The logistical consequences of a soft, hard or no-deal Brexit
James Hookham, deputy chief executive of the British Freight Transport Association (FTA), provides tips for action for each scenario
The recent reports about Brexit give us the impression that after March 29, 2019 all will go smoothly, but there is still a long way to go and the outcome remains uncertain. Preparing for the different Brexit scenarios remains an issue. That is also the judgment of James Hookham, deputy chief executive at the British freight transport association FTA. During the European 3PL & Supply Chain Summit he outlined the impact of Brexit on logistics and what we can do to work within a soft, hard or no-deal Brexit.
The June 2016 referendum made it clear that the United Kingdom wants to leave the political institutions of the European Union. However, Prime Minister Theresa May has for a long time left us only with: "Well, Brexit means Brexit." In other words, no one had any idea what exactly was meant by Brexit. In January 2017 it became clear that Brexit also means the end of the internal market and customs union for the UK. The UK, however, wants to retain the benefits for trade, which is described in the Facilitated Customs Arrangement, the most important part of the Chequers Deal. For the EU, however, free movement of goods without a joint customs union is not an option.
However, the UK has no plan B, with all of it attendant consequences.
"How can you negotiate the internal market and customs union that you want to leave if you do not have an alternative proposal?", said James Hookham, deputy chief executive of the British freight transport association FTA (Freight Transport Association). "Yes, there is an agreement about the financial compensation that the UK will pay. And there is an agreement on the rights of EU citizens living and working in the UK or UK citizens who live and work in one of the 27 EU Member States. The transition period has also been recorded, but the future economic relationship still needs to be negotiated. Does the relationship still go to the Facilitated Customs Arrangement or to an agreement such as recently concluded with Canada (the Comprehensive Economic and Trade Agreement to promote trade between the EU and Canada)? And how will the border between the Republic of Ireland and Northern Ireland be tackled? All parties want the border to remain open, but that is only possible if the UK remains a member of the internal market. Ireland remains a tricky theme in all discussions. If the UK and the EU do not reach agreement on one aspect, then all other agreements will be compromised and a no-deal outcome seems unavoidable. "
We can in fact recognize four different Brexit scenarios: No Brexit, a soft Brexit, a hard Brexit and the no-deal Brexit. The FTA only calculates the three latter scenarios. It is of the opinion that companies must view all three most likely scenarios as possible and that managers should consider the consequences for their operations.
Scenario 1: No Brexit
On 20 October 2018 some 700,000 Britons took part in the 'People's Vote March'. They desire a second referendum on Brexit in the hope of averting it.
"But to cancel Brexit is a dream,” said Hookham. “Although it may already be the ideal scenario from a business planning point of view, Prime Minister May has already indicated that a second referendum is not there. Moreover, the time is too limited. "
Scenario 2: Soft Brexit
This scenario assumes that a trade agreement will be reached, with a minimum of customs and border controls and associated tolls. The relationship between the UK and the EU would then be as close as possible to the current situation. This could be in the form of the Facilitated Customs Arrangement, subject to approval by the EU, or in the form of a trade agreement similar to the agreement with Canada. Goods declarations are still required, but fewer taxes have to be paid for fewer goods and they are subject to fewer inspections. In this scenario, road transport and aviation are unlimited.
However, this scenario requires time, political will and money. Even though there is a transition period, James Hookham does not think a soft exit is likely: "The negotiation history tells us that in order to get all the details right, you need more time than two or three years."
Scenario 3: Hard Brexit
A hard Brexit means that at the end of the transition period there are hard limits between the UK and the EU. In that case, the UK is no longer part of the single market and the customs union and has full control over the borders. It does imply that customs and border controls will be relatively easy, with or without the use of new technologies. Hookham points out that the technology is not yet ready to automate all customs procedures. In addition, a new road transport and air transport agreement will be laid down. The number of permits for freight transport will also increase. The UK then falls under the rules of the World Trade Organization, WTO, for trade with the EU Member States. Hookham calls this scenario a very realistic possibility.
Scenario 4: No-deal Brexit
If on 29 March 2019 at 23:00 UK time there is no agreement, then there will be no transition period and EU law no longer applies to the relationship between the UK and the EU. As a result, full customs and border controls will be imposed from 30 March 2019 onwards. In that case, there are also only a limited number of goods transport permits and there is no aviation agreement. Sanitary and phytosanitary controls, checks that state that products are healthy, will take place for the sake of animal welfare and food safety. Hookham fears that the no-deal is a realistic outcome: "Even if you have classified all your goods, paid the toll, passed the checks, a vehicle does not enter the EU or the UK without a permit."
Consequences of Brexit
Whatever kind of Brexit it is, all transport types will suffer consequences, although roll-on roll-off transport and aviation will be most affected.
As far as freight transport is concerned, customs controls come first. The UK will use the Union Customs Code (UCC) for the classification of goods, which is already the case for those who export to the UK. James Hookham advises companies to join Her Majesty's Revenue and Customs (HMRC), most likely through a local agent. The HMRC is responsible for the collection of taxes, state aid and the administration of certain regulations.
In addition to customs, however, there are many other non-tariff authorities that have the right to inspect goods at the border. There are safety checks and checks on consumer protection and trade policy. An important change is also that EU drivers will no longer be able to enter the UK with a regular identity card, but that they will have to purchase a passport. In addition, truck drivers from the EU and the UK will have to have an international driving license. In addition, sanitary and phytosanitary controls will be carried out: Animals, products, food, etc. everything will be strictly inspected.
Hookham: "However, there is not enough room for all these inspections to take place. Do you know the port of Dover or Calais? There is simply no place to park all the trucks that have to be checked."
For vehicles entering the UK, there is an important change about which little is being said. If the UK leaves the single market, EU rules on free freight transport no longer apply. The EU regulation will be replaced by the CEMT licensing system, which stands for the Conference of European Ministers of Transport. A CEMT license is required for freight transport between an EU country and a non-EU country that is affiliated. In each country quotas have been imposed that limit the number of licenses per type of truck (Euro IV, Euro V and Euro VI). In this scenario, every British vehicle that drives to the EU and every European vehicle entering the UK must have a license. You can exchange these permits within your company, but one is needed per vehicle.
Hookham firmly believes that insufficient permits will be available: "In 2017, 75,000 British trucks made 300,000 trips to the EU. If only CEMT licenses were granted to hauliers with Euro VI lorries, this would involve only 1,224 lorries. Far too little. Even if you have classified all your goods, paid the toll, passed the checks, a vehicle will not enter the EU or the UK without a license. "
Prepare for Brexit
Political negotiations have made little progress and a number of fundamental decisions have to be taken, so Hookham thinks that companies should already think about the impact of Brexit on their supply chain. "Speak with your suppliers and buyers. You will need information from them and they from you. You can already map the possible extra costs. If you are already trading with non-EU countries, you can do a cross-fertilization of the trade procedures that apply to those countries for the future UK relationship. "
James Hookham urges forwarders to appoint a local agent with knowledge of customs procedures in the UK, so that the customs declaration run smoothly and your trucking operation does not come to a standstill. As a freight forwarder you can already check under which Union Customs Code the goods you export fall. You can let your agent contact you - or of course do it yourself - with the HMRC to request the necessary documents and to build a good relationship. Drivers who are not of British nationality can already be asked to provide a passport and international driving license. For 3PLs it is important to understand how the national license for freight transport is distributed.
In addition, Hookham believes companies may have to ask themselves whether they need to transport goods to the UK or from the UK to the EU for the first three months after Brexit. "I understand that many companies cannot do otherwise. However, if it is possible to limit the number of exports, I would do so. If you transport goods to the UK, you can also check to what extent it is possible to store your stock (temporarily) in the UK. "
In any case, companies will have to take account of delays in the supply chain. You can therefore better prepare for Brexit by simulating the consequences of the possible scenarios (soft, hard or no-deal Brexit) in your business planning process. Hookham does not want to be pessimistic, but has his reasons for the warnings he sends: "The British government has been assuring me that an agreement will be reached for two years. For the time being, it is still not there. And the problem is so similar to that in Ireland, where politicians have been trying to reach a consensus for 30 years. No, I think we better face reality and have to take a no-deal Brexit into account. Have you ever had to develop, test, implement and make a project operational in 150 days? I see it so that you go to your manager and beg for more time. This is exactly the same as if no agreement is reached: It is impossible to manage the new customs and border procedures of your supply chain in such a short time. So, ask yourself what scenarios you should plan for."
- June 2016: referendum shows that the United Kingdom intends to leave the European Union.
- January 2017: Prime Minister Theresa May announces that the UK will leave both the EU's political institutions, the customs union and the internal market.
- 29 March 2017: Prime Minister May presents an official letter to Donald Tusk, the President of the European Council, stating that the UK will leave the EU on 29 March 2019.
- June 19, 2017: Negotiations start.
- March 2018: Agreement about the transition period - Prime Minister May calls it an implementation period - after Brexit, which will last until 1 January 2021.
- July 2018: Proposal UK on future trade relationship with the EU in the so-called Checkers Deal, of which the Facilitated Customs Arrangement forms the core.
- 21 September 2018: European Summit in Salzburg, rejecting the Facilitated Customs Arrangement.
- 13-14 December 2018: The European Council will discuss the conditions under which the UK will leave the EU.