While the full effects of Brexit have yet to take effect, this year has seen huge changes in logistics and supply chain disruptions that are disproportionately affecting FMCG companies on both sides. Let’s take a closer look.
Given the progression of the transition, it will be years before we are fully “post-Brexit”, and perhaps decades before we can measure the full effects. However, a few months into 2021 we can begin to make some assessments and predictions. Despite the media’s focus on grocery stores, medications, fishing, and so forth, the industry that is most affected by Brexit, and best informed of the current effects, is the logistics industry.
Changes in Transit Patterns
There is surprising disagreement about changes in the volume of post-Brexit trade, with the UK’s Road Haulage Association claiming a sharp decline, while the UK government claims a return to near-normal (or as close as can be expected during a pandemic). These ought to be independently verifiable facts, not subject to varying claims and opinions, but the one thing that isn’t disputed is the dramatic shift in haulage patterns between the UK and the EU.
- Transitioning from road haulage to air cargo. Road transport used to be the most popular and efficient way to transport goods from the UK to the EU, with UK lorries contributing a whopping 8% of the total road transport in the EU. However, paperwork delays and congestion have caused a dramatic shift to air transport, with 200% more air cargo into the UK so far in 2021 compared to 2020. This is in part caused by a shipping container shortage in Asia, causing delays in global marine shipping, air cargo is faster, more efficient, and a boon to an air industry suffering from the sharp decline in passenger flights.
- New maritime trade routes. While there have been regular ferry crossings from Ireland to France for decades, a new need to avoid British ports has caused a sudden explosion of new crossings and new connections between Ireland and the continent. A new Dublin-Cherbourg freight route added on Jan 23 sold out its first day, carrying more than 175 trucks from Ireland to France. The traditional Rosslare-Cherbourg ferry and the new Dublin-Cherbourg ferry have been joined in recent weeks by new sea freight routes from Rosslare to Dunkirk, closer to the heart of Europe. While these new routes are slower than road haulage, they avoid complex border checks and provide greater certainty regarding shipping times. Ferry traffic from Ireland to Great Britain has decreased by 49% in 2021, while traffic to France has increased by 102%, with 3X more weekly crossings. In fact, freight traffic from Rosslare to Europe was up 446% in Jan 2021 compared with a year before. This has caused surprising local growth in jobs, as government agencies, shipping lines, and port authorities have had to dramatically scale up their staff.
- One way traffic. In previous years, freight movement was fairly well balanced, with approximately 4.0 million tons of UK exports to the EU, and 4.2 million imports from the EU carried by freight trucks in 2019. In 2021, due to increased challenges and delays at the border, more of these journeys are imbalanced: more trucks are crossing the border filled with freight, and then returning empty. Of course, empty trucks are a source of waste and inefficiency that plagues logistics professionals.
Changes in Incoterms
When the UK was part of the single market, Incoterms (International Commercial Terms) didn’t need to include detailed specifications regarding responsibility for import declarations and for VAT payments. Generally speaking, EU customers are unwilling to bear any additional costs related to Brexit, which leaves UK suppliers responsible for completing additional paperwork and paying additional costs on both sides of the border. This has led to a showdown among many of the UK’s largest importers and biggest shipping companies, where retailers want to continue using existing DDP terms, while suppliers are shifting to FCA or X-works.
For a UK company to pay, file, and then reclaim VAT, they need a local EU fiscal representative. They then need to pay a fee to register for VAT, and then file their VAT declarations and returns. These costs have a high impact on small businesses, who are unsure of the risks of passing along increased costs to their EU customers. For large retailers like Lidl, logistics providers point out that they can pass along increased costs to their UK customers, because logistics margins are already tight.
In response to the demands of VAT, many logistics companies have changed their Incoterms to shift responsibility for costs, paperwork, and timing to the customer, rather than risk liability themselves. And even their biggest customers have had to accept these terms, or risk empty shelves.
FMCG Industry Impacts
While logistics disruptions affect every industry, there are special Brexit impacts on FMCG. While many industries had the opportunity to build stockpiles against Brexit, insulating themselves from the effects, many FMCG companies have not had that luxury. A shortage of warehouse space and the shorter shelf life of many of these products makes stockpiling more challenging, and has caused suppliers to feel the effects more quickly. There are new industry-specific requirements for cosmetics, organic products, and of course wine and food. All these changes are, of course, more difficult for SMBs in the FMCG sector, where there are lower margins and cash reserves, it is more difficult to negotiate favorable Incoterms with shippers, and it is more difficult to export mixed shipments of goods.
Over time, shipping, logistics, and supply chain professionals will adapt to these new regulations. Logistics relies on creative problem-solving, flexible thinking, and innovative approaches, and you can rely on them to get the job done. During this time of challenge, disruption, and ambiguity, logistics teams are continuing to provide the food, medicine, and essentials we need to survive, across borders and around the world. If you need to strengthen your international logistics teams, contact grapefrute today.