Long queues of lorries at the borders, grounded planes, complex customs processes, new regulatory requirements… Every day brings a new example of what a ‘no deal’ outcome in March 2019 could mean for logistics and supply chains and, by now, you probably feel that you have heard it all. And yet, with less than 9 months left before Brexit, knowing where to start and what to plan for in this thick ‘Brexit fog’ can be a real challenge.
Brexit negotiations: where are we?
After almost a year of continuous negotiations between the UK and the EU-27, where do we stand? The focus in Brussels is on the ‘withdrawal agreement’, an international treaty between the UK and the EU which will provide a legal basis for a ‘managed’ departure from the EU. This is the text which will:
protect the rights of your EU colleagues and employees, whether they work in your warehouses and distribution centres, transport your products, or sit in your boardrooms
provide legal certainty to traders in relation to goods in transit at the time of Brexit
most importantly, set the terms of a 21 months, status-quo like transition, from 30 March 2019 to the end of 2020.
This text is ‘the deal’ that politicians and journalists alike talk about, and it needs to be ratified well in advance of the UK exit.
These crucial topics will only be covered by a non-binding political declaration, and only turned into a legally-enforceable agreement after Brexit. Discussions have started on the future relationship, on customs arrangements and on the movement of goods more generally, but with very limited progress so far. The UK proposals contained in the White Paper published in June have not landed well in Brussels, and it can feel at times that we are almost back to square 1. This is part of the reason why securing a status-quo like transition period – which can only happen if the withdrawal agreement is ratified in time - is so important, to avoid falling off the proverbial ‘cliff edge’.
The difficulty however is that with only little time left before Brexit, the agreement is far from being finalised. The biggest challenge is the need to agree a mutually acceptable ‘backstop solution’ for the Irish border. Think of it as an insurance policy to ensure that, no matter what future arrangements might look like, there will not be a hard border on the island of Ireland. The two camps have failed to reach an agreement so far, and it is hard to see how one could be found at this stage, given their respective red lines. A second difficulty is that the withdrawal agreement will need to be ratified by both the UK and the European Parliament, a process often unpredictable. Yet, without a withdrawal agreement, there will not be a transition period and the UK will exit without any agreement on 29 March 2019, 11pm.
How do you prepare for the unknown?
Given the current uncertainty, you might wonder what to plan for, whether to plan for the best and count on the transition or decide to plan for a brutal exit in March 2019. Our advice is to prepare for the worst-case scenario, the likelihood of which has unfortunately dramatically increased in the last weeks. This does not mean that you need to spend huge sums of money or increase your headcount significantly – at least not at this point. There are several steps you can take before having to spend or commit anything.
If you haven’t done so yet, you urgently need to assess your level of exposure, both direct and indirect. You should involve your suppliers and service providers in this process, and not limit yourselves to your own company’s direct exposure. You need to do this on a cross-functions, cross-company basis, not limiting yourself to the implications of potential delays on your production and deliveries. You should also consider the potential market access restrictions for your air freight and international road haulage providers, tax and cashflow implications – for instance with VAT, implications on your sourcing options and core customers, regulatory and customs implications of being based in a ‘third country’, the HR implications of a stricter immigration policy, and more. You should integrate any opportunities in your plan too.
This is what you should be doing now. Make sure to prepare contingency plans and to fully review your options, together with your suppliers, customers and service providers. What does that mean in practice? You can start by asking yourselves some questions. For instance, if you are a retailer or manufacturer, ask yourselves how resilient your supply chain is to potential border delays. To do this properly, you need to map different scenarios, from 2 hours delays to half a day, up to a day, and test your assumptions with your logistics provider. You also need to consider mitigating measures, such as a potential increase in your inventory or the possibility to purchase additional storage space.
You should also consider alternative routes and assess transport options with your service providers. Market access rights for aviation and international haulage in particular would be greatly compromised in the absence of alternative agreements, you need to have a plan B should it come to that. Bear in mind you could face potential access points restrictions depending on the type of commodity you produce / buy / sell. For instance, under EU law, agri-food products subject to sanitary checks need to enter the EU territory via Border Inspection Posts (BIPs), not available everywhere. There will also be a need for you to bring your processes and data keeping in line with international trade standards, and to be able to prove the origin of your products and those of your suppliers.
These are only examples, but they should give you an indication of the steps worth taking now. Once you have done that, you need to understand how much time and resources you will need to introduce changes that might be necessary and to review your training and recruitment needs.
Once you have done your research and analysis, together with suppliers, customers and service providers, you can decide whether to activate your contingency plans. Knowing when to activate each measure depends on your resources, your level of exposure, the time you would need to implement parts of your plan, and yes, there will inevitably be an element of risk too. You can seek to limit that by ensuring that you keep up to date with developments in the negotiations and are informed of Government’s plans, as well as EU regulatory requirements.
Where can you find help?
Talking to your logistics provider is obviously a good start. They will understand your needs and can advise on the robustness of any contingency plans. Associations like FTA can also help, not least by keeping you aware of the state of political discussions and reminding you of what Brexit could mean from a regulatory point of view. FTA provides free monthly webinars on Brexit and logistics to its members and can also provide more bespoke analysis and recommendations.
Whatever you do, do not wait until you have full clarity to start thinking about the implications of Brexit on your supply chains and logistics operations, but start now and do not do it in isolation.