Summary
The November 2020 NAO report paints a pessimistic picture of the prospects for the effective functioning of the UK/EU border controls in 2021. Developments since November 2020, in regard to the intensifying Covid-19 crisis will not have helped matters. ACP triangular supply chains, which require the movement of goods across an EU/UK border, are likely to be most severely affected. However, serious congestion at UK seaports, with both berthing and unloading delays, could mean direct ACP sea freighted exports could also face delays, with these compounding the system wide challenges UK border control authorities will face in 2021.
On 6 November 2020, the UK National Audit Office (NAO) published its latest assessment of the UK’s border preparedness for its departure from the EU customs union and single market (1). While the issues raised in the report primarily impact on EU/UK mutual trade, many of these issues also carry important implications for a range of ACP agri-food exports.
The most serious implications will be felt along triangular supply chains, where ACP products will need to cross the new EU/UK customs and regulatory border which will be established after the 31st December 2020. This will affect:
- Fresh ACP agri-food exports to the UK which are first landed in the EU prior to onward shipments to the UK (mainly cut flowers, fruit, and vegetables).
- Fresh ACP agri-foods exports to an EU27 member states which are first landed in the UK (mainly to the Republic of Ireland).
- Fresh ACP agri-food products delivered to the Republic of Ireland via initial landings in a mainland EU country, prior to shipment via the UK ‘land bridge’.
- ACP agri-food exports which undergo some form of repackaging and/or processing within the triangular supply chain prior to onward shipment (e.g. Fairtrade sugar, fully traceable sustainably certified palm oil, cocoa products, tuna, and other fisheries products).
In addition, the disruption of mutual EU/UK trade in agri-food products which the creation of a new UK/EU border is likely to generate, could lead to some displacement of current EU/UK mutual trade onto third country markets. However, the conclusion of EU/UK negotiations which maintains continued duty free-quota free trade between the EU and UK in ‘originating goods’ (2) and the granting of ‘third-country listing, confirming the U.K. has met the necessary animal health and biosecurity standards required to export live animals and animal products to the EU’ (3), will reduce the level of trade displacement and hence the potential for the disruption of the functioning of domestic ACP markets (e.g. in the poultry meat sector).
Against this background some of the issues raised in the NAO report are potentially of immediate concern to ACP agri-food producers and exporters.
The first point of relevance to ACP exporters is the observation the outcome of the ongoing EU/UK trade negotiations will have little impact on the preparations which need to be made for dealing with the consequences of the creation of a UK/EU customs and regulatory border. The outcome of the ongoing EU/UK negotiations will only have an impact on the scale of the challenges faced not their nature (1). The final conclusion of the EU/UK trade negotiations on 24th December 2020 needs to be seen in this light (2).
The NAO report highlighted how the UK governments ‘emergency response to COVID-19 delayed preparations that were already rated high-risk.’ According to the NAO analysis the areas already considered as facing the highest risk of non-delivery were: ‘IT systems, infrastructure, data, customs agents’ capacity, and trader and haulier readiness.’ (1)
The report noted how while ‘the government’s decision to phase in import controls has given departments, traders and industry more time to prepare’, this approach carries its own risks. It noted how import declaration requirements will ‘vary from sector to sector, with the phased approach complicating necessary stakeholder communications on what preparations are needed by different times.’
While traders who handle products ‘perceived as “high risk” will need to make import declarations from 1st January 2021’, the current “Groupage” road haulage practices will face serious challenges from the 1st January 2021. “Groupage” practices, which involve shipping consignments with different risk assessments from multiple origins within single containers. This allows rapid low-cost onward shipment within a single customs territory. However, when traded across the new EU/UK regulatory and customs border, these practices will prove highly problematical, as the extent of border controls undertaken will be based on the highest risk consignment in the container. These current “Groupage” practices will require extensive review if significant border clearance delays are not to be faced from 1st January 2021, despite the phasing in of UK border controls over the first six months of 2021.
The NAO report highlights how UK government departments ‘have made progress towards implementing a minimum operating capability’ for border control processes by 1 January 2021. However, ‘transit arrangements, which enable traders to move goods using a simplified process, will be challenging to deliver in their entirety’ by this date (1).
Delivery challenges are faced in regard to the Goods Vehicle Movement Service (GVMS) IT system, which is necessary for the fulfilment of the requirements to allow traders to move goods under transit. Particular areas of concern arise since the implementation of the GVMS, ‘requires changes from ports and carriers, as well as government’, with the former having limited time to make the necessary changes, given the delays faced in finalising the government IT systems (which in turn is in part linked to the absence of clarity on the future EU/UK trade arrangement to be applied) (1).
Based on information available as of 21 October 2020, the NAO reported the delivery rating of GVMS itself in regard to transit as ‘amber’ (‘successful delivery appears feasible but significant issues need to be addressed), while the ‘readiness of the operator and port controls necessary to implement GVMS’ was rated ‘red’ (‘successful delivery appears to be unachievable’) (1).
This is an important issue since the use of transit procedures offers scope for ACP exporters to use procedures which could minimise border clearance delays at the main ports of entry for goods travelling onward from the mainland EU.
Equally as of 21 October 2020, while seven additional inland sites to be used to facilitate transit movements from 1 January 2021 had been identified, the UK Border & Protocol Delivery Group (BPDG) reported a delivery rating’ ‘for the individual sites as either red, amber-red, or amber (1).
| RISK RATING DEFINITIONS USED BY THE BPDG/NAO
RED – successful delivery appears to be unachievable. Amber-red – successful delivery is in doubt. Amber – successful delivery appears feasible but significant issues already exist requiring management attention. These appear resolvable at this stage and, if addressed promptly, should not present a cost/schedule overrun. Amber-green – successful delivery appears probable. Green – successful delivery to time, cost and quality appears highly likely and there are no major outstanding issues that at this stage appear to threaten delivery. |
It was the assessment of Her Majesty’s Revenue and Customs Service (HMRC) that ‘it will be very challenging to put in place all new transit sites for 1 January.’ It was acknowledged hauliers would then have to make use of alternative sites for the clearing goods out of transit procedures (a process essential to the final delivery of goods to UK customers). It was concluded this would have ‘an impact on the ease with which traders can import and export goods’ (1).
This is an issue of concern since by mid-December 2020 hauliers had not been informed of the location of these alternative sites. This generates a considerable level of uncertainty. This uncertainty needs to be seen in a context where 80% of road haulage operations from the EU to the UK are handled by EU27 registered haulage companies (4). In this context EU27 road hauliers may simply turn down contracts to carry goods to the UK, preferring the security of haulage operations where journey times and costs are clearly known (5).
This could then see a rapid escalation of the onward road haulage costs of ACP exporters serving the UK market along triangular supply chains. This could undermine the commercial viability of the use of these triangular supply chains for the delivery of fresh ACP horticultural products to the UK market. This is particularly the case since these additional costs would come on top of the increased intercontinental freight costs generated by the effects of the Covid-19 pandemic on the availability of inter-continental air freight services.
Another major area of concern identified in the NAO report is the limited time available for ‘ports and other third parties to integrate their systems and processes with new or changed government systems.’ This is only likely to compound the current operational difficulties facing UK ports (see companion epamonitoring.net article, ‘Short Term Road Haulage Regulatory Fix Reassures Hauliers but Uncertainties Remain’, 17 December 2020)
Against this background the latest NAO report concludes ‘there is likely to be significant disruption at the border from 1 January 2021 as many traders and third parties will not be ready for new EU controls.’ Short sailing cross channel routes are effectively a closed-circuit system, with delays on either side of the channel affecting both imports and exports.
In this context, it was highlighted how the UK government had not yet had any success in its efforts to facilitate ‘the required expansion of the customs intermediary market, which is vital for increasing trader readiness’ (1) (see companion epamonitoring.net article ‘Effective Engagement with Expanded Freight Forwarding Sector Seen as Critical to Future UK/EU Border Clearance Operations’, 1 December 2020).
There are also concerns about the capacity of the IT systems to be used by HMRC for customs declaration purposes. The NAO report highlighted how ‘HMRC must make significant further changes to its customs systems to enable it to handle the projected increase in customs declarations’, with the new customs declaration system needing to be substantially expanded ‘to cope with the projected number of declarations’ (1).
It was highlighted how in May 2020, HMRC had completed its original programme to develop its new customs declaration service (CDS) with a capacity of 60 million declarations annually despite the fact that following the signing of the Withdrawal Agreement in October 2019 it was recognised that a customs platform would be needed which could ‘handle 270 million customs declarations a year from 2021, rising further beyond this date.’ It has therefore been recognised a ‘substantial re-engineering’ of the customs declaration IT system will be required. Technical assistance for the implementation of this upgrade over the coming five years has been secured (1).
However, as a result of these shortcomings and additional requirements of the CDS, ‘HMRC now plans to run its Customs Handling of Import and Export Freight (CHIEF) system alongside CDS until CDS is scaled to the required level’ (1).
Overall, the NAO report concluded:
- ‘It is very unlikely that all traders, industry and third parties will be ready for the end of the transition period, particularly if the EU implements its stated intention of introducing full controls at its border from 1 January 2021.’
- ‘Despite the funding being committed by government, there remains significant uncertainty about whether preparations will be complete in time, and the impact if they are not.’
- ‘Some of this uncertainty could have been avoided, and better preparations made, had the government addressed sooner issues such as expanding the customs intermediary market, developing a solution for roll-on, roll-off (RORO) traffic, upscaling customs systems and determining the requirements for infrastructure to enforce a new compliance regime’ (1).
This pessimistic NAO assessment needs to be weighed against the optimistic assessments of Prime Minister Johnsons spokespersons who insist the UK government is ready for a no-deal outcome. It is maintained the UK government has made ‘extensive preparations and invested £4bn for the end of the transition period, because regardless of the outcome of the negotiations, we must be ready on 1 January’ (6)
It is maintained that while ‘there will be challenges and bumps to overcome’, the government has ‘laid the groundwork to minimise the disruption which occurs in either scenario’. It is pointed out how ‘900 more officers had been hired to manage the border, with 1,100 border staff set to be recruited by March.’ In addition, ‘more than 20 existing helplines to provide advice to specific sectors’ have been established, while since July the UK government has made it known it will be phasing in import controls to ease the immediate burden. It is maintained the UK government has developed ‘a playbook which maps out every single foreseeable scenario with minister-approved courses of action so we can implement them immediately if needed’ (6).
This optimistic view stands in distinct contrast to the views of UK businesses which have to deal with the practical realities of trade. On the 13th December 2020 Adam Marshall is Director General of the British Chambers of Commerce, once again repeated the concerns over the ‘huge gaps in the information available to businesses desperate to prepare as the Brexit transition comes to an end.’ He stressed how ‘businesses need detailed answers, not vague letters, posters or television adverts.’ He expressed disbelieve that with only a matter of weeks to go businesses were still having to ‘ask ministers for clarity on the nuts and bolts of trade – things like rules of origin, customs software, tariff codes and much more besides.’ He pointed out how businesses were ‘not miracle workers or mind-readers’ and warned that without official guidance many businesses ‘will continue to pause long-term planning and hold back on investment’ (7). This unfortunately includes port authorities and customs intermediaries.
In terms of being ready for ‘every single foreseeable scenario’, in a November 2020 submission to the House of Commons Business, Energy and Industrial Strategy Committee, the international dairy co-operative Arla highlighted how despite many years of preparations and planning the Arla team ‘repeatedly uncover new issues that we have not been aware of before’ (8)
Overall, this constitutes a rather sober business level assessment which would tend to reinforce the concerns raised in the November 2020 NAO report.
What is clear is that it will be the business levels responses of UK, EU and international companies to ongoing policy uncertainty and the current shortcomings in the infrastructure, staffing and IT systems required to operate the UK border operation, which will ultimately determine the level and duration of disruptions which occur along ACP/EU/UK supply chains and direct ACP/UK supply chains as a result of the introduction of new UK/EU border controls in 2021.
| Comment and Analysis
Clearly the main impact of the issues faced in operating the new UK/EU border will impact most severely on ACP agri-food products exported along triangular supply chains, with short shelf -life products, like cut flowers and air freighted fruit and vegetables, being the most vulnerable ACP-EU-UK supply chains. However, in the evolving situation at UK ports and in regard to border clearance operations across UK seaports, it is now apparent that in the first months of 2021 both longer shelf-life ACP agri-food products delivered to the UK via the EU and those delivered by sea directly to the UK, could also be affected by border clearance problems. The spread of the recent effects of delays at the Felixstowe container ports to other UK ports as shipping was re-directed is matter of concern. The re-direction of container vessels to continental ports has even served to increase demand along short sailing cross channel services. This highlights just how inter-connected the whole of the UK border control system is. It also highlights how the ‘Brexit effect’ will be occurring at a time when the ongoing transport disruptions linked to the global Covid-19 pandemic are still working their way through the international freight transport system. It will also coincide with the new exceptional demands on freight services arising from the rolling out of mass vaccination campaigns and a third wave of mutated Covid-19 infections which is further disrupting the whole of the food supply chain (9). To suggest the circumstances for adjusting to the profound consequences which the culmination of the Brexit process will have on ACP agri-food sector trade relations with both the UK and EU are far from favourable, is a considerable understatement. In the immediate short term, a key question is what steps can ACP exporters using triangular supply chains take to minimise or side steps disruptions to their current commercial operations? In the first instance ACP exporters using triangular supply chains, in association with their EU27 partners, will need to assess: a) The vulnerability of their exported products to delivery delays. b) The vulnerability of their exported products to the additional cost. c) The scope for the use of alternative routes for onward shipment (e.g., to inland or This assessment will need to be undertaken on an ongoing basis in throughout 2021 as the situation at the UK border evolves. This assessment may need to extend to a review of initial ports of landing in the EU27 to reduce onward travel time via alternative shipping routes to inland, east coast or even south coast UK ports. Discissions will also need to be held on the need for the services of customs intermediaries. Given the ‘sellers-market’ for the services of customs intermediaries which currently exists, this may require the consolidation of business by groupings of ACP exporters in order to attain a sufficient scale of business to be attractive to UK customs intermediaries. This needs to be seen in a context where many UK customs intermediaries are not even answering the phone calls from new potential customers, given demands from their existing client base. Viewed solely from an ACP exporters perspective the question arises as to whether supply contracts can be renegotiated to ensure payment for delivery at the initial EU27 port of landing. If this is not possible then discussions will need to be launched on burden sharing arrangements between existing triangular supply chain partners, in order to deal with the worst of the disruptions which will be faced in the first six months of 2021. Discussions will also need to be held on how to deal with the “groupage” issue, with appropriate strategies needing to be developed by the concerned EU27 partners. For some ACP short shelf-life horticultural exporters, delivery delays and the cost increasing effects of new EU/UK customs and other regulatory border controls in the first months of 2021 may be such as to require consideration to be given to developing direct exports to the UK market. For ACP exporters already shipping directly to the EU similar issues arise, though be it in a less acute. These ACP direct exporters will need to: · Assess how sensitive their exports are to delays in border clearance? · Determine whether the ports of landing in the UK currently used are already · Review the level of Brexit preparedness within their supply chains directly serving However, in the longer term it should be borne in mind that as the Director General of the British Chamber of Commerce has pointed out ‘businesses can and will adapt to the UK’s new trade reality.’ Against this background four additional questions arise for ACP exporters: · How long will this process of adaptation take? · What will be the cost increasing effects in the interim for the operation of ACP- · What will be the long-term cost increasing effects of the new EU/UK border · How will these increased costs be distributed along ACP/EU/UK supply chains? |
Sources
(1) NAO, ‘The UK border: preparedness for the end of the transition period’, 6 November 2020
https://www.nao.org.uk/wp-content/uploads/2020/11/The-UK-border-preparedness-for-the-end-of-the-transition-period.pdf
(2) politico.eu, ‘UK-EU agree a Brexit trade deal’, 24 December 2020
https://www.politico.eu/article/uk-eu-brexit-trade-deal-agreed/
(3) politio.eu, ‘EU opens door to British agri-food exports post Brexit’, 24 December 2020
https://www.politico.eu/article/eu-grants-third-country-listing-to-british-agri-food-exports/
(4) EC, ‘on targeted contingency measures in the absence of an agreement with the United Kingdom on a future partnership’, 10 December 2020
https://ec.europa.eu/info/sites/info/files/brexit_files/com_831_1_en_act_part1_v2.pdf
(5) Bloomberg, ‘Threat of delays prompting truckers to turn away bookings to UK’, 16 December 2020 Bloomberg
https://www.fpcfreshtalkdaily.co.uk/single-post/threat-of-delays-prompting-truckers-to-turn-away-bookings-to-uk
(6) The Guardian, ‘Our jobs and future depend on a deal business warns Boris Johnson’, 13 December 2020
https://www.theguardian.com/politics/2020/dec/13/our-jobs-and-future-depend-on-a-deal-business-warns-boris-johnson
(7) The Guardian, ‘Businesses need detailed answers on Brexit not vague letters or TV ads’, 13 December 2020
https://www.theguardian.com/politics/2020/dec/13K/businesses-need-detailed-answers-on-brexit-not-vague-letters-or-tv-ads
(8) Arla, ‘Written evidence submitted by Arla Foods UK (BBP0002), November 2020
https://committees.parliament.uk/writtenevidence/17305/pdf/
(9) The Loadstar, ‘New crisis for UK freight as France extends travel ban to HGVs and drivers’, 21 December 2020.
https://theloadstar.com/new-crisis-for-uk-freight-as-france-extends-travel-ban-to-hgvs-and-drivers/