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Brexit planning: labels, logistics and whisky

Author: ICAEW Insights

Published: 02 Nov 2020

Ian Macleod Distillers Ltd is a Scottish independent company that has forged a strong reputation in the spirits industry. Mike Younger is its CFO. He talks Brexit, labels and logistics.

Impacts from Brexit will be varied and complex. Planning is not going to be easy. But some companies are weighing up very specific consequences.

“The principal headache we have been dealing with is the food information to consumer regulations,” says Younger of Ian Macleod Distillers. Perhaps more familiar than the company name are the distiller’s brands: Glengoyne, Tamdhu, Rosebank, Smokehead, Isle of Skye and Edinburgh Gin.

To an exporter of spirits in the food and beverage sector, these regulations are intrinsic to how Brexit will play out.

“If you pick up any food item, you will see a label which tells the consumer who to contact if there are problems with the product,” says Younger. “The regulations require the label to carry the address of the Food Business Operator within the EU. The Food Business Operator is someone who is primarily involved in the manufacture, distribution or sales of the product.”

At present, Ian Macleod Distillers sells its products throughout Europe and is able, within the regulations, to use its UK address on the bottle’s back label because the UK is a member of the EU. “That means we can use a single label across all European markets with maybe some minor modifications. Generally speaking, one back label suffices for all European markets,” he says.

When the UK is no longer part of the EU, and the company makes no other changes, then the EU importers address will have to be quoted on the back label. “The label will have to carry our customers’ details because they will be the food business operator in Europe under the regulations,” he says.

This would result in a significant proliferation of labels, creating many additional SKUs (stock-keeping units) and thus a stock control headache. The benefits of scale will be lost when scores of labels have to be originated and printed.

The administration required to set up and maintain a subsidiary in one of the 27 EU member states is significant but might be the long-term outcome. In the meantime, the company will set up a branch office with an enduring address for the back label and sales staff who will be additional to current market resource. “One of the worst things you have to do in business is to structure the business to be regulatory compliant rather than to meet a desired strategic aim,” says Younger.

Export logistics

It is not just regulatory compliance and labels that are on Younger’s mind, also of concern are the actual logistics of exporting the company’s products. “Our primary product is Scotch whisky. We’re used to exporting that around the world, but the EU is going to become 27 separate export markets,” he says.

“From the point of view of our internal processes, leaving the EU means that the document set that accompanies the goods has to become a good deal more extensive. We need to have certificates of origin and whisky age as well as other documents that we don’t normally generate for EU sales,” Younger points out. “When you ship excisable goods within the EU, you have your single electronic Administrative Document (eAD) and all regulatory clearances flow from that. Post-Brexit, that system will no longer be available to UK traders who trade with EU states.”

With no eADs in place, the regulatory clearance will be the same as a standard export, where the clearance occurs when the goods reach the UK port. The complimentary change will take place in the EU so the customer’s excise bond will have to acknowledge receipt of the goods from the EU port of landing. The issue then becomes one of how familiar our current EU customers are with importing goods into the EU instead of them being intra-EU transits. “We suspect that many of our customers will have to start to use unfamiliar processes. Their successful uptake of new processes is uncertain,” concludes Younger.

Perhaps the biggest frustration is that Brexit was heralded as making trade easier, but transactional friction is being created, combined with a lack of familiarity and clarity, and time is running out. The burden on ports and freight forwarders will be huge and the impact on highly regulated businesses is still very difficult to pinpoint. The only certainty is that there will be additional cost and extended transit times.

Find a range of resources to help prepare for the end of the transition period on 31 December 2020 on ICAEW’s dedicated Brexit Hub.