Last reviewed 9 November 2018
It is vitally important that businesses understand their supply chain. Whatever the outcome of the Brexit negotiations, there will be changes to navigate. Sandra Strong examines the issues.
What should my business look at?
It is an ideal time for companies to map their current supply chain, both for suppliers and how goods are delivered to customers. This includes areas such as:
payment or not of VAT
supply contracts and use of Incoterms® rules
costs and profit margins
origin of goods
supply chain hubs
customs and tariffs
benefits of trusted trader schemes
registration and conformity standards on goods.
For some businesses, the UK being an independent country post-Brexit will bring about very few issues and may result in further supply chain opportunities. For others, some reshaping and reassessment of current procedures will be required to mitigate any impact on existing supply chains.
What should my business look at first?
What do you ship into the EU27 (including goods moving temporarily, goods returned, shipments for and after repair, samples and exhibitions)?
How much do you bring in from the EU27 countries (again including goods moving temporarily, goods returned, shipments for and after repair, samples and exhibitions)?
What delivery terms (Incoterms® rules) do you use on EU movements to and from the UK? Do you buy or sell at the two extremes EXW or DDP — how will the costs change if there is a customs border?
Distribution set up — do you move goods out of a warehouse based in one of the EU27 countries? Do you import from outside the EU and supply under free circulation rules into the EU27? Do any of your UK-based suppliers bring goods in from the EU27?
Movement of goods — do you 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?
What is the commodity code number for the goods you 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 you currently pay a low or zero rate of customs duty because of an EU preferential trade agreement, eg EUR1, ATR, GSP, etc?
What is the commodity code number for the goods you 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?
Do you export to non-EU countries that have a preferential free trade agreement (FTA) with the EU and issue a preference document/statement, eg Canada, South Korea, Mexico, Turkey and Switzerland, etc? What would the duty impact be on your overseas customs if they had to pay duty because the UK was no longer a party to the FTA?
Do you issue or receive Long-term Supplier Declarations (LTSDs) 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?
Import regulations — supplies to and from the EU27/UK may be subject to customs entries and therefore international rules relating to valuation will come into play (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 above but only when you have answered each of the points 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.
If you haven’t already, we recommend that you begin discussions with your suppliers and customers so that you can begin to explore the division of any of the additional costs that a post-Brexit trading scenario might bring.
It is also a good time to explore other options such as buying directly from an overseas supplier rather than through an EU-based distributor, establishing a closer relationship with an EU27 partner or selling directly to non-EU countries to provide additional support to the overall income of the business.