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

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.

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.”

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.