The Aftermath of Brexit on Supply Chains
Britain’s decision to leave the European Union (EU) back in 2016 set off a series of events that have impacted supply chains ever since, and now seem to be reaching their peak as companies learn to live in the post-Brexit world. Now that the transition period has come and gone, many companies are still struggling to adapt to the absence of the added trade perks that come with being an EU member.
In an attempt to avoid the harsher realities of failing to form a new agreement, the United Kingdom (UK) brokered the Trade and Cooperation Agreement (TCA) with the EU on Dec. 24 at what was effectively the fifty-ninth minute of the last hour. Although any deal was better than no deal, new challenges like longer delivery times and more extensive export documentation have shown how businesses in the transportation industry need to start rethinking what supply chain efficiency means in the aftermath of Brexit.
Here are some of the surprising and not so surprising outcomes of the new border control practices we’ve noticed since the UK’s exit at the end of last year:
- Delivery Delays
Manufacturers were hit hard by the overwhelming and costly customs declarations, health checks, and certifications Brexit introduced. Exporters in the food and beverage sector are particularly struggling to get their perishable products to buyers in time while they’re still fresh because it’s simply taking too long to complete the paperwork process.
Despite the efforts companies are making to find a solution for these delays, “about a fifth of small and medium-sized businesses that export to the EU have temporarily halted sales,” according to Reuters. Some food producers are even avoiding the process altogether and going directly to other markets.
- Higher Logistics Costs
With surges in taxes, tariffs, and additional customs fees, it’s becoming increasingly expensive for logistics service providers to bring goods into the country. Lofty tariffs, for example, are forcing firms to switch up their sourcing strategies. Rising trucking costs are pushing customers to EU competitors, while stricter COVID-19 testing requirements are removing the incentive for drivers to accept shipments coming from the island.
Trade with Ireland is also on the rocks as gaps start to emerge throughout retail supply chains, and they may only get worse once the three-month grace period for supermarkets in Northern Ireland ends. Some “Northern Irish logistics groups have warned that prices are rising as trailers return from Britain empty, without a return load to cover the cost,” based on Reuters’ findings.
- Rules of Origin Complications
A lot of traders were under the impression that trading with the EU post-Brexit simply involved filling out some forms, so the new rules of origin requirements came as a surprise to many companies. Although the government released 60 pages worth of guidance on the subject, some believe that the information failed to help forwarders and shippers in light of the current capacity shortage and marketplace conditions.
The UK has responded to these complaints by defending its Border Operating Model and stressing the other ways it has been offering support for companies — e.g., export helplines, trade advisers, policy exports, and the Brexit Business Taskforce. Many in the industry, however, have expressed frustration over when the publication was released since it went public a mere 6 months before the transition period came to a close and any deal was made.
What’s Next?
If the delays and inconsistent pay continue to keep EU drivers from coming to the UK, the driver shortage could very likely turn into a serious capacity crunch, which would only place more pressure on spot rates and European supply chains. The risk of spoiled produce is also leading shippers to hold on to their goods instead of moving them, which could increase congestion in warehouses. These disruptions will hopefully ease up over time as the industry adjusts to the new changes, but there are still quite a few bumps in the road ahead that need to be addressed before goods start flowing freely again between these two trading partners.
