The Brexit Free Trade Agreement and the Global Aviation Industry
09 Feb, 2021 by Robert Broderick
Although the UK joined the EU in 1973, the country’s ‘leaving’ the trading bloc has been several years in the making. The conversation, which had been taking place in some form or another for more than 30 years, reached a pinnacle in 2016 with the Brexit referendum vote. That’s when a majority of UK voters indicated their desire to break from the EU. The upheaval was immediate. Scotland, for instance, voted to remain in the EU – bringing the spotlight back on the desire of many Scots to become independent from the UK. The pound sterling fell in value. The Prime Minister, David Cameron, stepped down. Questions lingered about how the border between Ireland, who will remain in the EU, and Northern Ireland would be managed. It took another 3 ½ years before the UK actually did leave in January 2020. They did so, however, without a formal trade agreement, which didn’t come for another 11 months – signed on December 23rd and going into effect a week later on December 31.
Sterling Brexit Task Force
A recent Reuters article, “Factbox: The Brexit impact so far – paperwork, process and higher prices,” notes that Brexit represents the most significant change in trade between the UK and the EU in nearly 50 years. The result is already slowing supply chains. This is no surprise to many, including logistics companies like Sterling. “We could see what was unfolding from the beginning,” says Justin Cassin, Global Operations Director for Sterling. “And the complexities and confusion about what Brexit would mean to businesses did not get any clearer as time went on.”
To get a better handle on the issues, Sterling formed an internal task force early on made up of experts in AOG logistics and regulatory information, as well as import and export processes – both based in the UK and in key markets throughout Europe and the rest of the world. We’ve also hired additional experts to help gain a better understanding of the impact on customs requirements. The Sterling task force meets weekly to ensure our compliance and highlight parts of the trade deal that might impact the global aviation industry.
Key Brexit Issues for AOG Shipments and Aviation Logistics
A month in, importers and exporters are still getting their arms around the paperwork and processes required, customs declarations and – because of COVID-19 – health checks not least among them. So much so that the UK has already asked for the EU to extend the Brexit grace period to 2023. Still, companies are taking steps to re-engineer supply chains to avoid new potential tariffs on goods manufactured in the UK but made up of materials imported from elsewhere. Other unexpected expenses such as VAT, customs fees and higher logistics costs are also hindering supply chains, which is having an impact on businesses of all types and sizes – from local supermarkets to e-commerce giants.
According to Justin, these issues are expected to ripple through all industries and supply chains regardless of the length of the grace period. “Historically, a lot of aircraft parts we shipped came into the UK if there was an importer of record,” he explains. “Once they’d cleared customs there, they could move into free circulation throughout the EU.” That’s no longer possible. That’s why Lloyd’s Loading List, a publication from scholarly research group Informa, says companies are likely to re-evaluate their UK-EU logistics configurations.
Justin agrees. “Our normal operating procedure has always been to plan for the worst-case scenario," he says. "Sterling spends a lot of time mapping out primary, secondary and tertiary routing with every single shipment. We don't take anything for granted." In addition to individual shipment routing, the company has also been increasing staff at airports in key EU markets, including Paris and Frankfurt, where aircraft parts can be cleared 24/7 to give customers an alternative to London. “We’ve also supplemented our customs brokerage in Calais to clear customs for direct drives into Europe as well.”
What Else Should You Be Considering?
While a focus on alternative routing is critical, Justin says there really is no one size fits all when it comes to complying with Brexit. “It’s not a straightforward scenario. Every company is different and every shipment is different.” That’s why we take what we learn in our task force sessions and from industry research and meet with clients one-on-one to discuss the Brexit impacts most critical to their specific organizations. This includes the key areas their compliance teams might need to consider to avoid potential delays to shipments coming into or going out of the UK. Some of the issues we’ve identified and highlighted for clients so far include:
- Manufacturing procedures
- Importers of record
- Licensing requirements
- Sourcing materials
- VAT tax requirements
- Customs documentation
- Registering with the appropriate regulatory bodies
Of course, we anticipate identifying more areas for consideration over time as we begin operating in the new environment. If you’re looking for guidance that you can use to start building out your Brexit compliance strategy, please get in touch with us today. We're here to help and are in regular contact with our clients and other experts on Brexit, and the critical issues it brings.