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Brexit in Practice – Roundtable Discussion

UK exports to Europe have declined by 40% since 1st January 2021. And over half of UK exporters are experiencing Brexit-related difficulties. Our March 2021 webinar ‘Brexit in Practice’ brought together 10 Directors of exporters based in Northern England to discuss these issues. Attendees represented a range of sectors including Industrial Products and Services, Technology, Defence, Software, Materials and Construction. While some businesses were predominantly focused on the European market, others had a more global outlook.

The roundtable discussion focused on the following questions:

  • How is Brexit affecting your business?
  • What has your business put in place to navigate the changes?
  • How does this affect your international/export strategy?

Several themes emerged from the webinar, which we outline below:

Brexit uncertainty changed the competitive environment

The “lengthy and disruptive period of uncertainty” leading up to the UK’s decision to leave the European Union (EU) created degrees of disruption, as well as unwelcome distractions for certain sectors. These included concerns that critical employees with EU citizenship may have to leave the country. And questions were raised about how UK firms would engage with European customers in a post-Brexit world.

For those operating within industrial services, attendees spoke of pre-Brexit “frighteners” causing “spikes in container traffic” as customers stockpiled goods amidst market uncertainty.

Significant for some Northern based exporters was the sudden change in the competitive environment. EU rivals, attendees explained, sought to leverage the uncertainty created by Brexit by positioning themselves as a “safer proposition” than UK companies. One Director described competitors as “creating an atmosphere of fear amongst our customers” in an attempt to steal market share.

Measures to mitigate the impact of Brexit have (mostly) paid-off

Northern manufacturers acted early to off-set any potential issues created by the Brexit transition. For example, attendees established Brexit planning teams as far back as 2018 to ensure their companies complied with all the necessary Government checks and guidelines. A key part of this process was speaking to key stakeholders to confirm they too, were fully prepared.

Directors at larger corporations acknowledged the guidance received from the wider Group in helping them to navigate the Brexit transition period. In some instances, companies also restructured operations and leveraged existing legal entities in Europe to trade through, post-January 1st. Software firms moved traditionally on-site services to the cloud, while other businesses diversified logistics to incorporate more cost-effective routes and modes of delivery (e.g. air and train freight).

One attendee explained how, to protect their company from “strong EU competitors,” they implemented a “consignment stock” solution for a key customer. This succeeded in safeguarding the market position of the company. Despite the “great expense” incurred, this solution remains in place today. “Without it, we would have probably lost that customer by now.”

Furthermore, companies exporting on Ex-Works (EXW) terms (and unaccountable for transporting goods) are mostly protected from Brexit related bureaucratic and logistics challenges. In all cases, these terms were already in place before the Brexit vote. Attendees noted how attempts by customers to change export agreements and shift the responsibility back on to UK companies had, so far, been subdued.

Directors at larger companies also acknowledged pre-Brexit stockpiling of raw materials (e.g. steel) as a factor that has helped their business navigate the converging challenges of Brexit and COVID-19. Though continuing shortages of silicone, thermoplastics and polymers, for some companies, means 2021 may be “worse than 2020” due to the difficulty in fixing this problem.

While structural changes have helped some companies mitigate the impact of Brexit, other attendees described their frustration that despite efforts to “be in a comfortable position come January 1st”, the “absolutely chaotic” transition period has left them overstretched. This has led companies to start investing in additional resources – in some cases doubling their logistics teams – to manage increased workloads. Logistics specialists with customs expertise are in high demand.

Supply chain challenges (so far) outweigh the impact on sales

Extended timeframes for exporting goods, as well as importing raw materials and equipment, from Europe is the main issue created by Brexit. Attendees noted excess paperwork and delays in logistics as being ongoing stress-points, which in some cases, are impacting customer service levels.

Attendees revealed how it’s been common for EU customers to receive fines or experience unnecessary tariff charges because they’ve submitted incorrect paperwork. Directors highlighted that because many EU companies have never imported UK goods before, these mistakes are inevitable in the short term.

Tracking deliveries, in addition to aligning with 3PL, has also been very time consuming for Northern firms. Transport, in some instances, is taking a month to clear customs. One attendee expressed their disappointment that their company can no longer offer the “highest levels of customer service” due to the “very painful” situation created by Brexit.

Others noted how issues around paperwork were beginning to subside. And delays in arranging transport within Europe had largely disappeared by March 2021. The return of pre-Brexit “next day” timeframes are now almost guaranteed. Though it was agreed, the expense of exporting goods had undoubtedly increased overall.

As well as dedicating more time to managing current customers’ expectations vis-à-vis Brexit, attendees highlighted how negotiating lower costs with existing customers also meant that finding time to generate new revenue was challenging. While attendees highlighted how, overall, these Brexit “pains” hadn’t impacted their sales, some were wary of what the future may hold for exporters following the UK’s exit from the common market.

The increased expense for EU companies to import goods could make dealing with UK manufacturers less attractive. Northern firms with competitors in the Far East were particularly cognisant of this: “My biggest fear is that Brexit will make longer-term strategic purchasing decisions of the types of products we make favour our Asian competitors. Other than the distance, our European customers will be dealing with them on the same terms as they do us.”

Companies are cautious of other ‘unknowns’ on the horizon

As we approach 100 days since January 1st, there are still many unknowns about the future implications of the UK’s decision to leave the EU. One in particular that emerged in our routable discussion was the future of product development standards, covering factors such as design, safety and the environment.

Pre-Brexit, UK products were aligned with the European IEC (International Electrotechnical Commission) standard. Now, attendees explained, a new set of standards for the UK exists, which, after the expiration of a grace period following Brexit, it is unclear whether these standards will be acceptable to European companies. This means that UK manufacturers wishing to sell goods in the UK and Europe may have to test products twice, to meet two different standard frameworks.

Already, some companies are having to recertify products for the European market. One Director noted how this was a “challenge we didn’t see coming.” Moving forward, attendees expressed concern that EU based companies may not accept EMC (Electromagnetic Compatibility) testing conducted in the UK, even if that testing is done by an EU accredited facility.

Some Directors agreed that this was an indication of an agenda to generate revenue for EU testing houses. Attendees anticipated that, over time, UK/EU regulation will continue to diverge, with the issue of “dual certification” leading to greater cost implications: “Smaller businesses, in particular, will suffer because of this. It’s a developing issue and it’s one that does concern us.”

For now, COVID-19 remains the biggest problem facing exporters

The Directors who attended our roundtable event, for the most part, agreed that COVID-19 has – and continues – to have a greater impact on business activity than Brexit. Related issues include:

  • collapsing commodity prices (e.g. in the oil industry);
  • the shortages and rising costs of raw materials;
  • extended lead times;
  • the difficulty and cost of arranging logistics, and;
  • the impact of the pandemic on specific sales verticals (e.g. entertainment)

These problems, attendees noted, “aren’t going away in the short term.” Moreover, they are exasperated by the inability to travel and negotiate face-to-face, as well as the difficulty of trying to pass on costs within the EU, when “we’re already giving our European customers several other Brexit related problems.”

While longer-term, Brexit may disadvantage some UK exporters, it also presents enormous opportunities. As one attendee was keen to highlight: “My advice for any business struggling at the moment with regards to Brexit, is to get into a good routine for exporting, generally. There are opportunities now, for all manufacturers, to export to different markets. So, having that core competence within the organisation is a good thing.”

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