What are the learnings from Covid-19?
- The importance of robust and alternative supply chains.
- Good solid supply chain relationships.
- Traceability – track and trace software. Visibility of goods is important.
How has Covid-19 impacted international trade?
- Freight rates have increased, particularly air freight.
- Encouraged the need to look at the location of current suppliers are and consider alternatives
- Supply chains were disrupted with businesses seeking alternative or additional sources of supply.
- Commodity prices have fluctuated, impacting the cost of materials.
- Some business have considered diversification, they have increased the use of technology, as well as further developed online selling mechanisms.
- A Covid-19 commodity code at a world-wide, EU and UK level has been introduced, allowing some barriers to be removed for certain products such as zero tariffs or zero VAT. At the same time some trade barriers have been introduced in order to control the import or export of certain goods for the national need.
Increase in the use of Customs Authorisations and Customs Special Procedures within supply chains.
- Customs warehousing – stored without customs or excise duty or import VAT being due while the items are kept away from circulation in the market.
- Inward processing – suspended payment of customs or import VAT while processing is taking place.
- Outward Processing – allows the temporary export of goods for processing or repair within no or only partial import duties.
- Temporary Admission – goods imported on with total or partial Customs duty relief because of the specific use.
- Authorised Use – All or partial Customs duty relief due to prescribed end us.
Consideration can also be given to locating supply chains closer or within free trade zones of which you are a part. Clearly there are other implications to consider in doing so, such as the unit cost or capacity.
WTO and the Trade Facilitation Agreement (TFA)
The TFA is set to reduce trade costs by as much as 14.3%, improve import and export procedures, and in so doing is set to increase exports by a trillion dollars each year. It requires governments to publish measures to simplify trade and customs procedures. Some countries are more ambitious then others and aim to improve in all areas, including:
- Reducing trade documentation
- Providing electronic customs clearance
- Permitting 12 hour customs clearance
- Providing single window to customs
Members must ensure impartiality and non-discrimination around phytosanitory and other inspections.
The TFA also provides a framework for lesser developed countries to help these countries to develop more efficient customs and trade systems
An example of such an agreement is the African Continental Free Trade Area, which will help trade both between those on the African continent, as well as those countries doing trade with them.
General Points
Is the elimination of VAT long term?
The elimination of VAT only applies to goods on the Covid-19 Commodity Code List due to their national need. This is seen as a short term need and therefore the VAT will revert back to its original level.
What is Customs Warehousing?
Inwards goods, if stored in a customs warehouse, don’t pay VAT until the goods are released into the UK free circulation. If you re-export them, then no import duty or import VAT, as long as they are held within a Customs Warehouse. This is a facility as business can apply for and can even be part of a warehouse.
What are Blank Sailings?
There has been an increase in Blank Sailings since Covid-19 started. This is a cancelled scheduled sailing where a shipping company will avoid a port or an entire route.
Is there an increased use of technology in International Trade?
Yes, both from a government and a importer/exporter perspective. Blockchain will help increase visibility as document digitisation increases. Digital Airway Bills are certainly well under way.
How to Manage Covid-19 and Brexit?
- While Covid-19 has diverted attention away from the planning for Brexit, there are lessons to be learnt.
- Communication with the supply chain is key.
- Ensuring there is a clear plan with contingencies where possible in place.
- Getting staff trained up where required and establishing links to specialist knowledge where required. Use HMRC grant scheme to fund staff training and system investment.
- Increase stocks of key items just in case of a slow-down in the supply chain where it is possible to do so.
Trade Finance & Covid-19
What is it Trade Finance?
Trade Finance is a funding solution that allows businesses to purchase goods and bridge the cash-flow gap between paying their suppliers and receiving payment from their customers.
What is the impact of Covid-19 on trade finance?
- Some businesses have had to delay payment of goods or renegotiate payment agreements/terms.
- Covid-19 has highlighted how inter-connected the world trade now is.
- It has exposed the vulnerability of many businesses running a system of supply chain optimisation involving reduced inventory and increased asset utilisation.
- There has been a 13 – 32% reduction in merchandise trade.
- Many manufacturers/suppliers have faced delayed and cancelled orders which have major cashflow implications.
- Increased stock holding to guarantee supply has an impact on cash flow.
- Lockdown and a change in the way businesses can operate, with many staff working from home or on furlough, there has been a lack of availability of Company Searches /Credit Insurance Limits.
- Government support for credit insurance has been having a positive impact. This is short term but there may be some extentions.
- There are some growth areas such as FMCG, PPE and ICT, the latter being down to a large extent by people having or choosing to home working.
- Some short supply in raw materials has had a major impact on the entire supplychain.
Diversification of Supply Chains
- You need to check the viability of current and potential manufacturers/suppliers.
- There has been a lot of changing of supplier payment terms. There has been a move away from open account and cash against documents to an increased demand to fund deposits and pre-shipment finance. Letters of Credit have seen a decline in recent years however, this has seen and upturn in interest due to the security they provide. They ensure the supplier is not paid until the goods are shipped, but they also have the option to discount these Letters of Credit.
- Many businesses have renegotiated contracts with reduced quantities in line with sales projections.
- Local supply where possible (Reshoring).
- Greater reliance upon technology – ecommerce and digitisation of processes. 200% increase seen by some global suppliers.
- Impact of Brexit – 2/3rd of businesses have delayed preparations. Concerns over administration and shipping. Partnership is key with Freight Forwarders and shippers.
How to protect against currency FX fluctuations?
Many businesses will use Trade Financiers Foreign Exchange Facilities, purchasing FX spot or they enter into forward contracts for set rates between specific periods in order to fix profit margins for clients. This gives an ability to lock in the prices.