Summary
The UK government is urging businesses to use the services of freight forwarders and other customs intermediaries, to facilitate the smooth functioning of post Brexit UK/EU border clearance operations. However, the NAO reports the necessary expansion of the customs intermediate sector has simply not occurred and is unlikely to take place until the second half of 2021 at the earliest. This will see both rising costs and shortages of customs intermediaries, which could slow down border clearance operations. The resulting delivery delays could strip value out of ACP short shelf life product triangular supply chains. Urgent action is needed to secure the services of customs intermediaries for ACP trading operation along triangular supply chains in 2021. Unfortunately, given the surging demand for the services of customs intermediaries such actions may already be too late.
A recent survey by the UK Warehouse Association (UKWA) found that while 85% of its members were ready for the changes the culmination of the Brexit process would bring about, it was felt that 75% of the customers served by the UKWA were not Brexit ready. UKWA Executive Secretary Peter Ward maintained there was ‘a little bit of apathy in general preparations’, with little realisation of the scale of the new border processes which will be faced for the first time in 40 years. This will throw up significant challenges for the freight forwarding sector (1).
It has been highlighted how freight forwarding companies dedicated to handling business to the UK via the EU using ‘groupage’ operations tended to be more advanced in their preparations than other companies. The better prepared of these companies’ haves had a team working on Brexit issues on a weekly basis since 2018. Areas of expected delays have been identified, with plans being developed on how to deal with each of these expected sources of delay (1).
However, an important issue which it is maintained has been neglected to date, is the potential delays in border clearance ‘caused by VAT and duty requirements.’ The better prepared freight companies have established IT systems to facilitate the handling of VAT and duty payment requirements. The better prepared companies are also already recruiting additional customs agents to handle the huge increase in customs declarations which will be made and have invested in new transit sheds (1).
However, this forward-looking approach is not universal, with many companies being reluctant to invest, with some managers taking the view ‘it is very difficult to commit to hiring new customs staff until you know there will be jobs for them.’ This needs to be seen in a context where the freight forwarding industry is expecting a ‘20% reduction’ in the volume of trade into the UK taking place via the EU (1).
It is against this background of the relative lack of preparation in some sectors of business that in the second week of November 2020 senior officials in the UK government responsible for border clearance operations sent a letter to all VAT registered companies ‘urging all businesses to appoint a freight forwarder to handle post-Brexit customs decelerations for imports and exports.’ The letter highlights how the ‘new customs and tax rules will not change or go away go away if a Free Trade Agreement is negotiated, so businesses should act now to ensure they are ready for the end of the transition period’ (2).
This letter was seen by the Director General of the British International Freight Association (BIFA) as ‘an acknowledgement and an endorsement by government of the vital role that freight forwarders play in managing UK supply chains.’
The government letter noted how ‘some customs processes are complicated and can take several weeks to set up.’ As a consequence, businesses were urged to ‘act now to make sure they are ready.’ The key actions identified which businesses were urged to take to get ready for the UK’s new Border Operating Model included:
- Appointing a ‘a specialist to deal with import and export declarations’, with this being ‘important regardless of the amount or value of trade’ with Europe.
- Setting up appropriate arrangements to ‘delay your declarations or duty payments’ (3)
A dedicated web page has been set up to provide advice to businesses on preparing for and managing the transition to the new border control arrangements which will be set in place from 31st December 2020.
The relevant section for ACP exporters is entitled ‘Trading with the UK as an overseas exporter’, and provides the entry point for access to guidance documents dealing with all aspects of trading into the UK under the UK’s new border operating model (4). This includes links to guidance on how to get someone to deal with customs procedures on your behalf (5) and how to set up an account to defer duty payments when you import goods (6).
| The Scale of the Challenge in the Customs Intermediary Sector
It has been estimated that with 255 million customs declaration needing to be dealt with each year from 1st January 2021, the customs intermediary sector at a minimum will ‘require some 50,000 customs agents, compared with between 5,000 and 10,000 now being employed’ (8). Recruitment however has been heavily impacted by the Covid-19 pandemic (9), with serious challenges now faced in expanding the sector, despite UK government support programmes aimed at expanding the sector (10). Similar issues are faced on the EU side of the channel. For example, the number of freight-forwarding companies operating in Calais has fallen from 40 in 1992 to 1 in 2019, with the number of customs clerks employed falling from 2,000 to 3. This is despite the volume of trade having ‘risen 400% each side of the channel’ (11). While digitisation will ease some of the challenges, there remain problems with the new digital systems the UK government is trying to set in place to deal with the additional 200 million custom declarations which will need to be processed (up from 55 million currently), the NAO has repeatedly warned ‘the customs intermediary market may not be able to meet demand’ (7). This was most recently confirmed in the November 2020 NAO update on UK Border Preparedness, where it was declared, despite UK Government support being nominally available that ‘the government has not yet facilitated the required expansion of the customs intermediary market, which is vital for increasing trader readiness.’ In mid-October 2020 the Border and Protocol Delivery Group (BPDG) assessed the capacity of customs intermediaries as a “red risk” for the successful delivery of the envisaged services for both 1st January 2021 and 1st July 2021, with this implying the attainment of the envisaged role of the customs intermediary sector before the second half of 2021 (at the earliest) appeared ‘unachievable’ (7). The UK governments adoption of a phased introduction of border controls on trade with the EU was intended to ease the border clearance constraints. However, it now seems likely that in the first months of 2021 UK customs officials will have little option but to ‘just wave everything through’ because there would be ‘no real possibility of using the various half-assed systems’ to effectively process goods given human resource capacity constraints on the UK side of the Channel (12). However, as Cabinet Secretary Gove has acknowledged, this approach is unlikely to be adopted on the EU side of the channel given the need to ensure the integrity of the EU single market. As Cabinet Secretary Gove has acknowledged the EU approach is likely to be that ‘rules are rules and when it comes to the checks these will be applied’. In this context the UK cannot expect a ‘laissez faire approach to the new rules in Calais or at any of the other EU ports’ (12). The recent five mile traffic jam on the approach road to Dover arising from the French governments’ decision to implement a full operation test run of the procedures to be applied from 1st January 2021 (which lasted only 9 hours) is indicative of the chaos which only the most minimal of EU border controls is likely to generate (13). The closed circuit nature of EU/UK freight haulage operations, means both imports and exports will be impacted by any delays in processing of the embarkation, disembarkation and border clearance of vehicles, which the introduction of a new EU/UK border will generate. |
While the British government has highlighted the important role freight forwarders and customs agents will play under the new border operating model, the National Audit Office (NAO) has been consistently warning since October 2018 that ‘the customs intermediary market may not be able to meet demand’.
This was confirmed in NAO’s November 2020 report on UK border control preparedness. While the report highlighted how the UK government had made available £84 million to support training, recruitment and IT development in the customs intermediary market, it concluded ‘the government has not yet facilitated the required expansion of the customs intermediary market, which is vital for increasing trader readiness.’ Significant barriers to an effective expansion of the capacity of the customs intermediary sector were held to exist, most notably as a result of ‘a lack of information on future border processes and a lack of awareness of government support’ (7).
As a consequence, the UK governments Border and Protocol Delivery Group (BPDG) assessed the capacity of customs intermediaries as a “red risk” for the successful delivery of the envisaged services for both 1st January 2021 and 1st July 2021. This implies the attainment of the envisaged role of the customs intermediary sector before the second half of 2021 (at the earliest) appeared “unachievable” (7).
| Comment and Analysis The situation in the customs intermediary sector can only be a matter of serious concern to ACP exporters serving UK markets via EU27 Member States, for since 1992, this trade will never have had to make use of the services of customs intermediaries. However, from 1st January 2021 as the UK governments recommendations make clear, the services of customs intermediaries will need to be secured in order to facilitate EU/UK cross border freight movements. Challenges will be faced in this regard since ACP exporters and their EU27 partners will be seeking out the services of customs intermediaries in a context of limited availability and rapidly escalating service fees (10). This is likely to see not only the incurring of entirely new costs, but also, as a ‘sellers-market’ for customs services emerges, a rapid increase in customs agent fees. This will be an additional area of cost, which, if not effectively met, could see more serious border clearance delays than would otherwise be the case. Delays which will impact on delivery schedules and which will, particularly in the case of short shelf life products, result in value being stripped out of the supply chain. Against this background the question arises as to the steps ACP exporters can take to address this Brexit challenge. Essentially this will require an intensification of dialogue with their EU27 partners which handle the onward shipping of ACP products to the UK market, to make sure they are forming alliances with the best prepared of the available customs intermediaries. Unfortunately, this may not be easy, with many of the concerned companies focussing on the needs of existing clients, rather than responding to enquires from new customers It may also require the renegotiation of payment arrangements in supply contracts to ensure payment for delivery to the territory of the EU27, thereby side stepping the challenges arising in onward trade to the UK in 2021. If this is not possible, it will require the launching of a dialogue with EU27 partners on ‘burden sharing’ arrangements in regard to the distribution of the costs which will inevitably be incurred as a result of the creation of a new EU/UK customs border. EU27 partners will have an interest in such discussions, since failure to get to grips with this issue, will see many exporters seeking out new direct routes for serving the UK market, often involving new UK based partners. It needs to be recognised the cost increasing effects of the limited availability of customs intermediaries will not only affect ACP exporters using triangular supply chains but also ACP exporters directly serving the UK market, since these service cost increases will be sector wide on not limited to triangular supply chains. |
Sources:
(1) The Loadstar, ‘Not ready for Brexit means a hairy January for trade’, 9 November 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/not-ready-for-brexit-means-a-hairy-january-for-trade
(2) Logistics Manager, ‘Government urges all businesses to appoint a freight forwarder post-Brexit’, 9 November 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/government-urges-all-businesses-to-appoint-a-freight-forwarder-post-brexit
(3) gov.uk, ‘HMRC urges traders to act now to prepare for 1 January 2021’, 5 November 2020
https://www.gov.uk/government/news/hmrc-urges-traders-to-act-now-to-prepare-for-1-january-2021
(4) gov.uk, ‘Trading with the UK as an overseas exporter’
https://www.gov.uk/government/collections/trading-with-the-uk-as-an-overseas-exporter
(5) gov.uk, ‘Guidance: Get someone to deal with customs for you’, 16 October 2020
https://www.gov.uk/guidance/appoint-someone-to-deal-with-customs-on-your-behalf
(6) gov.uk, ‘How to set up an account to defer duty payments when you import goods’, 29 October 2020
https://www.gov.uk/guidance/setting-up-an-account-to-defer-duty-payments-when-you-import-goods
(7) NAO, ‘The UK border: preparedness for the end if 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
(8) Reuters, ‘UK delivery prices jump ahead of Brexit cliff edge as firms rush to stockpile’, 27th November 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/uk-delivery-prices-jump-ahead-of-brexit-cliff-edge-as-firms-rush-to-stockpile(9) Bloomberg.com, ‘Virus Hits U.K. Bid to Hire 50,000 Post-Brexit Customs Staff’, 4 May 2020
https://www.bloomberg.com/news/articles/2020-05-04/shortage-of-customs-staff-risks-brexit-shock-trade-deal-or-not
(10) Lloydloadinglist.com, ‘Serious shortage of customs staff ‘unavoidable’ at UK forwarders’, 8 October 2020
https://www.lloydsloadinglist.com/freight-directory/news/Brexit-Serious-shortage-of-customs-staff-%E2%80%98unavoidable%E2%80%99-at-UK-forwarders/77542.htm#.X8W2YM1KiUk
(11) The Loadstar, ‘A handful of customs clerks is not enough to prevent post-Brexit traffic chaos’, 26 November 2020
https://theloadstar.com/a-handful-of-customs-clerks-is-not-enough-to-prevent-post-brexit-traffic-chaos/
(12) The Loadstar, ‘Minister Gove ‘starry-eyed’ on Brexit as Customs trial run sees five-mile truck queue’, 25 November 2020
https://theloadstar.com/minister-gove-starry-eyed-on-brexit-as-customs-trial-run-sees-five-mile-truck-queue/
(13) The Guardian, ‘Trial of Brexit border checks causes five-mile lorry queues in Kent’, 24 November 2020
https://www.theguardian.com/politics/2020/nov/24/trial-of-brexit-border-checks-causes-five-mile-lorry-queues-in-kent