Expert insights from the post-Brexit frontline by Derek Dunne, Port Agent and CEO of Manifests Ireland.
The first week of January was like a meltdown but it’s settling down now as traders start to get familiar with the new requirements. To be fair, it was a learning process for all parties. It is my belief that the customs processes in place will work if people engage with them. The big difficulty is that a lot of businesses believed, and some still do, that trade with the UK can be done in the same manner as it was last year. Things have changed, and the big change is in the customs process.
Volumes around Dublin Port have been visibly down in recent weeks and are not moving in the way that they were, and that has been obvious just by looking at the empty spaces in some of the trailer yards around the port area recently. Full loads are probably moving a lot better, but it’s the groupage (single shipments combined together on one trailer) and part loads that are struggling. It’s not just the importers/exporters not having their ducks in a row, but it’s also the groupage operator and the Customs Warehouse operator. So, it’s vital to examine your supply chain and see if the partners in your supply chain are also up to speed. We’ll definitely see a shift in supply chains over the next year.
When we look at the number of players in the supply chain, the importers and the exporters, they hadn’t fully realised customs declarations needed to be done. After the late announcement of the UK-EU Trade and Corporation Agreement on 24th December, the actual detail has only become apparent very recently. With that, there are a number of issues that businesses need to be aware of relating to the origin of goods, and on what duty is payable on, and what it’s not payable on.
Another contributory factor to the slow start to the post-Brexit period has been the fact that a number of the transport operators and the logistics providers have been clinging to the same model that they had last year and not factoring in the customs piece. This has led to shortcuts being taken, but also liberties are being taken, on behalf of importers and exporters, who have unwittingly given information and access to their customs records.
Post-Brexit VAT Looming
I believe there is also a dormant issue which will raise its head at the end of February and into March when the first VAT records are required by Revenue. Businesses are going to find a number of potential issues, such as responsibilities having been placed on them by carriers for shipments they never made; possible duplications; and confusion as transport operators inexperienced in the customs process make erroneous declarations using the authorisations unwitting traders have provided them with. I would say that the businesses who face these issues are the ones that haven’t been fully engaged with the customs process. While they don’t need to fully make the declarations, they do need to engage with the process and understand how it works, not leave it to inexperienced brokers.
Duty Payable and Country of Origin
In terms of the duty issue, the trade deal that’s been agreed between the EU and UK is that any goods of UK origin are duty free; so, if they’re manufactured or grown in the UK, they’re duty free. However, if the goods are manufactured elsewhere – that could be a European country, it could be elsewhere, they are liable for duty. So, don’t assume that just because you’re buying from a UK business that it will be duty free. This is what a lot of businesses are beginning to realise. The goods might have been manufactured in Germany, but duty applies to them even though that’s an EU country. That’s one of the less publicised aspects of the EU-UK trade deal. Some commodities don’t have duty applied at all, so it’s not an issue but, for example, you might buy a car from the UK, but it may have been manufactured in Germany, so as a result 10% duty is applied as the car was not manufactured in the UK. This is why it is important to look at your supply chain. The UK, as a distribution hub for Ireland, is now under pressure as a result of this provision in the trade deal; unless the goods are manufactured in the UK, chances are that duty will be applicable.
We have seen a large increase in ferry traffic direct from Ireland to mainland Europe, and in turn bypassing the UK land bridge. Shipping is a derived demand, and we have seen new players come into the market. This is a welcome outcome, and I can see more of that distribution shifting away from the UK landbridge to mainland Europe in the coming months. We have already seen this with direct links developing from Ireland to ports like Dunkirk and Antwerp. I also think we will see a shift away from Ro-Ro (Roll-on, Roll-off) traffic to containerisation, to increase efficiency in the supply chain but also as supply chain alternatives. Ultimately, the biggest shift in supply chains will be around the UK being the distribution hub for Ireland - that will most definitely change.
Another factor to be considered in the slowness of the adjustment period is the ongoing deficit of knowledge and expertise in terms of paperwork and procedures, skills that were largely lost after Ireland and the UK joined the EU. That knowledge deficit is relevant, too. We don’t have enough experienced brokers out there. There are government incentives for training and employing people, which is very welcome, but that doesn’t bring experience into the market. The customs process has the potential to be as simple or as complicated as people engaging with it make it. If you follow the requirements, it will work fine. If you try to take shortcuts, it will catch up with you eventually and become an issue down the line.
In terms of IT solutions, the Revenue processes work. There were one or two glitches but, overall, I’d say they are operating at 99.9% of where they need to be. The Revenue’s new Automated Import System (AIS) system was introduced in November 2020 to comply with the provisions of the Union Customs Code and that was a steep learning curve for many people in getting engaged with it. The old system will still be in place until March 2021, but most of us have already changed over to the AIS. Again, if you follow the processes, the system works very smoothly.
I have seen some activities in the brokerage area that I would be quite concerned about, such as goods being cleared with the wrong commodity codes, wrong duty rates, and incorrect VAT rates. The fact is that the importer of the goods will ultimately be responsible. You need to understand what third parties are doing on your behalf. So, if a third party mis-declares goods, revenue won’t come knocking on their door, they’ll be coming to you and you might face a bill you weren’t expecting.
In July, the UK will end exemptions on customs declarations and VAT. My belief is that the UK have had a very pragmatic approach to Brexit in the sense that their number one priority was to keep supply chains moving and then they’d follow up with the customs side. So, effectively, you can import from the UK today and you won’t have to make a declaration until 1st July. They’re giving businesses a period to adjust to what’s happening and it’s been keeping things moving. Then you have the Irish side, where if you don’t have a declaration then you’re not coming in. Again, a lot of businesses that failed to engage with the customs process in the UK could be in for a short, sharp shock come June or July when they either get a notice from Revenue expecting 600 customs declarations or need to pay a VAT bill.
The key point for people selling into, or out of, the UK is to understand their Incoterms, i.e. what their responsibilities are and what their suppliers’ responsibilities are. So, again, in terms of looking at your supply chain, know where those responsibilities lie.
Opportunities for Irish Business
Much of the publicity around Brexit has been about the teething problems, and so on, but there are positives. I think there are great opportunities for Irish businesses in not having to go through the UK on two sides, firstly in terms of replacing the UK distribution hub currently in the UK to Ireland which remains in the EU, and secondly being able to better service and access European markets than their UK competitors. Also, from a food perspective, I think we will become more reliant on EU food products, and at the same time I believe there are opportunities for Irish businesses to also service that EU market more effectively.
While many businesses will be experiencing increased costs during the first quarter of this year due to delays, extra clocked up hours, and so on, I think that as the supply chains adjust to how business is now done, we’ll see those extra costs coming back down again towards the middle of the year.
So, overall, while there have been negative media headlines about the post-1st January period, some of it deserved, there are positives and there are opportunities.