Examine Supply Chain

It is always a good idea and in the context of UK exit from the EU, a necessity, for traders to “interrogate” their supply chain. As a rule of thumb is desirable to look up two steps (and more if common sense so indicates) to their suppliers and their supplier suppliers and down two steps (and more if common sense so indicates) to their customers and their customers.

In order to assess the impact of UK exit from the EU, traders will need to establish how and when goods move in and out of as these will now be impacted the first time by UK exit from the EU. Traders should try to examine any points in the supply chain which may cause difficulties after the UK exit from the EU. Where traders sell to the trade, it is desirable to get some visibility further down the supply chain where this is relevant to sustaining their sales.

How far traders go up or down will largely be determined by their industry, the particular products and where traders and their suppliers lie in the supply chain. If there is a specific product or major piece of equipment that traders sell which goes through several layers of distributor it is desirable to look right up to the principal manufacturer where there is the risk that issues of customs duties, regulatory compliance and proof of the origin of goods arise.

Ideally, traders should identify their entire supply chain back up to where and how raw materials are sourced, where production processes take place how goods are packaged and stored loaded and other modes of transport and how they are shipped to the required destination.

Traders need to look at both their suppliers and customers in terms of the likely direct impact on them of customs duties, customs processes regulatory checks and other major Brexit issues. Traders should also look to the extent possible at the more generalised effects of UK exit from the EU on them, on the sector and on the economy in which they operate. At some point, this gets into multiple uncertainties, but it is nonetheless necessary by way of management information to try to tease out the likely UK exit from the EU scenarios and their impact.

Reviewing Supply Chain Risks

Traders will be well aware of their own supply chain and their best positioned to consider the impact of either a no deal exit or a longer-term exit with a deal. They should know to what extent traders need to look beyond their immediate suppliers and customers back to say an original manufacturer or down to ultimate consumers to assess the impact of a no deal exit.

Traders will be well aware of the timing and organisation of the supply chain in their industry. In most cases, the whole system is very finely balanced and has accommodated itself to the existing processes and requirements. The sudden introduction of a factor like a no deal exit or even and exit with a deal, has the obvious capacity to cause significant disruption and chaos.

Traders may feel that there is too much uncertainty around the ultimate shape of the exit and that is not necessary for traders to prepare for it yet or until there is more certainty. However, it is necessary to consider the position even if there is some uncertainty. It is now virtually certain that there will be an exit at the end of 2020, one way or the other, which is likely to be very impactful in most sectors.

Effect on Suppliers and Customers

Traders need to consider how their suppliers, up the chain to the EU manufacturer or ultimate EU importer for non-EU goods and customs down the chain, might adapt to UK exit from the EU. Ideally, traders would seek information directly from them. It is likely that many customers/suppliers will have been asked the same questions and may be in a position to give some useful information. In many other cases, customers/suppliers answer that the ultimate shape of UK exit from the EU is still too uncertain. They may not wish to share disclose risks which they face which might affect their customer relationship

Traders should ask their key suppliers about the continuity of supply. Traders need to make a commercial call as to how to approach the issue. It may be that their suppliers themselves are reliant on other entities in the supply chain themselves and may be subject to vulnerabilities.

Traders should consider asking their suppliers to confirm that they have assurance in respect of their own third-party suppliers where necessary. Ideally, traders would ask their suppliers to continue to deliver on the same terms to them.

Traders should consider industry information and sources where traders cannot obtain useful information or it is not commercially sensible to seek information, from suppliers and customers. This may give some indication of the broad challenges facing some sectors which may be extremely serious and critical.

Review Suppliers

Traders should consider all their direct supplies from suppliers in the United Kingdom. Traders should also consider their supplies from EU suppliers who use UK sourced components and the GB landbridge. Traders should consider multiple border crossings that may be involved in the assembly of their products and components.

Where any components cross UK borders before becoming part of goods in Ireland, the UK or the EU there is the possibility of multiple customs duties customs processes and delays

Customs duties where they arise, they are generally payable on every importation and exportation. It is not like VAT where the tax is simply passed on to the end customer. There are reliefs by way of temporary importation and temporary exportation, warehousing and processing reliefs, as well as provisions for goods temporarily moving through a territory by way of transit. These are limited and subject to lots of conditions which are not generally satisfied unless there are unusual circumstances. Therefore, with customs, there is the possibility of multiple customs duties every time goods across the border.

Review Customers

Issues arise in relation to supplying customers. Where traders supply to the trade, they will need to consider risks and possibilities arising from their customers’ customers and so on, down to consumers.  The exposure to UK exit from the EU may not be immediately obvious. In the case of sales to Irish customers, traders may find that they in turn export a percentage of their turnover to the UK which in turn exposes them to risk including cessation of their business.

It is desirable to liaise closely with customers to understand their UK exit from the EU challenges and how they propose to deal with them. In some cases, it may be possible to take joint action to address particular challenges.

Traders should consider the elasticity and sensitivity of their prices. If their customers are less price-sensitive, there may be some capacity to pass on price increases. UK based customers may understand, appreciate and expect increases in costs arising from UK exit from the EU particularly where they are directly attributable to customs duties and customs costs, other direct UK exit from the EU costs, and sterling weakness.

General Rising Costs

It is widely anticipated that UK exit from the EU will cause many costs in the economy to rise. Many efficiencies that now exist will be reduced by the changed terms of trade with the UK, with more costly substitutes. Customs regulatory and other costs may be significant. The rising costs may be so widespread across the economy that they lead to significant price increases for consumers (10% has been estimated)) in some vital basic areas with resulting depression of spending in other areas.

It may be that the UK government or Irish governments inject significant money to offset an economic shock which may or may not benefit their particular sector. It may be that the investment by government is aimed at alleviating the most acute problems caused by UK exit from the EU which might mean concentrate on sectors most directly affected, such as food and agriculture.

Apart from the general economic effect of the logistical chaos caused by UK exit from the EU, a no deal exit and even an exit with an EU UK agreement, would lead to predictable increases in prices by reason of customs duties, customs compliance costs and regulatory process costs alone.

Cost of Customs

Traders should look at additional costs on their supplies arising from customs duties and customs processes. Traders should at additional costs arising from additional transport and the risk of delay arising from general impact of UK exit from the EU or specific customs interventions in relation to their goods or arising in relation to other goods with which they might be bundled

It would be desirable that trader’s logistics provider/carrier/freight forwarder themselves enjoys customs recognition designation, for example as an authorised economic operator and enjoys simplifications with the revenue authorities to facilitate more frictionless trade.

It is desirable to ask traders logistics providers to set out their existing experience and capacity in relation to customs processes. Traders should ask them to set out any authorisations and simplifications they enjoy which may assist the barrier-free imports and exports after UK exit from the EU. In the section on customs, we have set questions which might be put in terms of managing customs declarations on their behalf as an option.

Traders should ask their logistics provider to identify any changes they propose to make in the context of a no deal exit and exit with a deal.

Some large-scale continental manufacturers and suppliers have made from decisions to avoid UK land bridge for Irish sales. There are obviously costs capacity and logistical issues about a widespread circumvention of the UK land bridge. Everything depends on their particular market.

Generalises Pressure

Either a UK exit at the end of 2020 with an EU UK Agreement or a no deal exit are likely to have an impact in relation to the import and export of products generally from and  to the UK and continental Europe. Businesses should  be aware of the routing and logistical considerations that might arise. They should consider risks that might apply if there was widespread chaos in the movement of goods in and out of Great Britain.

It is hard to predict what might happen if there is general pressure on the transportation and logistics industry and its knock-on effect which might disrupt supplies. Traders need to consider all the factors relative to their particular sector and business.. There is likely to be significant disruption in obtaining supplies and ensuring their transportation to Ireland and in making sales and delivering them to the EU Continent, in particular in the immediate aftermath of the date of UK exit from the EU..

There may be increased costs rising generally due to pressure on services in the logistics and transport industry. There may be specific industry and economy-wide considerations whereby intermediaries on which traders and their group companies indirectly rely, cease trading due to sudden pressure on their business and inability to access working capital. It may be desirable to bring forward some sales to deal with immediate issues in the aftermath of the exit date..

Change in Terms of Trade

Tariff rates vary considerably from sector to sector. Many non-agricultural tariffs range between zero and 7%. Textiles and automotive parts (for example) higher (7% to 15%).  However,  compliance costs would also apply as well, which are more difficult to calculate but could be several percentages depending on factors such as the arrangements for making declarations and the extent of revenue checks and interventions.

It is predicted that in many sectors, the effect of UK exit from the EU will be to make particular trade which is now viable no longer viable. All things being equal, it may be more economical for an Irish importer or UK importer no longer to deal import from the United Kingdom or the EU as the case may be, but to deal with local supplier given both the additional direct costs of customs duties and customs compliance costs.

There are logistical issues which may make smaller consignments uneconomic and make it a practical impossibility for exporters to find a corresponding importer willing to undertake customs processes in the other country. The effect of this will be disruption in trade with opportunities for substitution by domestic suppliers in each of Ireland and the UK for goods which were formerly imported. Needless to say, all of this would be in the nature of a longer-term adjustment so that the meantime there is a very real possibility that many businesses would cease to be viable in whole or in part.

This may lead to businesses becoming insolvent with knock-on effects on their creditors, their existing customers, and suppliers. Even if there is governmental assistance to deal with the fundamental change in the terms of trade with the United Kingdom, businesses may have to cut back part of their existing business with consequent redundancies.

Share this article