Looking to avoid post-Brexit port disruption? AEO certification can reportedly ease the flow of trade. So how can companies apply, and is it worth it?
Uncertainty can be crippling. And with the prospect of a ‘no-deal’ looming, the industry has had to start planning for worst-case scenarios, amid predictions of lengthy and chaotic delays at ports. What to do?
One of the ways an fmcg business can attempt to mitigate this potential disruption is to apply for Authorised Economic Operator certification. According to the Institute of Export & International Trade, AEO certification is “internationally recognised as a mark of quality, demonstrates that your role within the international supply chain is secure, and that your customs controls and procedures are efficient and compliant”.
AEO at a glance
Businesses apply for AEO status via HMRC. It’s free but there may be significant costs, from consultancy fees to raising standards.
Once HMRC receives an application, it takes 60 days to process. It will then audit the business and should reach a decision in a further 120 days, though it’s trying to cut this to 60 days.
In the past year, the average time to process where AEO was granted was 99 days.
Should a business not maintain its standards, AEO status can be suspended or revoked and a business must wait three years before reapplying.
The UK lags behind the rest of the EU, with 630 AEO-status businesses, compared with 6,226 in Germany and 1,624 in France.
The EU has AEO agreements with the US, Japan, Norway, Switzerland and China and expects to confirm one with Canada shortly.
As a result, it says, the commercial benefits can be “immense” and include “greater access to priority clearance, reduced administration, traceability of flows of goods, increased transport security, fewer delays, improved security between supply chain partners and quicker access to certain customs procedures”.
HMRC, which handles applications for AEO certification, believes AEO status reflects a level of compliance from the firm that shows it can be trusted, and it can deliver a smooth flow of trade. “AEO status will suit traders that regularly interact with customs, carry out high volumes of transactions or benefit from being authorised to use different customs procedures at the same time,” says a spokesman.
It’s not easy to achieve though. It’s a “huge commitment,” says Dominic Goudie, FDF’s Brexit expert. “So it’s really down to individual business to assess whether it’s worth the effort. The whole process takes a long time and there has been an uptick in applications so it has been taking longer to get approval.”
The EU has AEO agreements with the US, Japan, Norway and China, and there is no question that AEO status will smooth trade for any UK business looking to deal with them. But the future for AEO in the EU is, like everything else, still uncertain.
Goudie says FDF members have been “racking their brains wondering if it’s really worth it. I know a couple have looked at it and decided the benefits just aren’t there, because there is no certainty of what it will mean for trade with the EU.”
While it’s helpful in “reducing the degree of friction at the border,” says William Bain, BRC policy advisor on European and international issues, “ultimately AEO status isn’t going to address the substantially longer waiting times at ports if there are trucks waiting behind trucks which will have to go through longer checks”. “It’s not like speedy boarding. There will be no express lane to whisk AEO-certified trucks though.”
Dave Howorth, executive director at supply chain consultancy Scala, says it has seen “a big increase in companies asking ‘should we be AEO-certified?’. And whichever way goods are moving, importing or exporting, both could benefit equally.”
But “it’s not absolutely clear how HMRC will treat AEO post-Brexit. Logically they should use it as a prioritisation, but no one is saying that with any clarity. Something like 10,000 vehicles a day come into Dover and HMRC could be so inundated that they just don’t check them. Or they might introduce a more severe checking process. Or they might use AEO as some sort of prioritisation. No one knows. Logically AEO should help. It’s a good thing to achieve, but you need to weigh it up with everything else, and how quick and easy it is to achieve differs between businesses.”
If a business does want to gain AEO approval, is there enough time before the Brexit deadline of 29 March? Howorth says the process takes “somewhere between five and 12 months. So achieving it before 29 March is not impossible, but it will be difficult. Companies would need to act quickly, be focused, and not have enormous gaps to close in achieving the standards.”
HMRC is speeding up the process, and improving the application form and explanatory notes to help reduce application errors. It’s also aware of the potential for increased AEO applications because of the UK leaving the EU, and is building this into resource planning.
But as well as being a lengthy process, there can also be large costs involved. Bain says big consultancies are “helpful in guiding companies through this but they charge a lot. If you’re having to engage consultants for months to prepare the application and ease it through, it mounts up. It would certainly be six figures.”
It’s also about “internal costs, time and effort, or additional security to meet standards,” says Howorth. “The cost will vary from company to company.”
But if a business is eligible, and with a two-year transition period mooted, it could be prudent to investigate the process, says Bain. “It will be a complete fudge to get the withdrawal agreement over the line, but if it does you’re probably looking at two years where nothing changes and people can start to make these mitigations. So it would allow time for companies to think about the plusses of applying for AEO status.”
Ultimately, the “main question we get asked is ‘will AEO status resolve border disruption?’ and no one can answer that right now,” says Howorth. “AEO enables you to make sure you’re squeaky tight, know exactly what you’re doing with your import or export documentation, so you’re minimising your chances of disruption. But that all depends on what happens on 29 March.”
That’s less than five months from now. But hesitation in this climate of uncertainty is normal. “Businesses don’t tend to do stuff until they absolutely have to,” says one industry source. “Until they know there is a deal or no deal, largely they aren’t going to react. And we are still a bit of time away, so it’s not essential yet. They might not need it if the government’s preferred deal is achieved, because they won’t see any difference in how they trade.” Maybe, maybe not.
Brexit - A Movable Feast: The Grocer to host free webinar
With Brexit negotiations hanging in the balance and the continued uncertainty over whether we are facing a ‘deal or no-deal’ scenario, The Grocer is looking to do what we can to help food and drink companies prepare - whatever the outcome.
Next month we are hosting a free webinar, titled Brexit - A Movable Feast, in conjunction with headline sponsor PwC