As Brexit — the United Kingdom’s impending departure from the European Union — looms closer, “uncertainty” is still the only word that consistently swirls around the topic. Although the deadline for the U.K. to leave the European Union is close, it still feels miles away. Whatever ultimately happens with Brexit, it promises to dramatically alter last mile delivery in the U.K.
In the meantime, transportation leaders are left to wonder how to prepare for the breakup between the UK and the EU, as the two parties aim to negotiate a deal. According to the UK’s Freight Transportation Association, “Operators of all sizes are always prepared to go the extra mile to deliver for customers, but without knowing the parameters of the market in which they are and will be working, planning has been almost impossible.” Amid the lingering ambiguity over the issue, it’s difficult for transportation leaders to adequately address the implications for last mile delivery.
While at this stage, it appears implementation of Brexit might happen in 2020 and 2021, that timeline is fragile, and the fate of Brexit remains very much in question. Nonetheless, no one in the transportation sector should wait to prepare for a potentially seismic shift in last mile delivery.
“Don’t just sit there and worry,” says James Hookham, deputy chief executive of the transportation association.
To help transportation leaders map out a strategy for last mile delivery post-Brexit, here are four questions they should ask pre-Brexit.
How will goods get from one place to another?
Brexit almost certainly will complicate last mile deliveries among the UK, Ireland and Northern Ireland (and, of course, between the UK and the EU). Brexit, as envisioned now, would set up a hard border between the UK and Ireland; only Northern Ireland would remain part of the UK.
This has consequences for airplanes, boats, ships and trucks involved in last mile delivery, as well the transportation companies and workers who carry out last mile delivery. Post-Brexit customs operations would be set up along the UK-Ireland border, leading to potential delays in last mile deliveries. Among the things that could prompt those delays are:
- Vehicle checks
- Security clearances
- Veterinary checks
- Food hygiene controls
Those steps would certainly slow down last mile deliveries, causing frustration for transportation companies, retailers, consumers and others who rely on and have come to expect speedy movement of goods from Point A to Point B. Consumers obviously won’t be pleased if their orders are no longer delivered in a timely manner.
“It is likely that Brexit will call for systems to handle more complexity in terms of information held, and frequency of data submission, for customs declarations,” according to professional services firm PwC.
To decrease harm caused by Brexit, the Freight Transportation Association is asking that an unrestricted number of vehicles be able to continue crossing the UK-EU border.
The impact on movement of perishable goods could become especially complicated post-Brexit. PwC suggests asking the following questions if you deal with perishable goods. (These questions likely could be applied to other goods.)
- How do you make deliveries in 24 hours in light of tighter borders and higher costs?
- Should you hold stock in the UK and Europe so that you can service both of them quickly?
- Should you serve the UK from a European hub?
- Should you customize stock in the UK so you can hold it at an aggregate level in the EU?
“Working through these questions and laying down contingency plans now could put you ahead of your competitors,” PwC says. “By the time you decide you need a new UK warehouse, there could be a shortage of infrastructure capacity available to build it. Taking an option on space or land gives you the chance to move quickly.”
Create a plan of action:
Think through how you can try to minimize the pain felt by end users whose orders are taking longer to travel the last mile because of customs delays. What policies and technologies might you need to put in place to ease the burden on your customers? For instance, a transportation provider might need to depend more heavily on supply chain partners located in the UK versus supply chain partners located in the EU.
How will taxes and tariffs be affected?
Brexit is almost certain to lead to new customs dues, import taxes and other financial burdens. As it relates to last mile delivery, companies must face the prospect of how much of these extra costs they will absorb and how much of these extra costs they will pass along to their customer.
The Amazon Effect has enveloped the U.K. over recent years, with 86% using the platform. Shoppers who have enjoyed the luxuries of fast and free deliveries could now be paying extra tariffs as well as shipping charges. That would be in addition to the end user’s frustration over deliveries being stuck in customs.
“Businesses can start to model the impact on revenue, cash flow, clearance times and margins using the existing known scenarios for the UK’s post-Brexit relationship with the EU,” PwC says.
Transportation leaders need to start looking at how they will be impacted by tariff fees. How much of the extra costs for last mile delivery would you be willing to swallow, and how much of the extra costs would you feel comfortable passing along to your customers? The formula you decide upon could make or break your relationships with customers and end users.
In preparation for a no-deal scenario, the government has put together a calculator for temporary rates of customs duty on imports after an EU Exit. You can also find any duty reliefs, VAT rates, and if necessary, fill in declarations. Access it here.
How will the transportation workforce be impacted?
Goods do not move along the last mile by themselves. It takes a virtual army of workers to ensure end users’ orders move safely and swiftly from one point to another.
Experts fear that in a post-Brexit world, it will be harder for transportation companies to overcome a possible reduction in the availability of skilled workers. That reduction would be triggered by the loss of easy movement between the UK and EU countries, including Ireland.
To alleviate workforce concerns, the Freight Transportation Association is calling for:
- The ability to retain EU workers currently employed by the UK logistics sector.
- Continued access to EU logistics workers employed in the UK on a seasonal basis (but who are not permanent residents of the UK) to cope with peak demand.
For Transportation leaders: What will your post-Brexit staffing plan look like? From a workforce standpoint, how will you make sure that last mile deliveries suffer minimal interruptions? The answers to these questions could help your company retain shipping customers and keep end users happy.
What will happen to agreements with supply chain partners?
As noted by PwC, Brexit will affect both existing and future supply chain contracts.
“This means a potentially huge exercise to review existing agreements to understand how Brexit might affect their viability and whether it is possible to change or break them early,” according to PwC.
For new supply chain contracts, it means assessing the likely impact of Brexit and building in enough flexibility to accommodate uncertainty, PwC says.
Professional services firm KPMG suggests exploring whether you can lock in long-term deals now with supply chain partners to ensure the supply chain isn’t broken post-Brexit. The firm also recommends looking into lining up alternative sourcing domestically to prevent border delays and steep tariffs.
“An important factor in terms of Brexit readiness is the need for customers and suppliers to understand the challenges each other faces, whether that’s in terms of costs, SLAs or logistical hurdles,” says Matt Rose, director of PwC’s procurement advisory team in the UK. “The stronger their relationship and the greater the visibility about each other’s business, the better they’ll be able to work together collaboratively to devise an appropriate response.”
This is a good time to study existing supply chain contracts to see what changes might be required to do business in a post-Brexit environment. At the same time, you should give thought to how to structure future supply chain contracts. When doing this, keep in mind how customers will be impacted.