Materials handling – how do we handle an exit from Europe?

By Ruari McCallion

March 2017

How warehousing, logistics and materials handling should be responding to ‘Brexit’.

The UK’s decision to leave the EU has generated uncertainty across Europe. Ruari McCallion tries to firm things up a little.

The UK’s Referendum vote to leave the EU was unexpected, to say the least, and generated quite a lot of uncertainty, which is something that business generally hates.

The immediate reaction was turmoil in the stock and bond markets but, when it became apparent that the world had not actually come to an end, things settled down and commerce continued and even picked up a little in Q3 of 2016. However, things will not be the same in the future. Things are going to change.

‘Brexit’ looks like it will take place in Q1 or Q2 of 2019. That gives business two years to prepare. During that time, nothing will fundamentally change; the UK remains a member of the EU until the UK government enacts laws to repeal or amend the European Communities Act 1972 and consequent legislation. All existing laws and regulations remain in place until then.

The rest of the EU will probably continue as it was; it will only be trade with the UK that is affected.

Around 44% of the UK’s exports go to EU countries.

New challenges, new requirements

Negotiations have not even started yet, and are a long way from complete, but there are quite a few things that businesses can do to prepare themselves for the ‘new world order’.

Around 44% of the UK’s exports go to EU countries. Businesses involved with complex supply chains, especially those in the auto, aerospace and chemicals sectors, may see components cross borders several times before the finished product rolls off its final assembly line.

It will become necessary to calculate more closely the value of components that cross borders and are sub-assembled then finally assembled before being installed in the product. Why? Because, currently, there is no tax, customs duty or tariff on products or materials crossing internal EU borders; that will not automatically be the case after Brexit.

While there may be a new set of exemptions, with a re-emergence of bonded warehouses and/or ‘freeports’, there is the distinct possibility that the post-Brexit tax regime might be onerous and complicated. It is best to be prepared, and to have at least explored the options for the return of customs barriers.


Bernardine Adkins, Gowling WLG, Solicitors.

Increasing complexity

“Many companies are currently thinking of free trade agreements in 1970s terms, and mainly about the movement of goods,” said Bernardine Adkins of Gowling WLG, Solicitors. “Modern free trade agreements are very complex.”

Fortunately, warehouse management, logistics operations and materials handling professionals aren’t directly concerned with the complex negotiations; they just have to deal with the repercussions. And those are complicated enough.

“If you take the auto industry, for example, there is a lot of momentum in trade between Mexico and the EU,” said Guy Courtin, Senior Vice-President, GT Nexus, pointing out that it is not just EU-UK trade that is affected. The UK has trade arrangements via the EU with other parts of the world. There could be a lot of work ahead.

So how does the supply chain go about sorting things out? It is probably best not to wait to be told what to do by government – and a lot of building blocks are already in place.

“This is – at heart – an issue of data and process to meet compliance requirements. As such, it is no different to the many technology projects undertaken successfully across the world each year,” Courtin said. “It is likely to be on a scale that dwarfs a lot of those that have come before it, but make no mistake: aside from the political dimensions of Brexit, this is, operationally, a supply chain problem. It can be solved accordingly.”


Guy Courtin, Senior Vice-President, GT Nexus.

Many companies are currently thinking of free trade agreements in 1970s terms, and mainly about the movement of goods.

Gather, monitor and manage data

The first step is to get a handle on the data that shows goods movement across the EU; that will enable the scale of the project to be accurately gauged. The likelihood is that it will require, in terms of technology, a cloud-scale solution, with agreed standards between the UK and EU.

Once the visibility is in place, trade between the UK and EU can be smoother and faster, whatever the regulatory, customs and tariff structure. Integration with finance systems can then begin to make VAT and duty payments quicker and easier.

“Intelligent data gathering is only feasible when organisations and trading partners are part of a holistic network that enables all members of the network to communicate and collaborate fully together,” said Courtin.

“A patchwork approach for collating, interpreting, sharing and acting upon information is no longer acceptable.” The alternative to open and effective collaboration will be to restrain, or even strangle, the logistics industry and export trade overall.

“The fears of additional constraints, in the form of tariffs and more controls of goods leaving and entering the territory, are legitimate and profound concerns, for businesses and politicians alike,” he emphasised. Such restraints threaten economic competitiveness.

In order to overcome any such hurdles, and to maintain profitability, robust and real or near real time view of the supply chain networks will be critical.

Brexit impact in brief

  • Nothing changes until the UK actually leaves the EU, which will be around two years after ‘notice to leave’ is triggered under Article 50 of the Lisbon Treaty
  • If the UK leaves the Single Market and Customs Union, taxes on cross-border trade may once again be levied
  • Whatever the outcome of future negotiations, the ‘worst-case scenario’ for companies operating across international borders will be that defined by WTO (World Trade Organisation) rules – which stipulate tariffs of around 10%
  • As 30% of the UK’s supply chain is localised, the impact on costs as a result of tariffs alone will probably be under 7%
  • Pre-existing ‘Double Taxation Agreements’ (DTAs) will reappear, as they were not formally repealed (companies operating across borders will thus still have a measure of protection against double taxation) – however, the UK does not have DTAs with some accession states
  • Certificates of Origin may be required for EU trades
  • Proof of Exporter status may be required for some countries in the EU

Brexit ‘to-do’ list

Analyse trade patterns across the EU, looking back and forward – about three years in
each direction

Identify key European markets and customers, along with key UK markets and customers

Contact Tax Authorities for preliminary advice and guidance, or at least to identify points of contact as the picture develops

Commence negotiations with freight forwarders and consider how to consolidate numerous small transactions into larger shipments

Consider Authorised Economic Operator status, especially for complex, multi-country supply chains such as those in the auto, aero and chemical industries – it may allow self-assessment of ‘trade value’ for purposes of taxation and tariffs

Consider bonded warehouses

Prepare to reconfigure warehouse management systems, to take into account customs and duty status

Ensure IT systems are equipped to deal with additional paperwork and new movement regulations

Prepare and plan alternative routes for distribution and delivery

Discuss with production departments the possibility of adapting the ‘production footprint’: EU plants to supply EU territories and UK to supply Rest of the World

Identify employees who are non-UK EU nationals or non-UK nationals, whose working status may change after Brexit