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Customs: Strengthening your Brexit supply chain

Customs: Strengthening your Brexit supply chain

How can you avoid any costly border delays in the event of a no-deal Brexit? Apply now for trusted trader status, says Bob Jones, KPMG in the UK customs lead.

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Director and Brexit Customs & Indirect Tax Lead

KPMG in the UK

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Customs strengthening your brexit supply chain - illustration of chainlinks with services inside them

On a crisp day, you can see from one side of the Channel to the other. Yet the passage of products imported and exported between the UK and EU will be anything but clear if those White Cliffs symbolise a No Deal Brexit in March 2019.

I don’t want to paint too doomsday-like a scenario: there’s a reasonable chance the UK and EU will agree a transition deal, and possibly even a trade deal before March 2019, that will keep the £554 billion worth of EU-UK trade in goods and services rolling. However there is a ‘non-negligible’ chance they won’t. And given the fact that EU negotiations tend to go down to the wire, businesses will have no time to react. In that scenario, frictionless trade would come to an abrupt halt and the UK would immediately revert to WTO “Most Favoured Nation” terms which are far from frictionless. Not only would we see the application of import tariffs, in some cases, punitive; businesses would also experience a sharp spike in mandatory administrative requirements.

A cliff edge departure could deliver an unprecedented workload for HMRC’s customs operations. HMRC currently processes around 55 million customs declarations each year. That could rise by 200 million to 255 million, which could add £4 billion in administration costs to business, according to the Institute for Government. HMRC already estimates some 5000 new customs officers would be needed to cope, as 180,000 new traders, many of them small and medium-sized businesses, suddenly find themselves subject to import and export checks.

Nor will technology immediately offer a silver bullet. HMRC is launching its new Customs Declaration Service in January 2019, but the technology was not designed with the complexity of Brexit in mind: the system may not have full functionality in place before the UK leaves the EU.

Log-jams and lost revenue

A five-fold increase in customs declarations could easily translate into major delays at UK/EU border ports. That’s a critical issue for businesses running just-in-time operations with, say, eight-hour delivery contracts, or those dealing with perishable goods. A mere two minutes in additional customs processing time at Dover could lead to 17 mile tailbacks on Kent’s motorways according to the Freight Transport Association. Six minutes and it’s back to the M25.

And those customs hold-ups would be costly. We estimate that if shipping containers alone were delayed in UK ports by just one day, the country could face demurrage costs at current rates of at least £126 million – quite possibly far more.

So, if your business currently relies on seamless trade to, say, source your machine parts bang on time from Germany, ship in pharma products from France or supply your customers with exotic fruits from Africa in December, how do you avoid potential customs chaos?

The answer: make your business more Brexit resilient by applying for Authorised Economic Operator (AEO) status.

What to know about AEO

  • A sign of excellence: AEO is an industry certification, with similar programmes adopted in 70 countries worldwide, that can help ensure your supply chain to be secure and your customs controls are efficient and compliant.
  • Help beat the queues and save on costs: AEO status provides access to simplified customs procedures, enabling you to fast-track goods through some customs, safety and security procedures, for example using a reduced data set when making declarations at the border. And while a full standard frontier declaration for non-EU goods could currently be £50, the cost could be as low as £15 for simplified AEO declarations. AEO can also provide access to lower financial guarantee requirements and grant practical access to customs special procedures and privileges like customs warehousing and inward processing.
  • No time to waste: Each application can take six months to complete, with potentially another three to six months for HMRC to then process. And while the UK currently has only just over 600 AEO accredited firms – only 4% of companies currently registered across the EU – that’s likely to rise to tens of thousands in the run up to and following Brexit.  
  • Get your house in order first: AEO is all about getting the data right – complete, accurate and on time. Before submitting a formal application, you therefore need to:
  • Understand your company’s current profile and status with HMRC
  • Fully understand your supply chains, identify and quantify where the risk of bottlenecks might lie
  • Examine existing contracts to establish exactly who the legal exporter and importer are or will be post-Brexit
  • Ensure your people have the necessary training and qualifications to provide accurate, timely compliance data, including product classification, origin and valuation information
  • Determine whether your financial and supply chain software, systems and processes are AEO-compatible
  • Check your capability in terms of security issues

Holding up a mirror to your business

AEO can not only enable a smoother journey through customs. Its requirement that businesses fully analyse their own supply chains can also help flush out where any new opportunities – and better ways of doing business – might lie in the post Brexit world. It might just help open the door to truly global trading opportunities.

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