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5 Brexit Opportunities

 

In the early days of the new EU-UK trading relationship, unfortunately headlines are more crisis related than opportunity focused, but this is not surprising either considering the teething problems with implementing the Trade and Cooperation Agreement (TCA). The TCA was concluded in record time for a trade agreement of this scale with the result being a “Hard Brexit”, and as such, many supply-chain impacts will emerge in the years ahead due to the necessary customs obligations, treatment of VAT, regulatory divergence, lack of mutual recognition of (some) qualifications etc. As Ian Wright, the head of the UK Food and Drink Federation told the House of Commons Future Relationship Committee recently, “unless the [TCA] deal changes in some material way we’re going to see the re-engineering of almost all the EU-UK and GB-NI supply chains over the next 6-9 months.”

So in the midst of this crisis, what great opportunities lie ahead? Arvo have identified the following 5 categories of opportunity presented by the UK’s departure from the EU;

1. Supply Chain Changes
New border administration processes surrounding UK Trade and the complex “originating” requirements for preferential tariff treatment is causing many delays on shipments to, from and through the UK. Opportunities have immediately emerged for supply chains which can bypass the UK, particularly those that depended on the UK Landbridge in the past.

Early indicators are that there will be some GB suppliers unable or unwilling to supply goods to the island of Ireland in the short-term, which presents opportunities for local competitors. This opportunity exists in the UK also, where local suppliers may emerge as more competitive, depending on their respective supply chains. This opportunity is acutely present in Northern Ireland, whereby under the Protocol sourcing from the EU has less friction than GB trade purchases, triggering supply opportunities to NI for many EU businesses.

Longer term opportunities have already taken place since 2016 and will continue in future, where commited UK companies to the EU market, have already invested in permanent offices and made job announcements in Ireland, France, Germany, Holland, Belgium etc, as a direct result of Brexit. The converse opportunity has emerged in the UK also where some EU businesses will require a local presence to continue operating in the UK, within the future regulatory regimes.

Similarly, many opportunities will exist for businesses that can re-engineer their supply-chains to benefit from zero duties, by ensuring the TCA “Rules of Origin” are respected. The days are limited for low value agents and distributors serving ‘UK and Ireland’, with significant opportunities for those willing to invest in alternative supply-chain arrangements. This opportunity extends through the supply chain to manufacturers willing to invest in new locations to ensure “substantial transformation” takes place in the designated market.

Many of these opportunities derive from the Brexit impact on goods trade, but there are varying changes expected in the services industry also, where doing business from the UK into the EU is going to become a lot more complex (& vice versa). As before, where complexities exist, opportunities will arise for those brave enough to take a chance on the prevailing circumstances. In particular for Ireland, visa-free travel and the mutual recognition of qualifications with the UK, creates an opportunity for Irish service providers to the UK versus their mainland EU competitors.

2. Customs Opportunities
Customs Clearance Agents in Western Europe have been promoted from the back office to the front of house with the advent of Brexit. There is a severe shortage of knowledgeable Customs Clearance Agents who can deal with the mountain of complexities and paperwork emerging as a result of the recent TCA. Coupling this administration with the new customs systems introduced by Revenue and HMRC in recent months, has led to a steep learning curve for all actors in the supply chain.

The future landscape is as bleak, as aside from the basic customs clearance requirements, not least the Safety and Security declarations and SPS certificates, there are ranges of sophisticated procedures materialising to claim preferential treatments (e.g. determining bilateral cumulation and fungibility easements etc.), not to mind the opportunities and paperwork required to seek binding tariffs. This bureaucratic minefield will present many opportunities for those willing to upskill, while it will be a full time job to keep abreast of the many changes and customs easements to come within the future EU-UK trading relationship.

From a practical perspective, one would expect many Bonded Warehouses to sprout up in the UK in the next 12 months also, presenting glorious opportunities for those with the capacity and capability to deliver.

3. EU/UK Representation
As per the UK’s prerogative to embark upon a new regulatory regime, cross border traders will have to comply with dual legislation or face the penalties of this invisible trade barrier. CE, REACH and GDPR (possibly, with confirmation due in April/June) are three of the most infamous regulations where divergence will cause pain for businesses, but many more standards, licenses and qualifications exist which will now belong in disparate regulatory regimes. Like all crises, this will present opportunities for those that preempt the supply-chain fallout to position themselves favorable with the regulators, and pick up commercial opportunities where the pre-Brexit supply-chains can no longer fulfil supply.

Further opportunities will exist within the EU and UK also, where representative may be required in some supply-chains to continue serving either market e.g.

  • Under REACH, an Only Representative (OR) takes over the tasks and responsibilities of an importer of a substance, for a company based outside the EEA. However, the OR opportunities come with a health warning, as an OR is fully liable for fulfilling all obligations of importers for the substances he is responsible for as a registrant
  • With regards to CE & UKCA, an Authorised Representative is someone who has a formal contract with the manufacturer to represent them within the EU (for CE) or UK (for UKCA)
  • While under GDPR, a representative can act on behalf of the controller or processor with regard to their Data Protection obligations

4. Legal Expertise

Considering the 1,246-page TCA deal was only published 3 weeks ago and enforces regulatory red-tape and border controls on more than $1 Trillion in annual trade between the UK and EU member states, legal scrutiny, challenges and deciphering will continue for years to come. ‘The devil is in the detail’ cliche has never been so apt for EU and UK businesses, and many opportunities exist for legal trade experts to dispute the interpretation of and regulatory controls, emerging to govern this new trading relationship. Disputes will arise based on pre-Brexit trade contracts and future misinterpretations of the likes of Incoterms, so expect the legal profession to prosper on the back of the UK’s decision to leave the EU.

5. Technology
Considering the plethora of trade challenges alluded to above and the future pitfalls to emerge with the full implementation of the TCA, many innovations and disruptive technologies will emerge to ease the pain of EU-UK trade. Think;

Customs Administration Bots
AI Sourcing
Digital supply chain audits
Kwayga.com

This is a brief overview of the early opportunities to emerge from the Brexit crisis, with many more to follow. Feel free to join the discussion below or contact [email protected] to discuss these items further.

Contract Modifications

As the consequences of COVID-19 continue, it is reasonable to assume that making changes to commercial contracts may become more of a necessity both now and over the next number of months as requirements and demands change due to this global pandemic.

Allowing and regulating contract variations should be a standard feature of all contracts once any proposed variations are planned accordingly

The reasons for the variation should be clearly documented and it is important that any variations are not used to mask poor performance or underlying problems. The variation impact on original timeframes, deliverables and value for money should be assessed thoroughly before undertaking any changes.

There are specific laws that apply to changes in Public Sector Contracts.

Material changes to a contract after it has been awarded give rise to a new contract which needs to be retendered.

The test for material change is-

Does the change introduce conditions, which had they been part of the initial award procedure, would have allowed for the admission of the tenders other than those initially admitted?

Does it extent the scope of the contract considerably?

Has the economic balance of the contract shifted in favor of the contractor in a manner not provided for in terms of the initial contract?

However, there are some steps that public bodies can take legally to make changes mid-contract which are-:

Review Clause Exception:

Provision for a modification included in the original Procurement Documentation/Tender which states in clear and precise terms the conditions under which modification provisions may be used stating the scope and nature of such possible modifications. It is imperative that any such clauses don’t alter the overall nature of the contract

Interoperability Exception

Where there is a requirement for additional works, services or supplies not included in the initial procurement and where a change of contractor cannot  be made for economic or technical reasons and it would cause significant inconvenience or substantial duplication of costs for the contracting authority. Must not exceed 50% of the original contract value and an OJEU notice of the change is required.

De-Minimus:

A modification to the contract is permitted where the value of the modification is below threshold and below 10% of initial contract value for services/supplies (15% for works). The modification must not alter the overall nature of the contract.

Unforeseen Changes:

A modification is necessary due to unforeseeable circumstances e.g. Covid 19. Such modifications should not exceed 50% of the original contract value. Necessary to keep written justification with reference to specific facts outlining the reasons for the modification. Publication of OJEU modification notice is required.

Change of Contractor:

Allowed following corporate restructuring ((e.g. takeover, merger, insolvency) and new operator fulfils qualitative selection criteria.

The specification and administration of change is vital as it needs to be fully documented and agreed between both parties and any additional demands on the incumbent supplier must be carefully controlled.

Change can be difficult however, often necessary.

 

Ethical Procurement

 

Ethical Buying

Introduction

Consumers are increasingly aware of the provenance of the good and services they consume and want to know if these have come at an unacceptable cost to others.  The transparency and availability of information via the internet and particularly social media means companies must have confidence in their supply chains and the statements they make about their products.  Word of mouth spreads incredibly quickly among consumers, and it is extremely difficult to counter an online firestorm.  This is a major risk that any company, whether they are a supplier or a producer of end products, should be continually addressing and monitoring.

What is ethical buying?

Essentially, it is about ensuring that the products and services a company purchases do not cause undue harm or risk for people, animals, or the environment.  It overlaps with sustainability, since buying products which cause harm to the environment, via production methods, excessive freight, and haulage, or use of non-recyclable materials could be unethical.  It also includes people – no forced or child labour in the supply chain, fair wages and a safe hygienic operating environment for workers; animals – such as farming and testing practices; and even politics – avoiding purchase from certain regimes such as Myanmar and Zimbabwe.

There are generally three types of ethical buying practices, which procurement professionals can use in combination:

  1. Positive buying: actively selecting products that are ethically produced, to avoid harm to the environment, such as locally grown foods, energy-saving lightbulbs, or electric cars
  2. Avoiding negative buying: avoiding, as a policy, the purchase of items which do not meet ethical criteria, such as cosmetics tested on animals, or from factories which fail to provide adequate working conditions.
  3. Company selection: avoiding or favouring suppliers based on their ethical standpoint and standards.  This could include not purchasing fuels from companies which have caused environmental damage in sensitive regions such as rainforests and the Arctic

Ethics and cost control are not mutually exclusive!  Ethically produced products and services can avoid the need for expensive redress and can also produce higher quality which reduces wastage and improves efficiency.  Suppliers will increasingly need to meet and guarantee standards to win contracts with consumer-facing organisations, and it is more efficient to apply these company-wide, rather than have different terms for different customers.

The FAIRTRADE Industry is having a direct impact on the living conditions of approximately seven million people in rural areas in the developing world.

Why

Social Procurement creating a benefit beyond the purchase of goods and services which enables buyers to support local economies have a positive impact on the environment, create more jobs and increase employee wellbeing

  • Making a positive social impact.
  • Resource Positive-Give more than you take.

Ethical buying is that ethically produced and sourced products are valued by consumers.  According to the 2019 PWC Irish Retail Consumer Report, 41% of Irish consumers are prepared to pay a premium for sustainable products, and 68% are prepared to pay a premium for locally produced food:

“Organisations who are able to consistently and transparently demonstrate their alignment with their customers’ values and beliefs have an additional advantage when it comes to where spend is directed, and how trust and loyalty are earned.”

Consumers increasingly correlate ethical production with higher quality, particularly younger people who are particularly conscious of their lifestyle choices and enjoy sharing these online.  Unethical practices within the supply chain present a big risk for any business.  Just look at recent examples of modern slavery conditions in Leicester’s clothing factories, that were widely reported as being Boohoo’s own workers, whilst they actually worked for a supplier.  However, it wasn’t enough for Boohoo to claim innocence just because they didn’t own the factories.

We live in a fickle world, and globalisation has intensified competition.  Ethical buying presents an opportunity for companies to differentiate themselves and meet customers’ needs.  This isn’t important only for end-user companies though – for an end product to be sustainable and ethical, all its’ input processes and components have to meet the same standards.  This is where the supply chain becomes so important.  Can customers really be expected to pay a premium for “locally produced” food products if thousands of air miles have gone into the ingredients?!  Therefore, as mentioned above, companies within a supply chain may find that ethical sourcing practices help to win more business and more customers.

How?

Ethical buying might seem like a minefield, and yet another thing to consider when making purchasing decisions.  But it’s nothing compared to the extra work, costs and headaches that result if a company is found to breach acceptable standards, or to have been misleading (or even untruthful) about its’ products.  It could also be argued that this is the minimum that any responsible organisation should be doing.

Ethical buying practices shouldn’t be difficult or cause extra hassle.  Here are a few hints and tips:

  1. Use standards – other people have already done the hard work for you, and lots of standards are available, which can only be used if the producer or supplier meets certain objective standards. These include: Rainforest Alliance, Fairtrade, Organic, the Ethical Trading Initiative, Red Tractor, Soil Association – there is a long list, so the key is to find the right one for the circumstances.  These are easier for buyers than developing specific standards, and it is far simpler for suppliers to have one common standard for all customers. It’s worth mentioning that different laws and standards apply in different countries, so a supplier simply operating within the law might not be enough.
  2. Get to know your suppliers and ask the awkward questions! If something seems too good (or too cheap) to be true, then it probably is.  You can take this a step further and establish formalised supplier evaluation procedures such as scorecards.  These are helpful for organisations with large procurement teams, to make clear to buyers what’s important as well as price, e.g. factory standards, transportation distance, codes of conduct and standards.
  3. Internal practices – of course, it is also important that your own procedures do not contribute to or even encourage adoption of unethical practices.  For example, late ordering can put pressure on workers’ hours, and overly aggressive price negotiation (especially by dominant customers) can push down wages.  Too often, buyers turn a blind eye due to pressure to meet cost and margin targets.  Set standards within your organisation, make them public and stick to them.

It is no longer enough not to know what is happening within your supply chains.  Arvo’s procurement specialists can assist you to review your supply chain to find potential risks, and opportunities to embrace ethical buying, and the advantages it can bring

Author: Kate Sherry

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