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Relief for firms as pallets escape virus checks despite strict Brexit rules

·Finance and policy reporter
·11-min read
SOUTHAMPTON, ENGLAND - FEBRUARY 10: A forklift truck moves wooden pallets at the Port of Southampton on February 10, 2019 in Southampton, England. The Port of Southampton is a passenger and cargo port in the central part of the south coast of England. As the date for the UK's 2019 departure from the European Union approaches, uncertainty still remains regarding the future trading relationship and how this will affect exports and imports from ports such as Southampton. (Photo by Matthew Horwood/Getty Images)
New rules on crates have come into force in Britain. Photo: Matthew Horwood/Getty Images.

Anyone arriving in England from overseas still does not need a negative coronavirus test, with UK government delays to new rules and checks hitting the headlines.

It marks a striking contrast to the strict virus rules introduced this month to much less fanfare for another kind of regular visitor to the UK—the humble pallet.

Since the start of the month, post-Brexit trade rules mean any firm moving goods between Britain and both Northern Ireland and the European Union (EU) risks border health and safety inspections on their wooden packaging.

Pallets, crates and boxes moving in either direction must now be certified as heat-treated, in order to prove they are not infested with pests.

Most wooden packaging has to be heated to at least 56°C for at least half an hour to kill any bugs. It then has to be stamped to show it meets global ‘ISPM15’ safety standards, designed to tackle the cross-border spread of harmful bugs and diseases.

READ MORE: UK firms warn of ‘sheer bureaucracy,’ tariffs and future border chaos

Trust among EU member states means such rules are not applied within the bloc, but for the UK the little-noticed privilege has disappeared with Brexit.

Instead, UK government guidance says firms failing to comply could now see their packaging rejected or destroyed on arrival at Britain’s borders. Hauliers are warned they would then need to make “alternative arrangements’ to transport their halted goods.

Firms exporting from Britain to the EU face similar rules, and similarly could risk European border checks. Even freight from mainland Britain into Northern Ireland is subject to the new rules, despite the UK waiving them in the opposite direction.

Yet many business chiefs on both sides of the Channel will be breathing a sign of relief. There are few signs of rigorous enforcement over the past fortnight.

The gap seems stark between the letter of the law and the reality on the ground so far. But the rules still pose big questions—like how big a headache they create for firms, how far checks may increase, and whether Britain has enough heat-treated pallets.

Strict but unenforced rules

No footage of zealous border officials smashing up crates has gone viral on social media this month. as it did for Dutch officials seizing a British driver’s ham sandwich under Brexit rules targeting cross-border diseases.

Some trucks have been held up at depots and ports, but disruption so far appears largely linked to customs declarations, other new rules and COVID-19 tests, rather than missing pallet stamps.

Andrew Opie, director of food and sustainability at the British Retail Consortium, told MPs this week pallets had not been an issue for member firms’ supply chains.

“Stoppages have really been for paperwork, rather than for ISPM 15 pallets,” he said at a committee hearing on UK-EU relations. “They’re clearly not prioritising that at the moment. They’re not stopping vehicles on that basis,” he said of French and Irish authorities.

Meanwhile the UK government’s guidance is clear that the chances of trucks from the EU actually seeing pallets checked is minimal.

WATCH: Driver’s sandwich seized at Dutch border

One Q&A document makes plain that for EU goods: “As there will be no immediate change to the wood packaging material bio-security threat as a result of the end of the transition period, GB will continue to take a risk-based approach to checks...as we do now and will not routinely conduct checks at the border.”

The statement suggests UK officials do not believe the risks are high of harmful pests being imported, as similar safety standards are in force in the EU as they are in Britain. The fact EU countries waive checks among members, imposing them only on third countries, suggests they too see limited actual threats from British crates.

There is also a sense in the pallet industry that both sides have a further reason to hold back from heavy-handed import checks—to limit the chance of similarly burdensome, reciprocal measures being imposed on their own exporters.

‘Politics and bureaucracy driven’

The apparent lack of enforcement may leave many firms wondering why they are being implemented at all.

“This is politics and bureaucracy driven,” Michael Bell, executive director of the Northern Ireland Food and Drink Federation, told Yahoo Finance UK. “I do not see the point from a science, safety or consumer point of view of why we’re needlessly adding cost.”

The rules even affect the movement of goods from Britain to Northern Ireland, one of many measures to limit the need for a hard Irish border.

Bell pointed out that just 12 miles separate Scotland and Northern Ireland at their closest point. “Is there really a sanitary and phytosanitary risk?”

Lorries board a ferry at the Port of Dover following the end of the Brexit transition period, Dover, Britain, January 1, 2021. REUTERS/Peter Cziborra
Lorries board a ferry at the Port of Dover following the end of the Brexit transition period. Photo: REUTERS/Peter Cziborra.

The EU imposes the rules on non-EU countries to prevent plant and tree diseases reaching the bloc, as wooden packaging is a known pathway for transmission.

It is not clear how far the UK government pushed to scrap them in Brexit talks, or how far Brussels might have bent the rules for a non-member state. Like other new administrative hurdles, they appear to have been imposed by default on principle, rather than by design based on need.

Bell said he agreed the EU needed to protect the “integrity” of the bloc, but called for special arrangements to at least be found for Northern Ireland.

EU officials need reassurance from the UK that if they grant a “special derogation,” Northern Ireland would not become a “backdoor” for goods into the bloc, he added. “I don’t understand why it wasn’t sorted out a long time ago.”

Bell said he had heard “noises” a way may be found to ditch the rules, but a government spokesman declined to respond to the claim. Pallet makers also pushed last year for a six-month grace period for inspections on all UK-EU trade, but to no avail.

Uncertainty for firms

The strictness of the rules, combined with apparent laxity in enforcement and question marks over their future, leaves firms operating in an uncertain environment. Some are likely to be weighing up just how urgently they need to source heat-treated pallets.

“We don’t know what approach eventually the French or Irish will take to inspection,” Opie told MPs.

UK and Northern Irish officials have been calling on firms to comply with the requirements immediately, and many will want to do so regardless of the risk of checks or changes.

“People are going to have to invest in systems and price accordingly, for something that may not be required in future,” said Bell.

Tighter enforcement in either direction in future is also not out of the question, if UK-EU standards diverge, plant health risks are identified or officials face greater political pressure.

Bell noted Northern Irish authorities have “European officials looking over their shoulders.”

The rush to avoid pallet shortages

While some firms will still have little idea about the new rules, they have been preoccupying some exporters, packaging manufacturers and the UK government for some time.

They have been a possibility ever since a no-deal Brexit first emerged as a serious prospect several years ago, as they would also apply if no deal had been struck.

It rang alarm bells for those in the know, as it meant Britain suddenly needed tens of millions more heat-treated pallets—or risked shortages and disruption.

Timber packaging firms estimate up to 100 million pallets move between the UK and EU in a typical year. But Séamus Nevin, chief economist at manufacturers’ group Make UK, told Yahoo Finance UK in July 2019 that only a third of UK pallets were heat-treated at the time.

With a no-deal Brexit deadline looming later that year, one pallet manufacturer warned of the risk of “delivery delays, unavailability and cost increases.”

Preventing such shortages has been a key mission for packaging makers and government officials for much of the past few years, with a little-noticed drive to build up stocks.

UK chief trade negotiator David Frost and British Ambassador to the EU Tim Barrow look on as Britain's Prime Minister Boris Johnson signs the Brexit trade deal with the EU at number 10 Downing Street in London, Britain December 30, 2020. Leon Neal/Pool via REUTERS
UK chief trade negotiator David Frost and British Ambassador to the EU Tim Barrow look on as Britain's Prime Minister Boris Johnson signs the Brexit trade deal. Photo: Leon Neal/Pool via REUTERS

Firms have invested in extra kilns and kept them operating for longer hours, with some reportedly running through the night. John Dye, president of the Timber Packaging & Pallet Confederation (TIMCON), told Yahoo Finance UK: “The manufacturing and repair industry is working flat out to ensure supplies of ISPM15-compliant pallets and packaging continue to be available.”

The year-long transition period handed them more time, but the pandemic and first nationwide lockdown threw a spanner in the works. Industry worries grew as the crisis had a “significant impact” on firms’ ability to continue heat treatment in early 2020, according to a TIMCON newsletter at the time.

TIMCON secured ‘essential worker’ status for the sector. It also worked with government to secure a “easement” in repair rules to limit demand for kilns. Pallets no longer need to be heat-treated all over once repaired, if replacement parts are heat-treated.

WATCH: Seafood firms warn they have ‘weeks to survive’ Brexit export woes

Britain still ‘getting there’ building supplies

With the rules now in force, one of the biggest questions is whether Britain now has all the heat-treated pallets it will need.

“There aren’t enough in Britain,” said Bell. “There’s still a shortage,” Opie told MPs. “We’re getting there in this country, but we’re not there yet.”

Packaging manufacturers themselves appear more optimistic, however. A TIMCON survey in November found 76% of its members were confident the could meet demand.

A government spokesman would not be drawn, but said it had been working closely with the industry to meet the rules. “As a result of this and the hard work of the industry, treatment capacity for wooden pallets has increased - helping to ensure our biosecurity is maintained and trade continues to flow with as little disruption as possible.”

Crucially, there appear few signs of shortages since the rules took effect. “Two weeks since Brexit was concluded and, although it is early to clearly identify new trends, so far we have seen no evidence of issues related to shortages of wooden pallets or packaging,” said Dye.

READ MORE: ‘All pain, no gain’: Brexit red tape vexes UK firms and shoppers

One government source also said there were no signs of current shortages. Yet demand continues to build for heat-treated products. “Demand remains up significantly,” Dye said.

Some in the industry expect demand to keep growing as both awareness grows of the rules and cross-border trade picks up when COVID-19 restrictions ease.

The most recent figures from the European Pallet Association show pallet sales rose 13% in the third quarter of 2020, with the group highlighting the impact of firms preparing for the new rules.

Meanwhile Stephanie Munn, marketing manager at the Alternative Pallet Company, said her firm had seen a “significant uptake” in queries in recent weeks about her firm’s non-timber products, which fall outside the rules.

“We’re talking to a lot of our customers about it. A lot of people aren’t quite aware of what’s happening,” she said.

Extra costs

Shortages appear to have been avoided so far, but traders may still face increased costs from heat treatment itself or rising demand.

“The price of heat-treated pallets is still higher than it is for standard pallets,” Opie told a select committee.

Figures from national timber price indices, compiled by the  European Federation of Wooden Pallet and Packaging Manufacturers (FEFPEB). Chart: Fefpeb.eu.
Figures from national timber price indices, compiled by the European Federation of Wooden Pallet and Packaging Manufacturers (FEFPEB). Chart: Fefpeb.eu.

Timber pallet prices more generally edged higher in 2020, according to industry figures. Heat treatment does not appear to have been a significant factor, however.

Cost pressures have included surging demand for fencing amid a lockdown-fuelled gardening boom in Britain, and an environmental backlash against tree-felling in Ireland, according to TIMCON’s winter newsletter. It warned late last year of one of the “longest and most chronic periods of price inflation in recent memory” for timber supplies.

British firms serving Northern Ireland and the EU also face the hassle and cost of dealing with two different kinds of pallet, Bell noted. “If you’re going to have more expensive pallets and standard pallets, they’re going to have to be kept apart. No matter how you look at it, it’s a cost.”

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