Food and drink: new supply chain risks, compliance issues, and solutions. By Toby Spink and Jessica Yan
Few would dispute the fact that working in supply chain is extremely demanding and stressful. This is especially true for professionals working in the food and drink industry, which relies heavily on supply chains that carry goods safely, smoothly, and quickly from where they are produced to where they are consumed. Given the close relationship between businesses in the UK and the EU, in the post-Brexit world, many supply chains now cross customs borders. This adds another layer of complexity to moving time-sensitive goods. Combined with rising costs caused by geopolitical and economical instabilities as well as the need for businesses to reduce carbon footprint in the name of sustainability, the work of the supply chain team has entered a new era of high pressure.
This short article focuses on a specific aspect of supply chain, namely, the cross-border part of it. Some of the new risks and compliance issues will be highlighted, and the secret to success discussed, to help your business keep goods moving.
New trading relationship, new risks
Since the beginning of 2021, businesses in the UK have had to trade with their suppliers and customers in the EU on very different terms than before. Despite there being a so-called ‘free’ trade agreement between the UK and the EU, trade is far from free. Most importantly, customs formalities are now required. Deadlines for the introduction of checks on food and drink have been shifting which has made planning difficult. But one thing is certain: moving goods between the UK and the EU has become more time consuming and costly. Even when goods that are being moved across borders do not attract any customs duties, the cost for the business to complete customs formalities can quickly add up, chipping away the already slim margin.
The cross-border part of a supply chain is often the most vulnerable part of it. As such, it requires specialist attention. However, given few businesses in the UK have had to deal with customs formalities prior to Brexit, this specialist know-how is still in development. Customs specialists with food and drink sector experience are quickly snatched up whenever they come up in the market. The risk of not fully understanding how to deal with customs formalities to avoid delays has never been scarier in scenarios where the goods have a short shelf life and delays would be detrimental. For example, when businesses have shipped goods to their customers without realizing a health certificate is required, those goods must be returned to source (potentially attracting another round of health certificate admin to re-enter the country of export) and shipped again with a complete set of documents. Or worse, the goods have gone to waste because of their short shelf life or due to the business’ reluctance to deal with further admin to get them back.
Typical compliance mistakes
Customs formalities and the related compliance responsibilities are relevant to all businesses that are involved in the cross-border movement of goods. There is a common misconception that if the completion of customs formalities is outsourced to a customs agent, then the business has little to do. This could not be further away from the truth. As the importer or the exporter, the business that appears on the customs declaration for the goods is ultimately responsible for carrying out the activities in a compliant manner.
Any customs duties and import VAT payable must be correctly calculated based on the right information provided at the right time. For example, the correct commodity code must be assigned to the goods being moved. This should be done based on a whole range of information which is often only available to the manufacturer or the importer, so it is wrong to believe that commodity codes can be chosen by the customs agent based simply on commercial documents with limited information. The process of selecting a commodity code is called classification. For some food and drink products, this can be very complex as many factors must be considered, such as the exact manufacturing process.
Getting the commodity code wrong can have many adverse consequences. Not only would the rate of customs duty be incorrectly assigned due to wrong classification, the rules a business must use to claim preferential treatment may also be incorrectly applied if the wrong commodity code is used.
Furthermore, another important element is the value. Goods that are imported have customs values, and this is often not exactly the same as the invoice price. This is because invoice prices may not include all the dutiable elements. Depending on the way the transaction is structured, the invoice price may be rejected as basis for the customs value.
With so many additional requirements when goods cross a customs border, a lot can go wrong. Businesses can be audited post-customs clearance, which means mistakes from three years ago can haunt a business and cost valuable time and resource when an audit is triggered. So, it is best to get it right the first time.
How to master customs and trade compliance
Dedicating resource to developing in-house knowledge on how to deal with customs formalities is the key to success. Knowing what best-in-class practice is gives the business something to strive towards. This helps to avoid questions at the time of customs clearance, which in turn reduces risks of delays. It also helps to speed up post-clearance customs audits when there are no mistakes to be uncovered.
The team responsible for customs and supply chain matters is only contacted when things go pear shaped. Not getting any emails or phone calls about goods being stuck at the border is the best compliment. The best time to master customs and trade compliance was last year, the second best time is now. Let’s start today.
Toby Spink and Jessica Yang work at BKR Consultants Limited. BKR is a UK based customs and trade advisory company, working with importers and exporters across the globe. It provides professional and practical guidance on all matters associated with customs clearance, customs compliance, and supply chain efficiency.