Brexit Archives

This Week in Logistics News (July 25 – 31)

logistics news | By Chris Cunnane • 07/31/2020

As my colleague Clint Reiser pointed out in last week’s news round-up, baseball is back. And while the season will look a lot different than in years past, it is back. At least until it isn’t. Unlike the NHL and NBA which chose to use bubble cities to contain the teams, baseball teams are still traveling for games. And while the league is somewhat limiting travel by only having teams play in their geographic division, this still means a lot of travel for players. And within the first week of the season, we had our first COVID-19 outbreak. The Miami Marlins have had 19 players test positive for the virus and their season is on hold. This has resulted in a number of other canceled games, with players wondering how this will all play out. Meanwhile, the other major sports league in the US, the NFL, has not chosen to operate in a bubble city either and training camps kicked off this week. This has resulted in players across the league opting out of the season due to coronavirus concerns. Obviously, we have no way of knowing how the bubble locations will work out for the NBA and NHL, but it will be interesting to see if it makes an impact on whether a season can finish. I’m not holding out much hope for baseball or football, or really sports in general this year. And now on to this week’s logistics news.

The US Postal Service has faced an uphill battle as it continues to lose money. Now, the USPS has reached an agreement in principle to receive a $10 billion loan from the US Department of the Treasury under the CARES act, which the agency projects will keep it solvent at least until May 2021. The USPS said its board of governors unanimously approved the loan agreement Tuesday, which will be finalized in the coming weeks. In an effort to retain regular shippers the agency has rolled out its first loyalty program. Under the program, business customers can earn $40 in credits for every $500 spent on Priority Mail and Priority Mail Express postage through its Click-N-Ship program. They can apply the credits to subsequent purchases of those products at checkout. Credits expire one year from the date of issuance.

Members of the local Yaqui indigenous community who are demonstrating for better land rights, have blocked railways used to move auto parts, as well as grains and steel, from Sonora to the United States. As a result, Ford’s Mexico unit has said that operations at its Hermosillo plant in the same state have been affected. Additionally, Ford said that the blockades is hitting imports and exports to and from the US. The blockade has hit both the Mexicali-California and the Nogales-Arizona border crossings, and so far has prevented the passage of 15 trains carrying about 150,000 tons of cargo, according to the Mexican railways association AMF. AMF President Jose Zozaya said the association has been in talks with the government and protesters, and that he is confident the situation will be resolved soon.

Post-Brexit trade plans for the UK and European Union have hit all sorts of snags. Now, there is another hurdle that will need to be navigated: pallets. Pallets have been the unsung hero of global trade for nearly a century, but new regulations are threatening a pallet shortage. Starting January 1, 2021, wooden pallets moving goods between the UK and EU will need to comply with ISPM-15, an international rule that requires them to be baked to 56 degrees Celsius for at least 30 minutes to prevent the spread of pests and diseases. The head of the UK’s Timber Packaging and Pallet Confederation has warned that Britain won’t have enough that comply with the rule, and that the coronavirus pandemic has impacted its efforts to plug the shortfall. This will be a serious obstacle to overcome considering that as many as 100 million pallets move between the UK and EU each year.

One result of the coronavirus pandemic has been a surge in consumer purchases of items such as baking mixes and soups. While this has been beneficial to manufacturers of these items, it has also caused a lot of stress on their supply chains. General Mills now plans to boost the number of outsourcing manufacturing partners and suppliers by as much as 20 percent from pre-pandemic levels. The company has 24 manufacturing plants in the US and generally uses third party manufacturers to produce about 30 percent of its products. General Mills’ factories are running at full capacity but are not equipped to handle the surge; the company said US meals and baking sales rose 75 percent, while cereal sales rose 26 percent. While bringing on new partners will help capacity restraints, it is not a simple process. The company has said that it takes about six to eight weeks to vet a new manufacturing partner.

The US possibly has the most COVID-19 testing capacity in the world but is falling short in getting results quickly. The main issue here is a supply chain bottleneck when it comes to testing facilities and labs getting their hands on the appropriate chemical kits and tools. There are a few companies that dominate the market and their machines run on chemical kits and disposable plastic parts that only they sell. The result is that with so many requests coming in for their equipment, they do not have the capacity to handle all the requests. US labs now run about 800,000 diagnostic tests daily, according to the COVID Tracking Project. But the United States needs 6-10 million tests per day, by various estimates.

More and more cities and countries around the world are looking at ways to reduce carbon emissions in congested city centers. Dublin is the latest to look at ways to combat air pollution and congestion. The city is piloting mini urban distribution centers and powered walkers and quad cycles to enable city center deliveries that don’t contribute to local emissions or congestion. The pilot is funded by Dublin City Council, Enterprise Ireland, and Belfast City Council. The system was developed as part of a Small Business Innovation Research (SBIR) challenge, which sought new approaches to optimizing deliveries. Through this, design and manufacturing consultancy Fernhay developed the containers, bikes, and walkers for global logistics carrier UPS to trial. The vehicles will enable workers to deliver goods such as groceries, medicine and parcels.

The coronavirus lockdown has seen a spike in online grocery shopping worldwide. In the UK, stores such as Tesco, Sainsbury’s, and Ocado have seen incredible growth. As a result, Amazon is now offering free grocery deliveries to Prime members in London and the surrounding area to compete with traditional grocers. Amazon Fresh, the company’s grocery delivery service, will offer same-day delivery in most areas on orders over £40 ($51.51) placed before 9 p.m. The minimum order value has also been lowered to £15 ($19.32). Prime members in Greater London and parts of the southeast of England can get free delivery in two-hour windows on all orders over £40 ($51.51), or pay £3.99 ($5) for delivery in a one-hour slot.

Online grocer FreshDirect is making a move from its traditional next-day delivery model to launch same-day delivery. The company is partnering with technology firm Fabric to open a micro-fulfillment center at one of the grocer’s Washington, D.C.-area distribution facilities later this year. FreshDirect relaunched same-day delivery in New York City last month, rebranding it as FreshDirect Express. The Washington, D.C. on-demand service will be the first time the grocer will be using a micro-fulfillment center.

That’s all for this week. Enjoy the weekend and the song of the week, Paul Simon’s The Boy in the Bubble.

Brexit’s Profound Impact on Cross-Border Shipping

Global Trade | By Ken Fleming • 10/17/2019

By the end of October 2019, with or without an agreement, Brexit will have a major impact on cross-border shipping. Businesses that haven’t already prepared should start by better understanding the specific nature and extent of the looming changes. By proactively addressing potential challenges to shipping operations brought on by Brexit, businesses can work to ensure a smooth transition, provide a seamless customer experience, proficiently manage delays and keep costs in line with expectations.

Change Due to Brexit is Inevitable

Brexit will give rise to several changes to cross-border shipping.

Changing country codes

As the United Kingdom (U.K.) exits the European Union (EU), the countries within will be assigned new carrier country codes for shipping. Not having the correct country codes can lead to misrouted parcels, causing delays, lost parcels and spoilage of time-sensitive goods.

This could be especially problematic for shipping via passive cold-chain and non-sustainable goods for restaurants, hospitals, florists and other businesses whose deliveries demand timeliness for freshness.

Brexit has already impacted the way some of these businesses operate. Well-known brands like Domino’s started stockpiling ingredients for fear they will run out or not be able to get them in a timely manner during the Brexit transition. CNN reported Domino’s has spent £7 million ($8.5 million) to stockpile imported ingredients including tomato sauce, frozen chicken, pineapple and tuna.

New country codes also trigger new codes for customs and carrier services, as well as new payment terms.

Increased export volume

Currently, the U.K. has the third-largest population in the EU, trailing France by about 2 million people according to Eurostat. Once the U.K. breaks away from the EU and is considered non-domestic, the volume of export shipments between the U.K. and mainland EU will surge, creating a need for more local distribution centers within the U.K. to meet this growing volume of exports. The change from domestic status will also increase the chances that goods being imported to/exported from the U.K. will end up in bonded warehousing space. This surge will put a significant strain on bonded warehousing space; both locally and abroad, bonded warehouses will need to increase capacity to accommodate these goods.

No line item communications

Most shipping software only provides line items when shipping outside of the EU, and outdated software will still consider the U.K. a domestic destination leading to a variety of problems. For example, carriers would not be able to declare goods en-route to the U.K., leading to more time spent at customs and delayed deliveries, while incorrect labels and delayed declarations will significantly increase congestion at “freeports” (customs-free zones), causing major delays. Shippers using outdated software are at higher risk of incurring penalties and fees for not complying with new rules and requirements established by Brexit.

Currency fluctuations

Though the U.K. never adopted the Euro as its currency, instead sticking with the British Pound, Brexit is already, and will likely continue causing currency fluctuations. According to NPR, the lack of a Brexit plan has sent the pound to a record low against the dollar and could soon reach an unprecedented parity, making imported products more expensive, but helping British companies compete by driving down the price of exported goods.

Businesses will need to monitor currency fluctuations to ensure profitability regardless of change in values.

Consumer transparency challenges

Consumer behavior is shifting, increasingly demanding smaller, more-frequent shipments to their doorsteps, workplaces and/or a convenient pickup location, and many will take their business elsewhere if merchants don’t oblige. According to Forbes’ coverage of a Capgemini study, almost half of consumers would stop buying from a retailer that could not provide a satisfactory delivery. Beyond flexibility, consumers also demand transparency, and few things impact brand loyalty more than unexpected delays or surprise charges.

Retailers and distributors also need to determine cross-border tax calculations and adjust costs on all ecommerce orders shipping from the U.K. before transactions occur. Similarly, U.K. exporters and shippers sending goods to the U.K. from other European countries should register for value-added taxes (VAT) in each of the European countries they ship to if they haven’t already. These steps ensure customers see all costs upon purchase rather than encountering surprise fees and taxes upon receipt of shipment.

GDPR implications

The EU approved the General Data Protection Regulation (GDPR) in 2016 to standardize data privacy for EU members and protect its citizens. With Brexit, the U.K. will no longer be a part of the EU and thus, no longer need to comply with GDPR standards. While the U.K.’s Data Protection Act of 2018 (DPA) closely mirrored GDPR and will remain in effect for British citizens, Brexit will still have an impact on data privacy. As The National Law Review explains, under the GDPR, Member State companies may freely transfer personal information between Britain and the rest of the EU; in the case of a no-deal Brexit, this privilege will disappear.

By removing the free exchange of personal information, Brexit creates new challenges for shippers and carriers. Differing privacy standards must be reconciled and complied with, creating complications with the transfer of crew information, or personal data between shipping companies and third parties such as port agents, etc. This has the potential to increase documentation requirements and change the guidelines for destroying or removing customer data.

Cross-Border Shippers Must Think Ahead

Effectively adjusting to and overcoming the negative impacts of Brexit will be easier for shippers that proactively prepare. To successfully navigate these effects, shippers should address the following:

Payment terms, product codes and customs codes will need to be updated to match the new numerical identity of each shipment’s origin.
Overwhelmed EU mainland European distribution centers will need to find alternative ways to reduce shipping/customs costs and streamline internal operations, including the adoption of paperless invoices that require no additional paperwork in the warehouse compared to EU shipments, eliminating time-consuming and labor-intensive reviews.
Break/bulk shipping considerations: where all shipments to a country are labeled and sent as one shipment to an in-country carrier depot to go through customs as a single transaction and later broken up into the original, individual shipments for domestic distribution.
Britain’s changed status: shipments to Britain will no longer be considered “domestic” when shipping from within the EU, and this will impact the use of line items/notes. Labels will need new notes that state whether shipments are dutiable or not in order to go through customs.
The removal of outdated carrier services ensures current and accurate carrier service options are reflected. Many U.K. carriers only ship domestically and, after Brexit, the definition of “domestic” will no longer include Ireland.
Real-time status updates of parcels (due to delays at border/customs, etc.).
GDPR and DPA compliance should be a priority for businesses shipping to/from the U.K. and EU.
The impact of U.K. shipping activity on margins. Track fees, fines and penalties to determine what impact Brexit changes are having on total shipping costs and adjust accordingly.

To learn more about Brexit’s impact on cross-border shipping and how to proactively prepare, download Logistyx’s whitepaper “Is Your Logistics Software Ready for Brexit?”

Ken Fleming is president of Logistyx Technologies, the leader in Transportation Management for parcel shipping. Since the mid-1990s, Ken has led successful launches of many new technologies and services, including supply chain management, e-commerce, SaaS, and enterprise software and systems integration solutions. Ken can be reached at ken.fleming@logistyx.com.

Editor’s Choice: Brexit Status

Global Trade | By Martin Meacock • 09/24/2019

Note: Today’s post is part of our “Editor’s Choice” series where we highlight recent posts published by our sponsors that provide supply chain insights and advice.

As the EU puts pressure on the UK Government to put proposals for a new deal in writing within the next two weeks and the Commons leader reported as saying that the Prime Minister was on course to deliver a “fundamentally different” Brexit deal to ensure the UK leaves on October 31st, how closer are we now to a no deal or even if an agreement is reached how different will it be to that presented to Parliament previously and what if any transitional measures will be included for a government who does not want to be tied to the EU Customs Union or Single Market.

Anyone listening to the radio or driving on the motorways will have heard and seen the constant reminders that the UK will leave the EU on the 31st October and that on the 1st November Freight may change and to check documents.

HMRC have also published a number of papers which if you have not seen, some are listed below.

For those of you looking to operate Transitional Simplified Procedures then please remember if the goods are entering via an Inventory Linked Port it will still be necessary to get a release from the port inventory system even if you are just making an initial declaration in your records (EIDR) , this may involve an action by you or you forwarder / broker. We understand the details are still being finalised and awaiting HMRC approval.

Specifically, for CHIEF, whilst the proposed temporary tariff is not yet available, the following changes which will be implemented in the case of a no deal can be tested on CHIEF via your test environment.

(For the rest of the article, click HERE)

Martin Meacock is responsible for product management with an emphasis on Descartes’ Customs Compliance & Global Trade Content solutions, particularly in the UK, working closely with all stakeholders to deliver solutions to the complex world of cross border trade. Martin brings years of experience in international trade / customs and regulatory compliance having worked for over 10 years in UK Customs before joining an international trade consultancy firm and becoming technical director developing e-Customs software solutions in the UK

Global Trade Management in Today’s Contentious Political Environment

Global Trade | By Clint Reiser • 05/10/2017

The political environment and public policy decisions are central determinants of global trade patterns. But political risk seems especially heightened in today’s international business environment. From the Brexit vote, to Trump’s trade renegotiation rhetoric, to Marine Le Pen’s promise of intelligent protectionism, there has been an undeniable trend of political intent to reexamine trade policies and free trade agreements.

I am in the process of updating ARC’s Global Trade Management (GTM) market study and have engaged in several discussions about today’s political environment and its impact on global trade and GTM solutions. Of course, political rhetoric accounts for much of what has already occurred. But the recent election results in the UK and US reinforce the view that substantive change may be forthcoming. And the political rhetoric also seems to have a way of feeding on itself. Executives understand that public policy, especially trade policy, can have substantial impact on their supply chains. Although existing trade policies have not yet changed from these political events, corporate executives want to be informed about the impact potential changes will have on their business, and prepared to quickly adapt their supply chains to function optimally in the new trade environment. From my discussions with GTM suppliers, I see corporations focusing their preparations on two main areas, namely:

External Corporate Environment: The specific political changes and the potential trade impact of these changes on the supply chain.

Internal Corporate Environment: The company’s internal processes and its ability to adjust to the changing trade environment.

External Corporate Environment

The proliferation of free trade agreements over the last couple decades has increased the degree to which preferential treatment of certain goods has shaped supply chains. Ty Bordner of Amber Road puts the number of trade agreements currently in effect across the world at about 600. And the effect of these agreements on supply chain decisions should not be overlooked, as duties and tariffs are substantial enough to redirect sourcing and even production decisions. Rainer Roll of MIC Customs Solutions explained a case to me where a manufacturer estimated that roughly half the cost of a production facility upgrade was going to be financed by duties savings made possible by a free trade agreement. In fact, many companies incorporate duties and tax costs right down through the bill of materials when analyzing various production and sourcing decisions. And it’s not just the GTM vendors stating the relevance of duties in strategic decision making. Toby Brzoznowski of Llamasoft, a leading provider and supply chain design solutions, confirmed in his post Leveraging Supply Chain Design to Thrive in Uncertain Times that taxes and duties are critical inputs into supply chain network design by impacting overall costs, sourcing decisions and manufacturing strategies.

In contrast, the more recent political environment has created uncertainty about existing trade policies, especially free trade agreements. Voters in many nations believe that trade agreements are detrimental to their economic well-being. They often focus on the displacement of a subset of workers, rather than the widespread efficiencies brought about from increased competition and specialization. Linda McKee from SAP’s Global Trade Services team told me that the sudden change in public perception about free trade agreements has caused some executives to become more cautious about the long-term stability of the agreements. Long-term stability may not be a prerequisite for transactional sourcing decisions, but it is essential for supply chain partnerships and capital investment decisions.

The Brexit vote has occurred, but there is still a lot of uncertainty about the specifics regarding the unwinding of the UK in the European Union (EU), including the terms of trade. Although there is still much uncertainty, companies are beginning to evaluate their exposure to trade agreement changes from UK’s planned withdrawal from the EU. Rainer Roll of MIC Customs Solutions stated that companies are analyzing various scenarios to determine the potential effects on their business, both the risks and opportunities. For example, what are the effects of moving production from continental Europe to the UK to support UK demand – and vice versa, the effect of moving production currently in the UK to continental Europe? Companies are analyzing country of origin information and conducting total landed cost analysis so that they are well informed and ready to act when the trade environment does change. In North America, concerns about changes in NAFTA aren’t as acute, but corporate executives are beginning to ask questions about the potential impacts of changes to NAFTA. Chris Jones of Descartes informed me that corporate boards are looking to understand the cost implications of changes to NAFTA and the feasibility of nearshoring operations that are currently in Mexico or Canada. Similarly, Patrick Maley of BluJay Solutions noted interest in determining what the Trump administration can do through regulation and what changes would need Congressional approval.

My overall takeaway is that companies are mostly evaluating these political scenarios from a risk analysis and contingency planning perspective. However, they are doing so with an eye on being prepared and able to act intelligently, competitively, and quickly once the changes do go into effect.

Internal Corporate Environment

Evaluating internal processes and capabilities is part of what companies are doing to make sure they are prepared to act in an uncertain, fluid environment. Companies are evaluating their ability to analyze the numerous potential scenarios and want to make sure they have the required information to determine the duties and rules associated with country of origin for raw and intermediate materials and the necessary data to conduct a total landed cost analysis. This environment reinforces the need for the data and a structured, systematic way of analyzing the cost drivers and supply chain contingencies if the environment does change. At the same time, companies want to make sure that their GTM software providers can handle upcoming changes. For example, there is concern about the existing UK customs system (CHIEF) being retired and replaced with a new system in tandem with the UK’s withdrawal from the EU. Descartes and SAP both mentioned that companies are concerned about the concurrent system and regulatory changes. But the GTM vendors can easily handle these changes. The concern is more with the fluidity of the rules surrounding imports and exports from the UK and whether there will be sufficient notice before implementation of the new rules and the replacement customs system.

Overall, the global trade environment is expected to become more complex. The UK will have to renegotiate trade terms with countries outside of the EU and with those countries within the EU. The Trump administration is looking to establish numerous bilateral agreements instead of one multilateral agreement with Transpacific nations, and other elections such as last weekend’s election in France provoke additional uncertainty about international trade. GTM vendors believe that the increased complexity is stimulating additional demand for their products, as companies look to more formally manage their planning and execution of international trade and customs compliance.

How Will Brexit Affect Global Supply Chains?

Global Trade | By Steve Banker • 07/05/2016

There has been a lot of doom and gloom surrounding Brexit. It is clear that in the short term Brexit has created uncertainty and roiled markets. In the longer term I believe its impact will be minimal. It is mainly tariffs and trade restrictions that would have the largest impact on global supply chains. I believe both the European Union (EU) and the United Kingdom (UK) will seek to keep tariff restrictions to a minimum. To do otherwise would adversely impact growth and make it more difficult for the politicians in power to get reelected.

There is already precedent for being outside the EU but still having full access to EU markets. There is a good BBC article on this topic, but I’ll summarize here.

Norway is not a member of the EU. But they are a member of the European Economic Area (EEA) – the single market – along with the 28 current EU members, Liechtenstein, and Iceland. The Norwegian trade model requires a full a contribution to the EU budget, abiding by most EU regulations and standards, and allowing people from across the EU to live and work in Norway.

Switzerland has a free trade agreement with the EU, plus a number of agreements which give it access to the single market for most of its industries. But it does not have full access to the single market for its banking sector and other parts of the services sector. Switzerland’s agreement also requires the free movement of people and a contribution to the EU budget.

But while I don’t see Brexit having much of an impact on global supply chains, there are other developments that have gotten less attention that probably will.

First off, there is the U.S. presidential election. The followers of Bernie Sanders and Donald Trump have made it clear that there is a significant proportion of Americans who feel that global trade has not been in their interest. Both Hillary Clinton and Donald Trump oppose the as yet unratified Trans-Pacific Trade Deal which would have lowered duties on a variety of products and services between a number of Pacific Rim and Asian nations and led to increased trade with Asia. That just means trade will not increase as rapidly as it could; it is still true that global trade barriers remain historically low and not passing this treaty would have little impact on existing global supply chains.

But what the presidential election does show is that if Trump wins, he will seek to increase barriers to trade with countries like China and Mexico. Both China and Mexico are the sites of significant offshore manufacturing where many of the goods produced there are produced there because of low cost production; those goods then flow back into Europe and North America. That, of course, does impact supply chain networks.

Further, Trump’s campaign has made it clear that there is political capital in rolling back trade in places like China, Mexico, and even Japan and Korea. Other politicians are certain to pick up the anti-trade banner even if Trump loses in November.

But one of the most significant supply chain developments has received far less attention than either Brexit or the U.S. presidential election: the EU is getting serious about eliminating tax havens. Many large multinationals have created subsidiaries in low tax nations like Ireland and Switzerland. In the case of Apple, the EU is trying to claw back more than $8 billion in back taxes based on Apple’s use of Irish subsidiaries to avoid higher corporate taxes.

From a supply chain perspective, international tax accountants have generally said that corporations are on more solid ground if a multinational runs a regional, European supply chain out of the low tax country they are using to shield their revenues. It is clear, executing this strategy is getting much more difficult. Now many multinationals may begin to locate plants, warehouses, and regional control towers where it makes the most logistical sense, rather than in locations that provide tax benefits.

So in short, how will Brexit impact global supply chains? Not much. The U.S. presidential could have a much greater impact, and changes in EU tax policies the most of all.

A complete analysis of logistics trends, technologies, and services