The UK is no longer a member of the EU. Brexit trade hurdles are proving a major challenge for many businesses. Calling in a customs specialist is a proven solution.
DHL Freight customs specialists of DHL FoodLogistics provide some good advice post Brexit
DHL Freight Customs & DHL FoodLogistics Customs experts Mario Huste and Patrick Herbold explain why choosing the right Incoterm post Brexit is especially important.
Which aspects of the Brexit deal are essential for trade – let's stay with Germany-based businesses for a moment?
Mario Huste: It is important to know that customs declarations are now required. For anyone dealing with customs issues for the first time, the main thing to note is that export customs clearance is required in Germany and import customs clearance in the UK. The agreement between the EU and the UK provides for zero tariffs and zero quotas on goods that meet the relevant rules of origin. To benefit from the trade and cooperation agreement and preferential tariffs, a declaration of origin is required on the invoice. REX registration may also be required if the value of the goods being shipped exceeds 6,000 €. Depending on the goods, additional licences, proofs, and certificates are required. In all other respects, import sales tax is still levied.
Mario Huste
Customs declarations are now required on goods traded between the UK and Germany! This is the biggest takeaway for anyone facing customs issues for the first time.
Head of Sales & Marketing, DHL FoodLogistics GmbH
Brexit at a glance
EORI number: Formerly known as a customs number, an Economic Operators´ Registration and Identification number (EORI), is used to identify traders within the EU and is a prerequisite for EU customs clearance.
Incoterm DAP: Delivered At Place. Under this Incoterms agreement for cross-border transactions, the seller bears all costs and risks up to the agreed place of delivery. The seller also fulfils his or her delivery obligation when he or she makes the goods available for unloading. Here, it is important to define the place of delivery as precisely as possible, since all the costs and risks up to that point are borne by the seller. The buyer, on the other hand, carries the unloading costs and risks.
Incoterm DDP: Delivered Duty Paid Named Place of Destination. This Incoterms agreement form for cross-border trade transactions puts the full burden of responsibility on the seller. Accordingly, the seller must deliver the goods to the place of delivery in the destination country at his or her own expense and risk, complete all formalities and bear all import duties as well as all the costs.
Non-tariff measures: Measures that are not listed or involve tariffs and make market access more difficult for foreign participants. These include licences, proofs or certificates, standards, designations of origin, import documents, formalities, and administrative procedures.
Zero tariffs/zero quotas: A zero tariff was negotiated in the Cooperation and Trade Agreement between the EU and the UK. This is a bilateral agreement in which customs duties do not apply provided goods are accompanied by documented proof of origin.
Preferential tariff: A tariff negotiated in the trade agreement that favors one trading partner over others.
What should businesses that ship goods to the UK do?
Patrick Herbold: Lots of businesses that used to operate exclusively in the EU´s single market are seriously overwhelmed by the new customs formalities. The key strategic questions that businesses need to confront are as follows: Are the Incoterms agreed with the British buyers before the agreement went into force still relevant? Can the contractual partners implement the conditions that accompany them? Should the business set up shop in the UK? Are product prices still attractive to consumers in the UK after additional costs, such as customs formalities, are added? Does the business case pay off?
What do you advise the businesses that hire you as customs consultants?
Patrick Herbold: Choosing the right Incoterms clause is very important, so let’s go into it in more detail now. From our experience working with B2Bs, we know that agreements between sellers in Germany and customers in the UK are often based on DDP Incoterms. DDP or “Delivered/Duty Paid” obliges the seller to bears all costs, risks as well as the responsibility for customs matters. This applies to export from Germany and import into the UK. The sellers are thus responsible for customs clearance in the UK but cannot meet this responsibility themselves since they are not based there. Thus, in practice DDP is almost impossible to implement and is currently unsuitable for trade with Great Britain. It is also associated with numerous obstacles and risks for the seller. We advise against it.
Why are the right Incoterms so important?
Patrick Herbold: To date not much attention has been paid to Incoterms. Yet they regulate important aspects of a shipment transaction, including customs clearance, costs and responsibilities. What is more, behind every delivery clause there is a defined place where risk and costs are transferred from the seller to the buyer. Those who negotiate precise delivery terms can therefore not only calculate more accurately, but also benefit from a clear path of action in the event of transport damage or customs clearance problems.
How can businesses determine the right shipment clause for them?
Patrick Herbold: We advise you to enter into a dialogue with your contractual partners in the UK. These should be advised to apt their delivery clauses – against the background that the UK is now a third country – and change them to DAP, for example. The important thing here is to understand that only UK-based businesses can submit customs declarations and obtain customs authorizations.
And if businesses can’t get this problem solved?
Patrick Herbold: There are three options for businesses that cannot resolve the DDP issue with their customers:
The first one is indirect representation by a customs service provider in the UK who submits a customs declaration in their own name but on behalf of the importer. The challenge, however, is that most customs service providers will not agree to this since indirect representation makes them jointly liable with the account holder on whose behalf they are acting. This exposes them to demands for payment of import duties, which can accrue over a period of at least three years after clearance. This option is therefore not attractive.
Secondly, the German company could establish a UK company with a UK permanent address, insofar as this makes sense from a business strategy perspective. This offers a viable option for businesses that want to serve the UK market. Letterbox companies are not permitted, so it is important that the company has a physical presence in the UK. This British company is then the buyer of the goods and acts as the “Importer of Records” (responsible importer). To do this, it needs to be registered on the British company register, with UK VAT authorities and possess a British EORI number. The German company can then sell the goods to the associated British company using the Incoterm DAP, for example. The latter is responsible for import customs clearance. After the goods have been declared and released, they can be resold to the end consumer by the British business.
Patrick Herbold
It's important for businesses to strategically reanalyse and take a fresh look at the U.K. Market – in other words, take a hard look at their supply chain, as well as their associated costs.
Business Development Customs, Senior Customs Consultant and Field Sales Executive, DHL FoodLogistics Germany
How can DHL FoodLogistics help businesses with shipments to the UK?
Patrick Herbold: If you don´t have the expertise in-house, it makes sense to get good advice now. Every company and every product have their own special features. These and the customs aspects need to be thought about carefully. We offer businesses customs consulting, virtual workshops, and seminars. We go through the customs issues with them step by step, analyse the status quo and work out new solutions for the British market.
Mario Huste: When it comes to food logistics, in recent weeks we have helped several new customers access the UK market in terms of customs and transport. In this regard, businesses can benefit from our customs expertise as well as our logistics solutions for food.
Need UK customs advice or a logistics solution for temperature-controlled shipments to the UK? Contact us today – we will be happy to help: sales.foodlogistics@dhl.com
