 1, is the so-called "rules of origin" condition applied to all goods crossing the border. The rules of origin, a vital aspect of all major trade deals, can rapidly turn into a costly headache for businesses. Under the Brexit provision, any product or item will be subject to a customs levy if it arrives in Britain from abroad and is then exported back into the European Union.
British exporters will need an EORI number starting with the letters ‘GB’ from January 1 – a sequence already existing on exports to non-EU countries – to show they are a recognised trader. Beginning in January, most goods exported to the EU will draw a 0% UK VAT rate. Traders will, instead, pay an import VAT when those goods reach their destination countries.
The Trade and Cooperation Agreement (TCA), also known as Free Trade Agreement (FTA) applies to goods originating from either the EU or the UK and on duty-free imports into the region. If the goods are from outside these regions, tariffs would be applied. UK retailers selling to EU customers directly from the countries of origin of goods can send orders in individual parcels to the customer, either via the postal service or via a courier. Retailers and wholesalers not sending individual packages will submit declarations to pass through UK customs. Most businesses outsource this activity and use a freight forwarder or dedicated customs agent.
The EU/UK deal seems to dissipate threats to supply chains since it allows goods to be transported by road, sea and air. However, this will be the first time in 40 years that EU retailers and brands will make customs declarations and potentially deal with sanitary and phytosanitary (SPS) requirements. Delays will be inevitable. We have already seen a shortage of warehouse space due to pre-Brexit stockpiling, Christmas and the Covid-19 pandemic, resulting in supply chain hold-ups. Limited warehouse space delays deliveries and disrupts the flow of goods, with some supply chains even grinding to a halt.
Throwing caution to the Brexit trade winds
A few larger retailers have already jumped into action by establishing bonded warehouses in the UK as a Brexit mitigation manoeuvre. By storing imports in a bonded facility, firms can delay paying customs charges until goods are sold. They may avoid duties altogether if an imported product, such as a car part, is processed and then exported from the UK, as a component of a finished vehicle. With people doing more of their shopping online, broader market data also indicates an increase in demand for storage. This continued surge in e-commerce transactions will create the need for an additional 30 million square feet of warehouse space in 2021.
As demand for storage spikes, the vacancy rate for industrial warehouse space in the UK dropped to just 5.6%. Executives from advanced manufacturing companies, worried about the Brexit impact, are also preparing for more significant risk by doubling their warehousing capacity, improving their ability to meet existing contract obligations, as well as in the competitive positioning and profitability of their business models. Similarly, consumer goods companies are building up stocks to help them withstand any supply shortages.
Maersk Expert Tip: A back-bencher no more
Once a behind-the-scenes function, the warehouse has become a means to boost efficiency, cater to surging online demand and drive innovation. Companies are increasingly using warehouses as distribution centres to depressurise existing fulfilment facilities. It enables them to continue servicing stores and end-users while providing additional fast track channels. The significant shift in warehouse space usage and reviews around local fulfilment is due to a move from 'just in time' to 'just in case' supply chains. Hub ports are increasingly becoming a flexible storage option. These transhipment hubs serve as a ‘virtual warehouse’, giving the flexibility to stock goods closer to key markets and deliver at a later stage. It lowers risks associated with demand fluctuations, geopolitics and even sourcing constraints.
Taking your business to the next level in 2021
Having critical supply chain data on hand allows an organisation to adapt, predict and react effectively. Transforming your supply chain digitally helps deal with manual processes, internal communication and data silos. It also reduces human error, unnecessary costs and issues related to purchase order reconciliation, poor visibility and customs compliance.
These are far from the only solutions to the risks facing some of Britain's major industries. We believe companies can respond to the ongoing uncertainty by reinventing their supply chains. It would add flexibility to adjust to near-term disruptions and deliver long-lasting improvements in resilience and bottom-line performance. Pioneering companies are already applying steps to achieve real progress. It is visible in the strength of their supply chains and reduced costs, write-downs, inventory, and capital expenditure.
Customising your logistics to tackle disruptions
That’s where we come in. Whether you need guidance on keeping your stock moving, visibility of your inventory and flexible storage, and seamless custom services across borders, Maersk is here to help you navigate these unchartered waters. We can assist companies across sectors assess the full range of TCA-related uncertainties, not just the potential short-term disruptions.
Maersk's product portfolio offers everything you need to navigate Brexit. Whether it's consultancy or product packages, we can offer it all. Through 2020, we’ve increased our customs teams, built an expert panel and planned for ‘worst-case scenarios’ keeping government guidelines in mind. We want our customers to rest easy while we handle the entire cross-border process, end to end and all the way.