Burnside Eurocyl: Preparing well for Brexit, despite early effects

Carlow manufacturing firm, Burnside Eurocyl, felt the effects of Brexit as early as the referendum and has already made a myriad of changes big and small, to prepare for the January deadline. After a consultation with Enterprise Ireland, the company put together a team from various departments, to ensure that they are as ready as they can be.

 

Burnside Eurocyl is an independent company established in 1998 under the joint management of brothers Tom and Anthony Byrne. Based in the town of Carlow, the plant designs and manufactures hydraulic cylinders for mobile machinery such as excavators and road-building equipment.

 

Early impact

‘We experienced the effect of Brexit immediately after the referendum, when sterling dropped,’ says Tom. ‘It immediately affected our UK business out of Ireland.’

Sales to the UK account for about 11% of the company’s exports. When the value of sterling fell, the company had to increase their prices to compensate for this loss. There was serious concern that the price increases might drive customers elsewhere.

‘Thankfully the effects so far have not been too serious,’ adds Tom. But the company is nonetheless refocussing its sales efforts outside of the UK.

 

Hedging

The company has employed a number of other strategies to offset the effects of currency volatility.

‘We engage in currency hedging by buying & selling sterling forward where appropriate.’ Where possible, they have, for example, changed larger customers’ accounts from sterling to euro. On the supply side they have changed supplier accounts from euro to sterling in order to help offset the effects of exchange rates. Despite these efforts, Tom says, currency volatility and uncertainty about customs remain an ongoing concern for the company.

‘We bring some raw materials in from the UK. The good thing about that is that it at least helps to offset the sales problems created by the currency difference. It’s a way of hedging I suppose,’ says Tom.

 

Keeping informed

‘We’ve worked with Enterprise Ireland from the beginning,’ says Tom. Enterprise Ireland has provided funding for R&D, training and capital equipment over the years.

‘We have also participated in trade delegations and have used the services of Enterprise Ireland’s overseas offices when visiting customers.’

When it came to preparing for Brexit, the company drew on the resources provided by Enterprise Ireland. ‘We haven’t applied for any funding as yet,’ says Tom, ‘but we have been attending seminars and participating in discussion groups about how to deal with Brexit.’

A consultant from Enterprise Ireland visited the plant to provide an in-house consultation on strategic sourcing. ‘This was a great help for learning about all the new requirements on the purchasing side of things.’ The consultation helped management to start mapping their supply chain for potential Brexit effects.

Preparations

In order to prepare for Brexit, the company put together a team of staff members, from areas ranging from Administration to Logistics, to ensure that all the departments were aligned in addressing the various implications of the change.

‘There are a lot of customs details that needed to be worked out,’ Tom explains. ‘We’ve appointed our logistics partners as customs agents… we’ve added commodity codes to our products on our software system and invoices, and added incoterms to our invoices.’

‘We had to obtain our Economic Operators Registration and Identification (EORI) number, for example,’ explains Tom. This number is required for any economic operator outside the EU, doing business in the EU. Because the company trades and travels through the UK, the number will be needed after January. The process of obtaining the EORI number was neither time-consuming nor expensive. ‘It’s a one-off exercise, but once that’s done, it’s done.’

Like many Irish businesses, Burnside Eurocyl has applied for trusted trader status, to try to mitigate some of the delays that might be created at customs. The uncertainty about tariffs and duties could potentially cause delays to the movement of goods. So, the company has obtained a Trader Account Number, which will authorise them to defer payment of duties or tariffs and, hopefully, allow processes to run as smoothly as possible.

‘We have also engaged with our suppliers to ensure that they have their paperwork in order such as the EORI number and commodity codes.’

 

Transport routes

‘Transport is the largest potential pitfall from our point of view,’ says Tom. Burnside Eurocyl exports 95% of its produce to Europe, North America and Asia. ‘There will undoubtedly be extra documentation and costs in this area. We do foresee that there will be teething problems resulting in delays initially.’

The company transports goods to the continent via the UK, and this could potentially cause serious problems. Many anticipate substantial delays on this route after Brexit, with goods being stopped at customs posts.

Although Burnside Eurocyl products don’t have a short shelf life, the company deliver to many of their clients on a just-in-time basis. Any delays could have a very bad effect on their clients, with many having to pause production if the cylinders do not arrive on time.

‘We have spoken to our carriers about avoiding the UK land bridge for transit to the continent. They tell us that there is an option to avoid the UK and go the sea route if there are difficulties or delays. However, this is likely to be more expensive and have a longer transit time.’

For many sectors, tariffs are going to be a major cost after 1st January. For Eurocyl however, ‘it isn’t known as yet if there will be tariffs on our goods, and in the event that there are, the WTO tariff is relatively low at 2.7%. This is of course an unwelcome cost increase but hopefully we can counteract it by gaining efficiencies in the operation.’

Stocking up

‘We expect initial delays in deliveries to our customers,’ says Tom, ‘and to counteract this we plan to build extra stocks to cover customer demand. To minimise potential disruption in the supply chain we have increased our stock of raw materials and brought forward our supplies to cover any disruption during shipping.’

Although our Brexit preparation team has already made numerous changes in advance of Brexit, management knows they can’t prepare for every eventuality. ‘We’ve done a lot,’ says Tom, ‘but there’s still a lot to do before the deadline and we’ll continue to monitor developments.’

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Vitalograph: Facing down the storm of Brexit

Despite the uncertainties associated with Brexit and the Covid-19 pandemic, Irish medical device manufacturer Vitalograph is ahead of revenue targets.

 

‘In the medical device business in Europe,’ explains Frank Keane, CEO of cardio-respiratory device manufacturers, Vitalograph, ‘We have a perfect storm at the moment. There’s Covid-19, which is putting different demands on the sector, then there’s the uncertainty caused by Brexit, and meanwhile there’s the major changes due to new regulation – the impending  EU Medical Device Regulation.’

Vitalograph was founded in the UK in 1963, when founders Margaret and Dietmar Garbe developed a device that could test miners for ‘black lung’. A family-owned enterprise to this day, the firm is now a global leader in respiratory diagnostics, with facilities in Ireland, Germany, Japan and the USA. The company exports to clients across the world and has recently cornered the cough analysis market in clinical drug trials.

 

In Ireland

Since 1974, Vitalograph has performed all of its manufacturing and R&D in Ireland, from a facility in Ennis.

‘We’ve had a lot of support from Enterprise Ireland over the years,’ says Keane. ‘We have had R&D support, a job expansion scheme, a LEAN initiative, marketing support…. the practical supports are fantastic. For example, they recently helped us to get very good distributors in South Africa and Zimbabwe.’

This year, management has attended several Enterprise Ireland seminars and, more recently, webinars, to find out how best to prepare for Brexit. ‘That’s been a great help for understanding the implications for customs. That’s where we have been getting the majority of our knowledge on customs changes – they’ve kept us informed as much as is possible.’

While the pandemic is dramatically altering the market and even affecting the supply chain, the sector is already experiencing the financial impact of Brexit, which will likely create obstacles in the near future. To address these challenges, the company has broken down Brexit-related issues into four categories: regulatory approvals, finished products to the UK, components from the UK, and transport.

 

Regulatory challenges

Regulatory changes are already proving very expensive for the company.

‘Both our Irish facility and our UK facility are accredited by the British Standards Institute (BSI), headquartered in Milton Keynes in the UK,’ explains Keane. ‘The effect of Brexit is that BSI UK has lost its certification as a notified body. That means that any company accredited by them can no longer sell into the EU.’ BSI’s solution was to set up a Dutch subsidiary, and Vitalograph is now accredited by BSI in the Netherlands. The change has had huge financial implications for the company.

‘All our products have to be labelled with the notified body’s registration number. And that number has changed. We had two years to make the change, but it’s a huge job. We have 16,000 mouldings and labels that needed to be changed. That became a major cost for us. We’ve had two full-time staff working on it for two years: one new hire and another transferred from another position.’ He estimates that this has cost the company about €500,000 in personnel, tooling and design changes.

Another issue, and one that is causing real uncertainty for the company, is that once the UK leaves the EU regulatory system, they are going to set up their own medical device approval system. The difficulty for a company like Vitalograph, is that legislation is still stuck in the House of Lords, and changes are still being made to it. ‘So, we don’t know what it’s going to be or how quickly we are going to have to act,’ explains Keane. ‘It’s out of our control. All we can do it sit on the side-lines and wait.’

 

Tariffs

Although Vitalograph exports to Europe and the USA, the UK is one of their biggest markets.

There are two aspects of Brexit that are going to affect sales to the UK. The first is that products sold into the UK will have a tariff for the importer. ‘The tariff is about 6% according to WTO rules under a no-deal Brexit. It is paid by the importer, but actually, the importer is us in this case,’ explains Keane. ‘It’s our headquarters that will import the devices.’

There is also an issue with bringing material into Ireland. Vitalograph Ireland sources some of its components from the UK. After 31 January, in the case of a no-deal Brexit, there could be tariffs coming into Ireland. ‘Our overall policy is to source as much in Ireland as we can, but Ireland has a very small supplier base,’ says Keane. ‘We will try to switch to countries other than the UK where possible, but some components are quite bespoke and difficult to source elsewhere.’

 

Landbridge

Transport routes are a major concern. Over 90% of Vitalograph’s products are sent through the UK to mainland Europe, by road. At the moment, there is no way for the company (and other Irish exporters) to bypass the UK.

With the UK leaving the EU, it is anticipated that goods coming through the UK will be subject to checks, delays, and costs. ‘This is our biggest worry,’ explains Keane, ‘because half our business is supplying products and services to clinical drug trials and we need to be able to deploy very quickly.

 

Weathering well

Despite the various upheavals in Europe, the company is ahead of its revenue targets this year. ‘But,’ says Keane ‘it’s been very messy.’

‘While the demand for hygiene devices and remote monitoring has gone up, a lot of more usual clinical testing isn’t happening – so other areas are down. Our direct sale model is obviously down too.’

One reason that Vitalograph has coped so well through this turbulence, is that they have built up a very strong business with devices and services for clinical drug trials. They began to develop the area about 15 years ago, and it is now growing by 20% per annum. Something that has been particularly successful, is cough measurement in clinical drug trials.

‘The project was actually initially partially grant-aided by Enterprise Ireland,’ says Keane, ‘and it has been so successful, creating many, many jobs and bringing in a revenue of over €50 million.’

 

Uncertainty ahead

For now, Vitalograph is expecting just to ‘swallow the 6%’ tariff’ and adapt to the new approval legislation. But they are aware that it may become necessary to start manufacturing products for the UK market in England.

‘That’s not something we want to do,’ says Keane, ‘and we have no plans to do it now. But we might have to.’

Time to get accustomed to customs

For years the words Brexit and ‘uncertainty’, have gone together. While there is still much that is unknown about what future trade arrangements with the UK will look like, some things are certain.

 

On 31st December 2020 the current EU/UK transition period ends. It will not be extended because the agreed deadline for doing so, 1st July, has passed.

For now the EU and UK are continuing to negotiate their new relationship, including how trade will be done from 1st January. If there is no agreement by that stage there will be a ‘no deal’ Brexit.

Regardless of whether or not a trade agreement is reached, there will be change.

 

All change

Irish businesses that import from, or export to, the UK will have to contend with new checks and administrative procedures, including customs declarations.

Understandably the pandemic has seen many businesses switch focus, and resources, from Brexit to managing the Covid-19 crisis. However, as the UK will leave the EU’s single market and its customs union on 1st January, businesses must now prepare for it.

“Everybody is focused on Covid but this is happening on 1st January. Because talks are still going on, people might still think ‘they will sort something out’. They won’t,” says Carol Lynch, a partner at professional services firm BDO.

Even though businesses already have “enough on their plate”, they have to get ready, she says.

 

Supports to help

There are a number of supports available to help, including the information available on this website and dedicated Brexit grants, advice and training from Enterprise Ireland and Local Enterprise Offices.

These include Enterprise Ireland’s Be Prepared Grant, which is worth up to €5,000 and helps businesses to avail of external expertise to develop action plans.

This can be used to investigate the potential to diversify into new markets, invest in innovation, improve operational competitiveness or enhance strategic financial capability. “All that help is there so sign up and start learning, and working out what you need to do,” says Lynch.

The fact that customs clearance agents are in short supply makes it even more important that business owners and senior managers have as much customs knowledge in-house as possible. “Don’t panic, you have four months left, just don’t leave it to the last minute,” she says.

 

Revisit relationships

Don’t let uncertainty around tariffs stop you either. “In the absence of certainty, look at compliance principles,” recommends Dr Andrew Grainger of Trade Facilitation Consulting.

“At the moment, the EU is in a transition period so there is nothing to comply with. It will never be as good as it is now, with as few hurdles. Normally the direction of travel is towards trade facilitation, making trade as easy as possible.”  Brexit has reversed this long term trend.

He recommends businesses start by revisiting their commercial relationships, to see how much of the customs burden might be taken on by suppliers. For example, some may consider establishing a base in Ireland, which would help.

Getting up to speed on Incoterms, the international commercial terms published by the International Chamber of Commerce, is vital. “If you are to revisit your commercial relationships, it is going to require informed conversations,” he explains.

 

 

Expanded horizons

As a market of more than 65 million people, right on our doorstep, the UK will remain an important trading partner for Ireland’s businesses.

However, they must now consider trading further afield too, to make the most of EU membership.  “From the Netherlands to Germany or Sweden, there are opportunities galore, as members of one of the world’s largest markets,” he says.

In the meantime, to facilitate UK trade, decide how you will clear your goods, either in-house or through a third party. If the latter, you need to find and appoint a customs intermediary, agent or freight forwarder.

When you do, be clear about your instructions and about where responsibilities and liabilities lie, he recommends.  Be ready to introduce performance monitoring systems and make sure all data, such as invoices and transport documents, which form the basis for customs declarations, is accurate, says Grainger.

Look at ways to derive advantageous customs treatment, either for yourself or via your agent, such as through the use of deferment accounts, customs warehousing or inward processing relief, for example.

 

Firm deadline

The fact that previous Brexit deadlines came and went, leaving some Irish businesses overstocked, may leave some reluctant to prepare again. “But this is a firm deadline,” cautions Ronan McDonnell of The Logistics Consultant.

Moreover, with the UK able to determine its own trade policy, it is “highly unlikely there will be any soft landing” come 1st January, he says.

While the Northern Ireland protocol has sorted many issues for those businesses trading with NI, “for businesses trading with GB, it’s going to be a whole new world,” he says. Getting to grips with issues such as customs classifications and commodity codes will be key.

“Most businesses know now it’s inevitable. We don’t know whether or not tariffs will apply but the paperwork will be there regardless,” he says. “Even if we have a trade deal, that doesn’t mean you won’t have to process customs declarations.”

It’s why businesses that haven’t done so already should talk to Enterprise Ireland and the Local Enterprise Offices. They don’t have to go it alone. “There is help available,” he says.

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New UK Global Tariff

The UK has announced its new tariff system which will apply at the end of the transition period to all countries, including Ireland, with which it has no free trade agreement.

Known as the UK Global Tariff, it will be applicable from Jan 1st 2021. If a trade deal between the UK and EU is reached before this date the aim would be to avoid the imposition of all or most of the tariffs.

To see the import duty that applies to goods imported into the UK, enter your commodity code into the Tariffs Tracker tool on the UK government website.

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Customs: Classifying your goods post Brexit

A question of classification

When is a drone not a drone? When it’s a camera, a toy or even a light aircraft. This is just one example of how a product classification for customs purposes can change depending on its characteristics. In this case, it depends on its intended use, whether the item is fitted with a camera or not, and its size and range.

This matters because there is duty payable on some of these items and not on others. For example, drones of a low weight and speed with a limited range may be deemed to be toys. Toy drones if made from plastic attract customs duty of 4.7% when imported from many countries outside of the EU and if made from other materials are free from customs duty. No customs duty is payable on drones without a camera that are deemed to be civil aircraft regardless of the country of origin.

 

How will product origin determine the duty rates?

The questions of product origin, composition and size have had little relevance for the great majority of Irish companies up until now. That’s about to change with Brexit, however, as the origin of the products will determine the duty rates. Products purchased and consigned from the UK may not originate in the UK and may be liable to Anti-Dumping duty in addition to the customs duty, VAT and possibly excise duty. Ireland imports almost €20 billion worth of products from the UK every year and following Brexit it will have third country status.

This means Irish companies importing from UK suppliers or exporting to UK customers should start the process of finding the customs classification code for all products involved, now, in order to be fully prepared for trading with the UK after the transition period ends.

 

Next steps to getting your codes

The first port of call is the Classification page on the Revenue website. This offers a brief explanation of the customs classification system and a link to the EU TARIC site which companies can use to find the eight-digit code they need for exporting and the ten-digit code for importing products.

The first component of the system is the Harmonised System (HS) developed by the World Customs Organization (WCO) comprising about 5,000 different commodity groups, organised in a hierarchical structure by broad section headings. These are subdivided into chapters, which give the first two digits of the code, headings and subheadings which each give a further two digits. A further EU subheading brings the code up to eight digits for export. A TARIC subheading brings the code to ten digits for imports.

The home page of the TARIC site includes various search functions which allows searches under a range of headings. For those unsure of how to use the TARIC system there is a helpful video tutorial available below.

Make sure you get it right

Misclassification of products can be very costly and lead to significant delays. Any delays can be catastrophic where short shelf life products are concerned. Companies with difficulty in finding the exact product classification code can call the Revenue Tariff Classification Unit in Nenagh (Telephone: 00353 1 7383676, 1890 62 63 64) for guidance.

In preparation for your call with Revenue you should consider the following questions in advance;

  1. What the Product is
  2. What the Product looks like – size, colour, packaging etc
  3. What the product does or what it is used for
  4. What the Product is made of
  5. How the Product is manufactured
  6. Any other defining characteristics

Where uncertainty in relation to the classification code arises, a company can request Binding Tariff Information (BTI) from Revenue. This is a legally binding code, but it can take up to 120 days for one to be issued, so it may be best to first seek advice from a customs agent or other expert.

While the tariffs payable on UK imports have not been finalised as yet, the UK government has announced a new UK Global Tariff that will replace the current EU common external tariff from the 1st of January 2021. Firms exporting goods to the UK will be subject to potential tariffs under this new regime in the event that no future trading agreement is in place by the end of the transition period. To check what tariffs will apply under this new system please see the UK Global Tariff website.

 

If you are interested in learning more about customs processes and procedures, register for the full Customs Insights Course.