International Logistics and Supply Chain

This report explores the implications of Brexit on international logistics and supply chain. It outlines the AEO scheme and describes the three categorises of AEO status. The report evaluates the benefits of AEO status through case studies of Bollore Logistics and LG Electronics. It also analyzes the implications of a 'no deal' Brexit and the Irish border after Brexit.

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International Logistics and Supply Chain

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Table of Contents
Introduction...............................................................................................................................2
Outline of AEO Scheme..............................................................................................................3
Categorises of AEO Status and its Benefits................................................................................4
Case Studies...............................................................................................................................5
Implications of No Deal Brexit....................................................................................................7
Irish Border after Brexit..............................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11
List of Figures
Figure 1: Top 3 Countries with AEO...........................................................................................3
Figure 2: LG Electronics Sales by Region (in billion US dollars)..................................................6
Figure 3: UK Exports: EU versus non-EU....................................................................................8

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Introduction
Brexit is the withdrawal of the United Kingdom from the European Union; it is an
abbreviation of “Brexit Exit”. There are various implications of Brexit which resulted in
creating challenges for businesses operating in the United Kingdom and the European Union
(Cumming and Zahra, 2016). Brexit also affect the authorised economic operator (AEO)
which is a party that is involved in the movement of goods which has been approved by or
on behalf of national Customs administration as complying with the provisions issued by the
World Customs Organisation (WCO) or equivalent supply chain security standards (den
Butter, Liu and Tan, 2012). The objective of this report is to outline the AEO scheme and
describe the three categorises of AEO status. This report will evaluate the benefits of AEO
status and evaluate two case studies to understand these benefits. Furthermore, this report
will analyse the implications of “no deal” relating to the Withdrawal Agreement and how
the Irish border will look like after Brexit.

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Outline of AEO Scheme
The Authorised Economic Operator (AEO) certification is used as an internationally
recognised quality mark which assists importers, exporters, manufacturers, brokers and
others in ensuring that their role in the international supply chain is secured (den Butter, Liu
and Tan, 2012). This certification assists in ensuring that their customs controls and
procedures are efficient and compliant. It is an EU scheme in order to give ‘Trusted Trader
Status’ to businesses that fulfil required criteria. In order to acquire the AEO certificate, it is
important that the company must be fully registered Economic Operator Registration and
Identification (EORI) business and show that it complies with regulations, professional
qualifications and practical standards of competence, maintains relevant books and solvent
(Diaz Gavier and Verhaeghe, 2012). Germany has the most number of AEO certified
companies (6,227) after France and the Netherlands; whereas, the UK only has 628 AEOs.
Figure 1: Top 3 Countries with AEO
(Source: Barclays Corporate, 2018)
The AEO scheme is available to any company that is involved in the international supply
chain operations in the European Union, and they comply with the criteria. Organisations
that carry out customs related activities in the EU which include importers, manufacturers
and exporters can rely on this certification to simplify their operations. The AEO status is
one of the key elements within the WCO SAFE Framework of Standards (SAFE)

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(Woddowson, 2014). The objective of these standards is to set out guidelines which support
secure trade. These standards assist in guiding international Customs Administrations which
creates a harmonised approach through establishing cooperation facilities between
different Customs. Although the AEO status is not required by law; however, it is
recommended for commercial businesses since it acts as a quality mark which is identified
internationally.
Categorises of AEO Status and its Benefits
Currently, there are three categorises of AEO status which provides different benefit to
corporations after acquiring the certificate.
 AEOC – Authorised Economic Operator for Customs
The AEOC certification can be given to a company that meets its required criteria which
provides that the company must be solvent, able to keep accurate records and comply with
customs regulations. One of the key benefits of acquiring AEO status is simplified customs
procedures and in many cases, fast track shipment which is crucial for companies while
importing or exporting products between nations (Popa et al., 2015). Having the AEOC
status resulted in speeding up the authorisation process when businesses apply for certain
customs procedures. Based on this status, companies can apply for simplified declaration
procedures under New Export System (NES) and Common Foreign and Security Policy (CFSP)
(FTA, 2018). The AEOC status enables companies to move goods in temporary storage
between different Member States. These policies resulted in reducing 70 percent of a
business’s deferment account guarantee.
 AEOS – Authorised Economic Operator for Security Measures
The security and safety AEO certifications are issued to those organisations which fulfil the
required criteria given for a custom simplifications certification. Additionally, the companies
also have to submit to and maintain appropriate safety and security standards. After
receiving this certification, companies can receive additional benefits. It enables them to
fast track consignment shipment and lowers the risk scores which are used in order to
reduce the frequency of customs checks which speeds up the process (Urciuoli and Ekwall,
2015). This certificate provides future industry relationship prospective to businesses

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outside the EU. For example, they can import or export to the United States or other trading
partners that have adopted the World Customs Organisation safe framework. Another
benefit is the identification of business partners along with physical integrity and access
controls on the operations and shipments.
 AEOF – Authorised Economic Operator Full
This is a combined certification in which the company receives benefits of both Customs
Simplifications and Security and Safety AEO after meeting the requirements of both
certifications (Swierczynska, 2016). However, this full certificate is being phased out, and
companies have to apply for both certificates separately in order to acquire both of them.
After acquiring this certification, companies receive benefits of both AEOC and AEOS.
Case Studies
Bollore Logistics
Bollore Logistics operates in logistics and supply chain industry, and it is ranked among the
world’s top ten in transport and logistics companies. The corporation has developed a
powerful network of transport and logistics which is spread across 106 countries (Bollore
Logistics, 2019). The company acquired AEO certificate in 2016 which resulted in expanding
the operations in Europe making it one of the biggest logistics organisation across the globe.
After 9/11 attack, it became difficult for Bollore Logistics and other companies to export and
import products to the United States; however, acquiring the AEO status makes it easier for
the company to expand its operations in the USA. Moreover, the corporation started its
services in many new countries in Europe since it has to comply with less legal compliance
relating to customs. The time taken by the company to ship its consignments in European
countries has reduced substantially after acquiring the AEO status (Bollore Logistics, 2016).
The legal implications imposed by HM Revenue and Customs (HMRC) have reduced
substantially due to which the process of customs has simplified for Bollore. The AEO status
has enabled the company to become a part of ‘safe’ international supply chain which is
crucial for the enterprise while expanding its international operations.
LG Electronics

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LG Electronics is a South Korean company that operates in consumer electronics and home
appliance, and it offers its services across the globe. LG Electronics India Pvt Ltd is a wholly
owned subsidiary of the company that import and export products to many Member States
(WTCA, 2019). The company has acquired the AEO status by complying with its criteria
which include compliance with regulations, book keeping, solvency and professional
conduct (Gov.uk, 2018). Europe is the fifth biggest market for LG Electronics and getting the
AEO status allows the company to export and import its products without facing any
problems.
Figure 2: LG Electronics Sales by Region (in billion US dollars)
(Source: Statista, 2018).
The company can rely on fast track consignment shipment which limits the time taken in
different customs and increases the profitability of the company. In 2017, LG Electronics
Vietnam Co Ltd, another subsidiary of the company, has acquired the AEO status which
enables the corporation in exporting and importing consumer appliance in different
Member States (Binh and Loan, 2017). The corporation invested a total of US$1.5 billion in
order to build an area of 800 hectares which is considered as the largest foreign direct
investment enterprise in Hai Phong. The corporation has exported over 70 percent of its
products in 35 countries throughout the world (Binh and Loan, 2017). The time taken to

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check the shipment of the company has reduced substantially which enable the company to
offer its latest products to European customers without any delay. The AEO status will
enable the company in expanding its operations in the European Nations and increase its
customer base which will lead to sustaining the growth of the company.
Implications of No Deal Brexit
Preparations have been made by the UK and the EU for a “no deal” scenario in Brexit since
both parties are unable to reach a withdrawal agreement. In this case, there will no longer
be a 21 month transition period. As a consequence of the ‘no deal’ Brexit, businesses,
consumers and public bodies would have to respond immediately regarding the changes
which are brought as a result of Britain leaving the EU (Feng et al., 2017). There are various
implications of a ‘no deal’ Brexit which will affect companies and customers from both sides.
For example, the UK will have to revert to the World Trade Organisation in relation to
providing rules on trade because Britain would no longer bound by EU rules. Another key
challenge faced by companies in Britain is that they have to pay the EU’s external tariff while
importing or exporting their products to Member States (Fahy et al., 2017). It is also likely
that some British products will be rejected in the EU since they would have to comply with
new authorisation and certification requirements. In order to avoid these challenges,
manufacturers can move their operations in the EU; however, it will negatively affect the
economy of the UK since most UK exports are in EU countries.

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Figure 3: UK Exports: EU versus non-EU
(Source: Full Fact, 2018)
The latest no-deal notice forecasted that the economy of the UK could be 9 percent weaker
under no-deal Brexit and North Ireland might suffer the most due to the increase in food
prices (O’Carroll, 2019). People will also find face difficulties because at borders customs
and passport checks would be heightened. Professionals might also face difficulties since
their qualifications might no longer be recognised in the EU and they would not be able to
practise (Lea, 2016). The AEO might become a necessity in case of a ‘no deal’ situated since
it would assist Britain-based companies in smoothly exporting and importing products in the
EU. However, it took around 6-9 months for companies to acquire the AEO status and
during which their business could suffer (Lux and Pickett, 2017). Moreover, companies
which are not able to get the AEO status cannot avail the benefits of fast track consignment
shipping. HMRC has provided that there are only 0.25 percent of UK companies have
acquired AEO status that engage in international trading practices which should that it will
be challenging for companies to efficiently conduct their business in the EU (Farquhar,
2019).

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Irish Border after Brexit
The UK and the EU both agreed that the Irish border must remain open after Brexit in order
to guarantee the peace in the historically troubled region. It is a collective European moral
responsibility to ensure that the Irish border remains open and parties are able to move
between the two nations. In case Britain leaves the EU with ‘no deal’, then there will be a
hard border in Northern Ireland which will have many negative implications. Customs
checks and screening points will be required to be put on every point along with ports like
Dover where trucks arrive on ferries (Gormley-Heenan and Aughey, 2017). In Northern
Ireland, the World Trade Organisation rule will apply overnight which will mean customs
inspections on every vehicle. According to one estimate, in case these trucks are delayed
just by 70 additional seconds, the wait to board the ferry could reach six days (Ferguson,
2019). This is a major problem because the whole system is based on seamless movement
and any hitch into the system will lead to chaos in the logistics and supply chain industry.
From an ethical perspective, this is not a moral situation since it will become difficult for
companies which rely on this seamless system to manage their operations. This decision will
disrupt peace in the borders of Northern Ireland and create challenges for companies
operating in the logistics and supply chain industry (Cumming and Zahra, 2016). Personal
goods which are transferred between borders will be particularly hearted by the delays at
ports. For example, a local flower businessman told that keeping the products fresh is
absolutely essential for the business; therefore, lack of free movement between the borders
will affect small businesses operating in personal goods industry (Read, 2018). It shows the
negative implications will be faced by companies relating to logistics and supply chain
management at the Irish border after Brexit. Although these problems can be addressed
through AEO status; however, it is difficult for small businesses to comply with the
requirements to get their certification (Gamble, 2018). Therefore, it is ethically wrong for
the government to harm the business of these individuals who rely on free movement in
order to effectively manage their operations.

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Conclusion
In conclusion, the AEO status acts as a quality standard which enables companies to simplify
their customs process and increase the speed of their operations while exporting and
importing products between the Member States. Different categorises of AEO are identified
in this report which is based on simplifying customs process and security and safety
standards which enable businesses in expanding their operations. In case of ‘no deal’ Brexit,
the AEO can assist in smoothening the process of trading practices; however, it is not
practical for all businesses to acquire AEO status in the UK. Irish border will be affected by
this decision as well since logistics and supply chain industry will face negative implications
in case hard border is implemented by the government since it would stop free movement
of logistics companies in the area. Thus, it is important that Britain negotiate key terms with
the EU to make sure that businesses and people did not have to suffer the negative
implications of Brexit.

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