The word ‘Brexit’ is on everyone’s lips at the moment, including those of the British International Freight Association (BIFA).  BIFA recently stated the P.M.’s Brexit speech resulted in many members being left to deal with uncertainty when it comes to freight operations.

Most of BIFA’s members are UK freight forwarders and when Ms May’s speech fell short when it came to “the details that will assist its members as they go about their business of managing much of the UK’s visible international trade”, many BIFA members were left in a state of flux.

Uncertainty rules

The Director of BIFA stated: “Our members across the country over the last few months have been dealing with a lot of uncertainty. They would have welcomed clarity on the mechanics that will underpin Mrs May’s desire for ‘tariff-free and frictionless trade’.”

May’s speech rejected the Customs Union as the only option going forward committing instead to seek “an ambitious customs agreement” with the EU.

BIFA believe that as Brexit unfolds, there will be many more issues rearing their heads which will impact upon trade and the workings of the freight businesses.

Freight executives are none the wiser

The Director of BIFA further added: “After [the] speech, BIFA is hoping that the government has a fundamental understanding of all of the possible permutations and challenges in regards to our future trading relationships with Europe and the rest of the world, post membership of the EU……Freight forwarder executives are none the wiser on the actual mechanics of Britain’s future trading relationships and how they might affect the freight forwarding sector.”

He also pointed out the many details are still up in the air, such as; whether Customs will reintroduce transaction controls; if the replacement for CHIEF could deal with the millions of extra transactions; and finally, how controls of dual-use items will be managed.

He was keen to point out that although May referred to maintaining the common travel arrangements between the UK and the Republic of Ireland, she did not clarify how freight will be managed between the two countries.

The devil is in the detail

“What our members need from Government is some answers to those questions. As the old saying goes, the devil is in the details. And after today’s much-anticipated speech, much of the real detail is missing,” he added.

The British Ports Association  referred to May’s pointer that the UK will look at negotiating deals forward to allow a future free trade agreement with theEU, feeling that this will be welcomed by many EU ports with EU trade.

“With the Prime Minister indicating that the UK will be leaving the Single Market, the issues and implications of this for UK ports centre around increased Government border activities which could lead to disruption on goods and logistics flow at ports,” a statement by BPA commented.

They will be discussing with the government how the re-introduction of customs and VAT and product classification requirements on Intra EU routes can be best managed at the border.

 

By now we are all aware of the key issues featured in May’s Brexit plan, but how do the freight and parcel groups feel about what she has planned for the future?

The FTA’s view

Reactions have been mixed; the UK’s Freight Transport Association (FTA) were pleased that she wants to head towards a process of “tariff-free and frictionless trade” with the EU, even after Britain departs.  Whilst she is continuing to push for “the freest possible trade” with other countries as well as the EU, her aim is to negotiate towards tariff-free trade, creating a Customs agreement and maintaining the common travel area that exists between the Republic of Ireland and the UK.

The FTA felt that her actions would allow them to determine the presence of any possible friction points and then work with the government to bring about the most positive outcome for businesses in the UK.  The Association went on to state: “A truly global Britain, trading effectively with all nations, is something FTA welcomes, and the association urges the government to progress bold and ambitious free trade agreements with key trading partners around the world as quickly as possible to ensure seamless business relationships can continue…..The Prime Minister’s commitment to maintaining the common travel area in Ireland is welcomed by FTA as this is one of the key issues of concern to its members.”

The parcel broker’s view

But what about reactions from parcel firms?  Fastlane International who are a parcel broker, reacted in a good way, stating that they felt the Prime Minister’s ideas were both ‘bold and ambitious’ when it came to putting in place a Free Trade Agreement with the EU.  However, it was not all good; they also expressed concern that her plan to eradicate the EU Common External Tariff will result in UK exporters totting up a bill of some £44bn as well as resulting in serious delays and hold-ups due to red tape once shipments hit EU borders.   Their head of consumer research stated: “Moving outside the EU’s Common External Tariff would mean the need to set our own tariff rates. That entails setting our own duties on 19,000 individual tariff codes across a huge variety of items – a move undoubtedly leading to increased border delays and red tape for British importers and exporters and EU businesses looking to trade with the UK.  It’s a frightening scenario that could result in an increase in the cost of imports of around 20%; £44bn on current UK business exports to the EU of around £220bn.”

Fastlane feels that the idea of the Common External Tariff is purely a way of coding items so that different rates of tax will not be accrued on the same items as they pass through different countries.

So what does the future hold for the UK’s freight and parcel groups?  Will it all be good or are there going to be some difficult times ahead?  The truth is that only time will tell but for now everyone’s eyes are fixed on Prime Minister Theresa May, watching to see what ideas and solutions she pulls out of the bag going forward.

May’s Brexit speech – the nine-point nitty-gritty

Theresa May’s Brexit speech may now be out in the open, but what have we learnt from the content? We have taken the time to break it down into key points so let’s take a look at the nine-point nitty-gritty.

1. The single market

The Prime Minister made it clear that she does not intend for Britain to remain in the single market; her two priorities are keeping EU immigration under control and pulling away from the jurisdiction of the EU Court of Justice. With these in mind, they do not lie well with remaining in the single market. Her plan instead is for Britain to have “the greatest possible access to it through a new, comprehensive, bold and ambitious free trade agreement”. This may include such things as “elements of current single market arrangements in certain areas”, such as the ability for the City of London to dispense financial services across borders.

2. The customs union

We all know that the customs union represents the common trading area of the EU with goods coming in from outside of the area being subject to a tariff and goods within it circulating freely. Any country that remains part of the customs union is not able to negotiate its own trade deals, which is why many felt that Britain would leave it. However, on this point, May was not absolutely clear. Whilst she does not want Britain to be stuck with having to abide by the common commercial policy or external tariff she does want tariff-free trade with Europe, with cross-border trade being “as frictionless as possible”, which would mean Britain having an EU customs agreement or somehow becoming an associate member of the customs union: “I have an open mind on how we do it,” said May. The result may be the government looking for deals across certain key sectors; for example, the automotive industry would not do well if customs checks were imposed. Exchanging simple VAT clearance forms requirements for up to 50 data elements, such as hs code product classification, would be time-consuming for every business and to be avoided if possible.

3. Parliamentary involvement and Article 50

May is still set on Britain leaving the UK by the end of March, even though this was not part of her speech. This may be delayed if the Supreme Court decides that parliament should vote on the Article 50 notification to the EU, with elections in Northern Ireland possibly also delaying. In relation to this, she stated: “I can confirm today that the government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament before it comes into force.”

4. EU immigration

Controlling Britain’s borders is a priority for May. She still wishes to bring in “the brightest and best to study and work in Britain”, but said, “we will get control over number of people coming to Britain from the EU.” She also added: “You cannot control immigration overall when there is free movement from Europe … Brexit must mean control of the number of people coming to Britain from Europe.” Not keen on the idea of a point-based system, it could be that work visas will be introduced but this is still open to discussion.

5. Transitional arrangements

Businesses in Britain are looking for some kind of transitional arrangement to be put in place in order to avoid the UK leaving at the end of the two-year Article 50 divorce discussions with no future liaison negotiated. Referring to a future relationship, May repeated that it was “in no one’s interests to have a cliff-edge” which is why she is seeking a properly phased system of implementation. However, this does not mean that she wishes to have a long-term transitional period during which EU rules would apply. May referred to this option as being “permanent political purgatory” and said that she wanted “nothing that leaves us half-in, half-out”. Her plan is to reach agreement on the relationship going forward within two years of the Article 50 divorce discussions, followed by a “phased process of implementation” that would vary according to the topic under discussion i.e. immigration controls, customs arrangements, financial services etc.

6. Status of EU citizens in UK/UK citizens on the continent

So what is to happen to the 3 million EU citizens living the UK? May is looking to guarantee the rights of both groups as soon as possible. She has already told EU leaders that “we could give people the certainty they want straight away, and reach such a deal now”, but not all were in favour (the EU-27 has refused to discuss under its rule of no negotiation before notification). May reiterated that she wishes “everyone to know that it remains an important priority for Britain – and for many other member states – to resolve this challenge as soon as possible.”

7. The EU budget

Ministers and officials have stated that payment may have to be made into the EU’s budget in order to be a part of any future trade deals negotiated between the government and the EU. May’s only reference to this was to say “because we will no longer be members of the single market … the days of Britain making vast contributions to the European Union every year will end.” There may be “some specific European programmes in which we might want to participate. If so, and this will be for us to decide, it is reasonable that we should make an appropriate contribution.”

8. The EEA option

The European Economic Area (EEA) is an extension of the internal market, comprising 28 member states and members of the European Free Trade Association (EftaFTA ). Britain could become a member by joining Efta, which would provide it with single market membership. This would involve making a financial contribution and accepting the main principles of the EU’s internal market. However, this does not seem likely, with May stating: “We do not seek to adopt a model already enjoyed by other countries.” She further mentioned that Britain would not be looking for “partial membership of the European Union, or associate membership of the European Union.”

9. Ireland and the union

May is set on maintaining the pre-EU common travel area between Britain and Ireland and wishes to refrain from a “hard border” between established between Northern Ireland and the Republic.
She is also keen to preserve the United Kingdom in its present state, referring to the union between England, Scotland and Wales as valuable. “It is only by coming together as one great union of nations and people that we can make the most of opportunities ahead,” she said.

In general, May kept a positive tone, stating that: “I want us to be … the best friend and neighbour to our European partners.” She also made it very clear that “no deal for Britain is better than a bad deal for Britain”, referring to the Chancellor’s statement that if Britain does not get what it wants, it may well become a low-tax rival, commenting that the government was “free to change the basis of Britain’s economic model”.

To summarise, May did much to clarify some of her Brexit objectives but there is still a great deal to be negotiated as we have no idea how far the EU 27 will be prepared to negotiate.

The impact of the Brexit vote has left many UK retailers in a state of uncertainty. Until the details of the UK’s withdrawal from the EU are known and legislation changed, this will not diminish. This high degree of uncertainty is impacting upon the retail industry that makes much of forward forecasting and purchasing.

Exchange rates hit

The Brexit vote has already impacted upon retailers; the UK£/US$ exchange rate immediately affected retailers who were purchasing goods in US$ unless they had fixed-rate deals in place. Where purchases have been discussed but not placed yet, these orders may now be amended due to the fluctuation in exchange rates.

But there is also a positive side to this; the Chinese are happy with the fall in the value of UK£ against their Yuan which has resulted in a rush of foreign tourists flocking to the high streets. UK product manufacturers selling overseas will also become more attractive hence exports should be on the up.

What about the workforce?

The UK retail workforce is also going to be affected until it is clear whether or not EU citizens working here will be given leave to remain. As long as the UK imposes limits on the movement of people, changes in the workforce are bound to happen. If the UK cannot provide sufficient labour to fill retail jobs then competition will increase, putting pressure on wages and retail margins. Many retailers may find their staff anxious, particularly if they are EU citizens concerned about whether or not they will be able to remain.

Goodbye single digital market

Withdrawal from the EU may also result in the UK pulling back from its dream of a ‘single digital market’. This will go a long way toward levelling the playing field with regard to e-commerce and eradicating boundaries relating to online shopping. Initiatives such as banning geo-blocking and improvement of consumer protection processes that will boost confidence and transparency with regard to cross-border logistic costs will all help. If the UK does leave the single market then many of these initiatives will be lost.

Even though e-commerce trading in the USA appears to take place cross-border without problems, there will still be an impact with regard to consumer confidence which will show up as a cost of sales. UK retailers will most probably have to monitor developments and then put in place processes in line with the digital single market. This could then be promoted as a positive marketing strategy, encouraging visitors from the EU online.

A return to old times & HS codes for products crossing into the EU?

Brexit also poses the threat of potentially leaving the single market and returning to aged processes of imposed cross-border tariffs and tightened controls when it comes to importing and exporting goods. This means increased requirements for accurate HS Code classification with delays at the borders manifesting themselves as lost sales and reduces margins. Retailers therefore need to work with trade associations, demanding that they be proactive when it comes to monitoring negotiations with regard to this issue with a view towards minimizing any potentially negative impacts.