If Brexit happens at the end of this month, that brings a real risk of increased costs and delay to supply chains. We outline the eleven actions to take now to reduce the impact of cost hikes and delays - and answer the most common Brexit supply chain questions.
.Brexit will almost certainly mean that there will need to be checks and possibly tariffs on the border between the UK and the EU. Any business exporting or importing goods in or out of the UK will be impacted. This means any business which buys or sells goods in the UK will near certainly be impacted, as most goods have some international element. Brexit brings a high risk of increased costs and delay:
- If there is disruption at ports and border crossing points - if so, this will mean delay and cost.
- More administration required to cross borders - eg customs declarations (which a HMRC report issued in early October 2019 has forecast as a cost to UK plc of some £15bn pa - quite a number).
- Potential tariffs, especially on imports. This may increase costs (although, on the updated temporary tariffs schedule issued by the government in early October 2019, some 88% of imported goods are planned to be tariff free).
- Potential export/import controls - which may delay or prevent the export or import.
- If there is currency volatility - a falling £ will increase the costs of imports. A volatile pound makes it difficult to price.
What should I do?
- Map your supply chain and identify where you have the most critical exposures. Your key focus should be on imports from and exports to the EU. Understanding the issues is half the solution.
- Can you or your suppliers or (less helpful) your customers build up stocks in the UK?
- Talk to your logistics providers - what will they be doing to keep your goods moving? And at what cost?
- Liaise with critical suppliers/ customers in the EU to identify potential issues and solutions.
- Work out how you will fulfil export/ import requirements such as completing customs declarations.
- Identify the impact of tariffs. Look at the UK's proposed tariffs, and those may need to be priced into on-going contracts and future contracts, where commercially that is possible.
- Build in contingency time for the risk of delays on cross border deliveries. 8. Consider hedging currency risk.
- What do existing contracts say about price changes?
- With new contracts, map out how the impact of Brexit will be managed - where will delivery happen (and risk pass) - the impact of tariffs and customs paperwork may make this very much more important than it used to be.
- If you are a UK business, make sure you have a EORI number that starts with GB.
Can’t I just rely on the force majeure clause?
Probably not. A force majeure clause normally provides some protection (eg suspending the contract) if an event outside the control of a party happens which could not reasonably be anticipated. It will be hard to prove this for contracts entered into since the referendum. And the courts have indicated that even contracts pre referendum may not be able to use this – case law shows well that the English courts are not going to want to allow parties to avoid contracts because of Brexit and the costs of Brexit. Higher costs are not usually (ie, virtually never) enough for force majeure, or for frustration as a matter of English contract law.
However, this will depend on the precise wording of the clause in the contract and the actual issue that arises.
For new contracts, can I add a “Brexit” clause?
We have not seen general Brexit clauses frequently used. This is because it is difficult to say in general terms what the impact of Brexit should have on a contract.
It is better to focus specifically on the terms around duration, price and delivery in the specific contract.
In new contracts what is the key issue to deal with?
If there is one issue, it is making clear where the delivery point is and what the parties’ responsibilities are around delivery. If you use an Incoterm with the delivery point it will the allocate responsibility for many of the key issues.
My EU supplier is refusing to take responsibility for importing into the UK and tariffs. What should I do?
- Are you already in contract? If so what does it say? If the EU supplier is responsible for import and tariffs, point this out.
- Consider how the risk of delay, increased delivery costs, and tariffs can be fairly allocated and make a proposal to the supplier.
- Consider an alternative supplier.
Tell me more about the customs and VAT issues.
Dealing with customs is the key practical issue for exporters and importers. Read our article on getting customs, VAT and excise regimes ready for no deal brexit.
Where to go for more information?
How to ensure your supply chain is Brexit ready
ICC Incoterms® 2020 has arrived - Key changes and how to prepare for the rules coming into force
UK government guidance