A significant shift can be observed in the location of distribution centres, warehousing and transport routes due to difficulties caused by post-Brexit tariffs, customs clearance and immigration policy, says Susan Boylan, Gartner’s Logistics Strategy and Operations Team analyst.
Boylan made the above observations in an interview hosted on Supply Chain Brain’s YouTube channel.
According to the Gartner analyst, the first Brexit-related problem to cause trade disruption for many organizations was the rules of origin for goods moving between the EU and the UK.
As Boylan highlighted in the video, the issue is the complexity of a product. In the case of a ready-made product, it is easy to determine the origin. However, if a product is transformed to a certain degree, it may or may not qualify for the prime or preferential tariffs within the free trade agreement.
Some products are classified by the gov.uk website as hard to classify items”, Boylan said. –“Anything with any kind of synthesis is going to be very difficult to classify correctly.”
This causes a lot of problems, especially for food suppliers. According to Boylan, food suppliers were hit first and hardest because they move product in a swifter way, rather than buffering stock.
“As stocks are depleted, more and more organizations are going to be faced with the Rule of Origin challenge.”
Boylan even claimed that some organisations have come to the conclusion that tracing the classification of their goods is so expensive that they are better off paying the tariff instead.
The end of the Brexit transition period also saw a new immigration policy come into effect in the UK. One of those changes is the need for companies to pay if they are sourcing labour from the EU.
In Boylan’s eyes, this is particularly troublesome for the agricultural sector – both in terms of seasonal and long term recruitment. As she explains, businesses have to become an immigration sponsor first, which costs £1,456 pounds. Once the licence is obtained, companies need to pay a further £1,000 pounds for each person they employ from the EU.
“That’s a lot of money. That’s a lot of overhead. That’s a lot of costs, they [companies] wouldn’t have potentially factored into their budgets.”
The Gartner expert also mentioned customs and clearance issues during the video. According to recent research, one in five consignments or trailers are being sidelined because they don’t have the correct customs clearance declaration and the customs clearance paperwork.
“That’s a big capacity crunch on transport availability or container availability” – she said. Moreover, she added that EU freight forwarders have been tending to reject UK businesses due to complications around customs clearance procedures, especially with T1 transportation requiring a guarantee for VAT and tariffs.
When it comes to strategies for mitigating the impact of some of the changes companies are facing, Boylan referred to the many Irish companies who have avoided using the UK landbridge to get to the EU. As the logistics expert explained, many companies would rather take a ferry trip to France, Spain or the Netherlands even though this solution is costly and takes significantly more time.
“I see an avoidance of going to the UK,” said Boylan at the end of the interview. “Now we see organizations moving, whatever was being serviced from the UK to the EU, into their EU distribution centres, and just having UK distribution centres to facilitate the UK to avoid all of that cross border traffic and the disruption that’s coming with it.”
Photo credit @ Dover Port 5