Monday 6 July 2020

A port in the storm?

Andrew Galliers, senior manager, and Sean Turner, VAT advisor, at accountancy firm Menzies LLP, discuss the potential impact of proposed free ports on HGV operators

The UK government has recently proposed to create ten free ports after Brexit in a bid to boost international trade – but what impact could they have on UK hauliers, and are they ready for the changes?

Turning British ports into ‘customs-free zones’, similar to those in some other parts of the world, would allow businesses to bring goods into the country, for processing or manufacture followed by re-export, without incurring tax and customs duty liabilities.

Planning for the introduction of free ports is not easy for cash-strapped hauliers. On the one hand, there is a lack of certainty about whether Boris Johnson’s government will be in power to implement its recommendations, and the Brexit deadline, which is currently set for 31 January 2020, could once again be missed, or a period of transition would take place.

Without any certainty on the matter, the best we can say is that if the free port proposals go ahead, they are likely to be well spread out geographically – potentially at ports such as Felixstowe, Teesport and London Gateway, as well as some airports in the London area and possibly elsewhere, such as Prestwick.

While there is no immediate need for hauliers to move closer to these locations, they should at least be aware of how their routing might be affected if free ports are introduced and the impact this could have on their operating costs. These ports could bring significant opportunities for some operators by acting as a new transport hub, allowing them to improve efficiency and optimise trip capacity. For larger operators, the potential returns could be sizeable, but even smaller operators could expect to see reduced pressure on margins.

Ensuring they are ready to flex their operational footprint to take advantage of these new transport hubs will require careful cash management. For example, SME hauliers should start by reviewing operational data to ensure they have a good understanding of areas such as cost per mile, the percentage of full loads and the percentage utilisation of the fleet, warehouse or both. This information could then be used to calculate the value that use of any free ports might bring. For some operators, rethinking processes and investing in innovation, which may include bespoke software-based solutions, could allow them to bring a claim for R&D tax relief.

Some changes to import and export processes are likely to be required if the free port proposals are implemented. For example, VAT and customs duties on goods coming into the port would effectively be suspended, but declarations would still be required to provide an audit trail of goods movements. This is likely to require new administrative procedures and it may make sense for operators to consider such changes now and ensure they have robust procedures in place. In terms of their readiness for Brexit, most operators are as prepared as they can be. Some have Authorised Economic Operator (AEO) status, as a certificate of competence, and HMRC has already taken steps to ensure importers within the supply chain are signed up to Transitional Simplified Procedures (TSP) and have an Economic Operator Registration and Identification (EORI) number too.

While SME hauliers will be reluctant to invest until there is greater certainty, the free port proposals should be considered closely. Understanding the cost impact that the changes could bring is critical and some carefully managed, strategic investment could ensure the business is ready to capitalise on the changes, if or when the time comes.

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