January 26, 2021
By: Peter Gregory
Brexit is officially done: the transition period ended on 1st January, and there’s a zero-tariff trade deal in place between the UK and EU.
In spite of this, many of our apparel and fashion business customers have had to battle added taxes, delayed deliveries and outrageous shipping costs in the first few weeks of 2021.
In this week’s article, we’ll explain the challenges facing UK clothing imports and exports businesses at the moment. We’ll share our forecasts on how long these problems are likely to last, and we’ll show you what you can do to manage these problems in the meantime!
Last Christmas, negotiators from the UK and the EU came up with the “UK-EU Trade and Cooperation Agreement”, a comprehensive trade deal that was meant to keep trade between the UK and EU seamless, with “no tariffs or quotas on the movement of goods we produce between the UK and the EU” (see page 6 of the summary report on Gov.uk).
In spite of this deal, goods now seem to cost more when they cross the UK border, vital packages are getting delayed by couriers and postal services, and international shipping costs have gone through the roof. It doesn’t matter if you work in high fashion or apparel merchandising; these three problems are affecting almost every sector of the UK clothing industry.
Some of these challenges can be directly linked to Brexit, but the Coronavirus pandemic has caused a lot of problems, too. The good news is that, over the coming months, trading conditions should improve.
A few of our larger customers had mentioned before Christmas that shipping container costs were going up, but it wasn’t until we saw this BBC News story that we realised the extent of the problem.
The costs of booking a shipping container to bring goods into the UK from overseas have gone up by as much as 600% in some cases, and it’s all because of a shortage of shipping containers in certain ports (something we touched on in our recent ‘Preparing for 2021’ article).
In essence, there are not enough shipping containers at ports in places like China, where we get a lot of our raw textiles and blank garments, because Coronavirus lockdowns and staggered factory openings have created an imbalance in the normal global supply chain. This means that importers have to pay more to get access to the containers that are available while we wait for the global supply of empty containers to ‘balance out’ again.
This issue is causing problems for importers in every country, not just the UK and not just fashion, so we’re hopeful that this problem will fix itself by summer 2020.
Most of our UK-based customers receive at least a few of their raw materials from a supplier based somewhere in the EU. Previously, these pallets and parcels could be shipped with nothing but a packing slip, but now everything needs to be itemised and coded on a customs document. The same goes for any finished clothing manufactured in the UK and sold to customers in the EU.
Customs officials expect the paperwork to be in order for every single parcel that crosses the UK/EU border. If a parcel’s customs document is filled in incorrectly, then those goods have to be returned by the courier (or held at the port, in some cases).
This is a serious problem for courier companies: their paperwork burden increased overnight when the Brexit Transition Period came to an end. Suddenly every parcel coming in and out of the UK needed a customs form.
It’s understandably taking a bit of time to adjust to the ‘new normal’. Even DPD Ireland, the largest parcel delivery company in Ireland, has had to “temporarily suspend Third Party Collection services from mainland Great Britain into the Republic” because of the sheer volume of incomplete or incorrect customs declarations.
This problem wasn’t really caused by the couriers — they’re the unfortunate middlemen, caught up in all this new red tape — but it’s up to them to fix it. Our bet is that these companies are working hard on their own systems and finding new ways to streamline the customs process. Our bet is that customs delays will be well and truly over by spring 2020.
The EU-UK Trade and Co-operation Agreement promised a tariff-free trading environment, but as always the devil is in the detail. Tariff-free is not the same as tax-free: VAT is not a ‘customs tariff’ — it’s covered by a separate set of agreements between the UK and EU which no longer apply as a result of Brexit. This now means that VAT is due on goods as soon as they cross the border in either direction.
What’s more, the ‘tariff-free’ deal only applies to goods produced in the UK or the EU. Any goods that come from outside the UK or EU, and which subsequently cross the border, could trigger an import tariff.
These kinds of confusing import taxes are causing problems for consumers and businesses alike. There’s no guarantee that the import tax problem will get solved; we’d need politicians in both the EU and the UK to do a fresh VAT deal and review the import tariff ‘country of origin’ rules, which could take years, if it happens at all.
If there’s one thing you can rely on in business, it’s that there’s always a fresh challenge to confront!
Shipping costs, courier delays and import taxes are certainly challenging, but they’re not insurmountable issues.
Here are our 5 top tips for keeping goods moving, and costs under control, in 2021:
1. Get an EORI Number:
An EORI number is absolutely critical for importing and exporting to and from the UK. Your EORI number is usually the first thing you’re asked for on a customs declaration. It’s the centralised file number that authorities rely on in both the UK and EU. Many parcel companies are now refusing to take parcels that don’t have an EORI, so our advice is to get it sorted as soon as you can.
You can apply for an EORI on the gov.uk website here. The whole process takes about 10 minutes and then your number should be with you in 4 working days or less.
2. Hire a Customs Broker (or learn your HS Codes):
Every customs declaration will ask you to submit at least one HS Code number. The HS (Harmonized System) codebook takes every type of product in the world and assigns it a six-digit number. You’ll pay different import taxes depending on the HS code your products are listed under, and there are serious penalties if you get the HS number wrong.
Some businesses will want to handle the HS codes burden themselves. Our advice is, if you have any doubts about the customs classifications of the products you’re buying and selling, to hire a customs broker. A customs broker is an expert in HS codes, import/export rules and anything customs-related. They’re there to keep your business compliant with the law in every country you buy from or sell to. You can pay them a monthly retainer or a one-off fee for their advice. The Gov.uk website has a list of customs agents if you need a steer on this.
3. Hire an AEO haulier:
If you work with a transport and logistics business that isn’t AEO registered, then it may be time to look for an alternative supplier. Authorised Economic Operators (AEOs) are trucking and courier businesses that have proved to the customs authorities that they operate in a highly secure, trustworthy and efficient manner.
AEOs get to use priority queues at the ports, they’re subject to fewer customs checks, they pay less in customs guarantees and they have less paperwork to deal with when passing through border checks. If you’re importing or exporting time-sensitive goods in 2021, you absolutely need to use an AEO.
4. Check Gov.uk every week:
Everyone is still ‘feeling their way’ through the new trade deals — new agreements are being signed every week and everyone’s working out how best to interpret the new rules. The gov.uk Brexit Transition Checker is the best place to keep track of your responsibilities as a business.
5. Manage expectations with your customers:
For the next few months at least, you are not in control of how quickly goods get through the postal system. You can’t guarantee that goods will leave the UK and arrive in the EU overnight; you also can’t guarantee that you’ll get the raw materials you’ll need in good time.
When discussing parcel delivery dates with your customers, give yourself much more time than you need, even if they’re here in the UK, and try to forewarn them that there may be a delay.
One more thing: if you’re a new fashion business, please don’t let these problems put you off. Just remember that people have been trading across borders for as long as there have been borders! If you’re a startup designer, your job is to produce the best stuff you can, and trust that when the time comes to ship your orders, the global logistics industry will be ready and waiting to support you.
Some of the smartest people in the world work in supply chain and logistics; everyone’s still adjusting to the post-Brexit environment, but we’re confident that we’ll get there very soon. If you have any specific concerns, feel free to get in touch … and when it’s time to order your labels, you know who to call!
Thanks for reading!