On June 23rd 2016, a 51.9% majority of British voters elected for their country to leave the European Union. This referendum started the nation along a two-year journey to part with the political and economic union encompassing the European continent.
As we draw nearer to the now-extended October 31st 2019 deadline, and with newly elected British Prime Minister Boris Johnson’s promise for “no deal Brexit”, it is more important than ever to take the time to fully understand the impact that Brexit could have on on trade and businesses.
UK firms engaging in cross-border trade are particularly prone to facing challenges following the Halloween deadline.
For many in this space, uncertainties regarding the specifics of these changes is a considerable source of stress. What may serve to mitigate this stress is the notion that Brexit is not expected to have any significant effect on the UK’s relationship with non-EU countries in the shipping sector, a group that comprises more than half of all UK trade volume.
That said, the impact of Brexit on shipping to the EU is ripe with speculation. Amongst this, there seem to be two general themes for the impact that have arisen: increased delivery lead times and increased costs.
Increased Delivery Lead Times
As a member of the EU, UK firms have undoubtedly become accustomed to very short delivery lead times.
Divorce from the Union, even if a free trade agreement with the EU is made, will bring an abrupt end to the ‘borderless’ international shipping experience that firms enjoy today.
A significant volume of UK freight shipping from the EU is done using roll-on roll-off vessels, which carry trucks loaded with goods that can drive straight off the ship and continue by road.
In many Brexit scenarios, these trucks will now have to wait for customs agents to check paperwork or even physically inspect cargo. This inspection delay, which would be further increased if any discrepancies in customs documentation are found, will slow the entire shipping process and may even eliminate any time-saving benefits achieved from the roll-on roll-off method of transport.
Border control times will also have a large impact. According to a London School of Economics article, checks on vehicles carrying exports to EU countries currently take an average of 2 minutes at the UK port of Dover, compared to a 20-minute average for good traded with non-EU countries.
While Brexit is not expected to push the 2-minute wait that high, it seems likely that it will add at least an extra 2 minutes to this time. The cumulative impact of this increased time per truck could potentially lead to five-hour long queues on reads leading to the port.
Delays of this length have disruptive potential. A UK manufacturing firm employing a just-in-time inventory management system for its European inputs may begin to see supply shortages in a post-Brexit world. In a similar fashion, delivery time guarantees to end customers may need to be rethought for firms importing from EU states.
Leaving the Union will not impede the right of British shipping companies to carry goods to or from EU ports. According to Norton Rose Fulbright, however, it is likely that Brexit will eliminate British admittance to a single European market and with it their access to tax- and duty-free trade across European borders, and rights to maritime cabotage services across the EU.
Regarding taxes and duties, the most obvious impact will be on VAT. Exports of goods and services outside the EU are typically excluded from VAT.
This exclusion, however, stops when it comes to importing goods from outside the EU. In a post-Brexit world, the UK will join this faction of non-EU nations. This suggests that EU firms importing from the UK will begin paying VAT on these goods, potentially nudging them to cut trade relation with UK firms in favor of any EU-based counterparts.
UK company’s access to EU maritime cabotage rights, the rights to water-based transport services within a territory, may also come to an end post Brexit. While this will not innately prohibit shipping and trade from the UK to the EU, it could have an impact on the shipping companies that operate in these areas.
While the exact implications that this will have are uncertain, it seems reasonable to predict that shipping prices between the UK and EU are likely to increase. Furthermore, UK shipping firms are unlikely to avoid EU specific shipping regulations, such as CO2 emissions testing, by leaving the union as these regulations still apply to any companies using EU ports.
In the wake of a British exit from the EU, it seems likely that UK firms will experience longer delivery lead times with their EU trading counterparts as well as higher costs.
Customs requirements and subsequent border delays are poised to add delays to all shipments between the EU and UK. Increased costs will stem from the UK’s recession from the protection of EU-wide tax- and duty-free trade practices.
With the promise of a deal or no-deal Brexit, it is important for soon to be affected firms to take the time to understand and address the implications of the changes that seem likely to arrive in the coming months.
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