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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.

Brexit Transition Plan

Are you tired of hearing about Brexit and yet another meaningless deadline? There’s a danger that we begin to believe that our businesses will not be impacted or expect our governments to protect our markets. There is a Brexit fatigue and many will simply wait until there is clarity on the Brexit Transition Plan by the end of 2020. You can be sure of one thing: there will be winners and losers in your market sector.

The risks and the opportunities for your business can vary depending on the what factors may change the markets over the coming years. Over the coming years, there will be new companies in the market ready to make the best of Brexit uncertainty and win new business. There will also be companies who will feel the impact more than others, due to their exposure or over-reliance on either suppliers or customers crossing the Brexit fault-line.

When creating your company’s Brexit Transition Plan, where do you feel your market sector will change over the possible changes over the coming three years?

Three Market Factors can have market changing implications for some sectors:

  1. Introduction of Customs Filing and Border Inspections

Customs filing and border checks will add administration costs and logistical delays that will immediately impact business costs, operational efficiencies and competitiveness. Many cross-border businesses will become non-viable if customs border checks are introduced. This will have particular impact on small businesses.

Companies will be forced to seek new suppliers and larger providers will likely be better placed to spread the costs of the changes.

  • Changes to Import Tariffs into the UK

This could be adding tariffs to goods from the EU or reducing current EU tariffs on goods from outside the EU.

Britain will have tariffs as an economic tool to favour goods and products produced in its own country.  Any changes in import tariffs will change the dynamic of that sector, boosting some producers while penalising others.

Britain will have new trade agreements with China and the USA, as examples, with likely changes to import tariffs in particular product areas. This will result in market changes.

  • Changes to the UK’s Regulations from current EU-wide Regulation alignment

How will the UK decide to align its regulations across many areas, from financial regulations, chemicals, goods quality certification and many more?

A product being exported today from the UK to the EU may not be permitted due to not being EU certified. Would the UK decide to change some of its regulations away from EU alignment for trade deals with other markets?

The UK is leaving the EU to have more autonomy and control of its own policies. For importers into and exporters out of the UK, how will the three market factors discussed above impact your business? Can we trust that any changes will be come will plenty of notice giving the industry time to respond?

When the changes do come, some companies will be better placed to take advantage than others. Some companies will be better off, and some will be worse off. There will be winners and losers.

To help you be on the winning side, we’ve prepared a quiz tool to provide you with an appropriate Brexit Transition Plan. Click here to get access to Your Brexit Transition Plan.

5 messages:

  • Your market will change, as Brexit will very likely change one or more of these 3 factors. Get your plan here
  • Can your business manage these 3 market factors impacted by Brexit? Get a plan here
  • Brexit will change these three factors. What is your transition plan?
  • Bumpy road ahead, have you a plan to avoid these three Brexit changes? Get your transition plan
  • Brexit breaking market alignment on these three factors. What is your transition plan?

2020 BREXIT PREDICTIONS:

I may regret this! The words ‘Brexit’ and ‘Prediction’ should not be used in the same sentence. The one thing we learned since the 2016 Referendum is you never know what is around the corner. Even now, 20 days before the UK finally leaves the EU, there is that small chance that the Withdrawal Agreement is not signed due to the many approvals required yet, plus the risk that Dominic & Boris, well, do a Boris on it! Hopefully not.

Hopefully the UK leave as planned now on January 31st, starting the transition period (due to end on December 31st) and finally the facts of Brexit should emerge as opposed to the rumours and risks batted about over the last 3 years. Some businesses may not like the outcome, but at least in 2020 we can start planning with certainty as the shape of EU-UK customs, regulations, borders, logistics, VAT treatment, security controls etc. emerge from the comprehensive and ambitious negotiations.

So to those ‘crystal-ball’ predictions (which will make interesting reading on the 1st of January 2021!);

  1. “Backstop” is replaced by “Frontstop” (as a raft of new jargon emerges)

For the past 3.5 years, we have been introduced to terms such as the Article 50, Backstop, Divorce bill, Yellohammer and the Withdrawal Agreement. Now that we enter the Transition period, a new wave of Brexit jargon will emerge such as bilateral trade, general agreement, tripartite, ratification period, zero dumping etc., plus many more yet to be baptised.

Strategic Sourcing Tip;

These terms will filter through the media, and deciphering them won’t be everyone’s cup of tea. Therefore, be armed with accurate and factual sources of Brexit Information such as the;

  1. Brexit Risks migrate from No Deal to No Agreement

With the threat of “No Deal” hovering over many businesses in 2019, the imminent approval of the Withdrawal Agreement by the UK and EU Parliaments, is a welcome conclusion to this matter. However, do not dump your No Deal Brexit Plan yet as the likelihood of a No Free-Trade Agreement outcome in 2020 is highly likely for the following reasons (plus many more which exist);

  • The time-frame is first major problem. The Transition Period will expire in 11 months and it will take 2-3 months at the end to ratify the Free-Trade Agreement. Therefore, there are at most 9 months to deliver the most “comprehensive and ambitious agreement” ever seen by the EU. To provide some context, the original Transitional period was conceived of as 21 months, itself thought too short by virtually all experts. Expect many gaps or grey areas in this 9 month production.
  • Time and resources prevent the success of most projects. Human resources, expertise and knowledge are lacking in the UK to undertake this mammoth task (FTA negotiation). Notwithstanding what we have learnt about the UK’s negotiation capabilities over the past 3.5 years, their exit from the EU next month means all EU-negotiated privileges with third-countries disappear also, which will require negotiation time and resources from the UK civil service to recuperate, while they separately debate with Barnier, Hogan & co. Just to note, these current EU-negotiated privileges with third-countries are captured in over 600 pieces of legislation of which the UK may have to re-build.
  • Convergence V Divergence. Most trade agreements have two entities trying to converge and work closer together. The UK unashamedly want to diverge, which is a lot more complex, more unusual and from an EU perspective, unprecedented. This simply adds another layer of complexity, while it must be asked does such ‘diverging negotiation’ expertise exist on either side of the table?

Strategic Sourcing Tip;

If you were to design a ‘perfect storm’ of negotiation hurdles, the above scenario would be pretty close. Therefore, do not expect a comprehensive resolution to this trading quandary in 9 months (presuming Boris does not extend this Transition Period as most experts recommend) and ensure your No Deal Brexit Plan is maintained as a UK crash-out is still very possible in January 2021.

  1. Phoenix rising from the ashes (those, Cash-for-ash ashes!)

After 3 Years, Northern Ireland has a Government again. Following the ‘cash for ash’ controversy which led to the collapse of its devolved Government in January 2017, the NI Government is back at a pivotal time in Brexit negotiations. As home to the only land border between the UK and the EU, Northern Ireland has been central to trade negotiations throughout. With the frontstop now in place, the reality is that the economic regime for Northern Ireland will be different from that of Great Britain.

Truth be told, the current Withdrawal Agreement should be good for NI as this cross-border location would seem to have privileges to access both markets, which is very attractive for FDI. However, the customs-free world of the past seems to be diminishing so expect trading costs to affect SMEs with customs administration, declarations and training required to overcome such paperwork challenges.

Strategic Sourcing Tip;

Rules of Origin specifics in the ambitious FTA will have a profound impact on the movement of goods in/out of NI, plus the associated paperwork which may be required. For our NI clients, it is highly recommended to identify, employ or up-skill a customs administration resource as Boris’s promise to NI businesses in November that “there will be no forms, no checks, no barriers of any kind”, is unrealistic and unviable.

  1. Virtual Border is where it is at

If you have a huge amount of optimism that a comprehensive FTA will emerge, then a No Deal on products is somewhat averted, but No Deal on services may be the trade-off for this. Trade within the EU is protected by a vast amount of legislation and regulation, which the UK is trying to escape from. It is common knowledge that Boris intends to be distant from the EU in all aspects of goods and services, including specific removal of the “high alignment” text from the Withdrawal Agreement, which Teresa May fought for. The renegotiation of non-tariff barriers to trade is much more important than tariff barriers, but politically less spoken about. However, the time has come in the Brexit journey for the discussions and realities to emerge about non-tariff barriers a.k.a regulations such as REACH, GDPR, food hygiene standards, financial services controls, environmental and social regulation, mutual recognition of standards and qualifications etc.

Strategic Sourcing Tip;

We at Arvo have always been more concerned for businesses on the island of Ireland about the divergence of EU standards and regulations in the UK/NI. Tariffs on goods would lead to cost increases, inflation and shortage of certain products in the worst case scenario. However, the lack of alignment of non-tariff barriers will cease the delivery of services (& some goods altogether). As the facts of this outcome emerge, we will continue to publish these insights so get them first from our Weekly Brexit Newsletter.

Brexit has not disappeared but now the true impacts of the UK’s 2016 Referendum decision will finally emerge.

Just so you know, Arvo have produced a Brexit eBook with practical strategic sourcing tips for Businesses to navigate the above Brexit Risks. We have gathered case studies, templates and many helpful tools and solutions to support your Brexit risk management, so order your free copy today via;

www.arvo.ie/go/ebook

Finally, if you have any Brexit queries, feel free to email [email protected] for a prompt response (or call +353 (0)21-2362902)

Brexit Supplier Help

Over the past 12 months, the Brexit dial has moved ominously from safe ‘Soft Brexit’ impact to the unsettling ‘Hard Brexit’ scenario, with a worrying time more recently where it seems ‘No Deal’ is a possibility. Throughout this time, we have been working with businesses across the island, analysing their supply chain risks with feedback from the trenches including;

  • “My NI-based supplier is the holder of product authorisations under REACH” – Paint Producer, Cork
  • “Our supplier has a factory in Naas and Leeds – I presume our products are coming from Naas?” – Food manufacturer, Sligo
  • “Our biggest customer is also our biggest supplier, based in Bristol” – Aviation Maintenance, Shannon
  • “We have a UK agent who is the sole distributor for UK & Ireland” – Motor Factors, Carlow
  • “Our suppliers are in mainland Europe but it’s a bulky product shipped via the UK” – Wholesaler, Athlone
  • “I have just realised 80% of our raw materials comes from the UK or NI” – Cleaning Company, Leitrim

Brexit is another business risk and Arvo use strategic sourcing techniques to reduces costs and risks associated with Britain’s exit from the EU, while defining appropriate sourcing strategies so as there is minimal interruption to our client’s supply chain.

Arvo provide strategic sourcing consultancy and have delivered practical workshops & training, specifically focusing on Brexit supply chain risks and helping SME’s answer questions such as; 

  1. What suppliers will impact the business most if they cannot supply you tomorrow?
  2. Do you know what % of your goods and services are coming directly or indirectly from the UK/NI?
  3. Have you researched alternative non-UK suppliers?
  4. Are there contracts, licenses or regulations restricting your global sourcing strategies?
  5. Are you aware of the potential additional costs to import from Europe in terms of hubbing, customs, logistics partners, Minimum Order Quantities plus the impact on cash flow?

Therefore, let us know today how we can help build resilience into your supply chain for Brexit (& other Political, Economic & Technological events that may cause risks for your business in future).

The outcomes from an Arvo engagement include a Strategic Sourcing Plan, a completed Kraljic Analysis defining your strategic and bottleneck suppliers while we have also created a Sensitivity Analysis Tool to analyse how the different values for a set of independent variables (costs) affect a dependent variable (price/margin) under certain specific conditions (Brexit).

Take note of these Brexit Planning Tools and Resources, to reduce your Brexit exposure.

Finally, Arvo are working with Enterprise Ireland, InvestNI and Intertrade Ireland, who all have Brexit supports to help you on the journey to develop your contingency plan;

Contact Us or the agencies above to get support for your Strategic Sourcing Brexit risk

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