What a year of Brexit brought British companies: higher costs and endless forms
For 12 months, British businesses have been confronting the reality of the country’s decision to distance itself from its largest trading partner. Initially, the new system collapsed: Perishable goods got stuck at ports, retailers discovered their supply chains were obsolete, and trucking companies stopped delivering to the whole island of Ireland.
The worst of the problems (outside Northern Ireland) eased after a few months. But what remains is a frustrating regime of higher costs, time-consuming customs paperwork and countless lost opportunities.
Netherton Foundry’s website sales to the European Union are “just draining away,” Currie said. They have dropped 40 percent this year.
Before Brexit, the only discernible difference about sales to the Continent was the extra delivery costs. Arranging the shipment took less than a minute. Now, for every different product leaving Britain — whether it’s a specially designed tortilla press or popular frying pan with locally sourced oak handles — a four-page customs form needs to be completed, which takes up to 20 minutes per shipment.
For customers, there is sticker shock. Items cost at least 8.50 pounds ($11.25) more because couriers charge extra to cover the additional administration of customs checks and taxes. And every product takes longer to arrive at its destination. Besides the lost online sales from individual buyers, many European independent shops that used to stock Netherton Foundry’s products have concluded it’s just not worth the cost or the hassle.
“We can sell to people, we can do it, but it’s more expensive,” Currie said. “But there is a perception — and I think this is possibly even worse — that it’s too difficult.”
In its first seven months, the new trade deal reduced Britain’s exports to the EU by 14 percent and imports by 24 percent, according to an estimate by the UK Trade Policy Observatory, a research group. That’s about 44 billion pounds in lost trade. Most of the exports were lost in January as many logistics companies stopped moving goods, overwhelmed by the number of deliveries that were being sent with inaccurate customs paperwork. Since that initial drop, exports have mostly recovered, official statistics show.
But the data does not capture how much harder businesses are having to work just to retain the customers they have as they become less competitive.
One of Netherton Foundry’s largest customers, a department store in Germany, has required that the pans be sold to it via an intermediary in Belgium so it doesn’t have to take on the extra work of importing directly from Britain. “With, of course, all the additional costs,” Currie said. “We all know it’s crazy.”
The trade deal granted goods made in Britain tariff- and quota-free access to the European Union. But the paperwork required to cross the border and prove the goods met the bloc’s regulatory standards have become a nuisance. Some companies decided it was not worth the extra costs. Marks & Spencer, a large British retailer, closed its 11 food stores in France, citing “supply chain complexities” created by Brexit.
Goods trade with Europe was nearly 16% below what it would have been in a world without Brexit, according to the latest report by the Centre for European Reform, a group that supports the European Union.
These are only the beginnings of the long-run impacts of Brexit, which is expected to make the British economy 4 percent smaller than it otherwise would have been, according to the Office for Budget Responsibility. That’s twice as much scarring to the economy than the pandemic is expected to cause, it estimated.
“We’ve had a year of two halves,” said Sally Jones, who leads the trade strategy and Brexit team at EY. Early on, companies were asking granular operational questions about how to keep their businesses running under the new rules. Now, they are working out the long-term issues that require substantial changes. For example, some retailers that relied on a single European distribution center in Britain are finding they can’t afford to keep paying the additional tariffs imposed by moving imported goods back out of Britain. They are looking into opening other centers on the Continent, relocating jobs and money.
It is something that Luceco, which makes and imports lighting and wiring products from China and sells them to retail stores, is having to consider. It mostly sells the imported products within Britain, but about 3 million to 4 million pounds of the sales are made in the Republic of Ireland.
“It’s not, thankfully, the biggest chunk,” said Chief Financial Officer Matt Webb. But “it’s been extremely difficult. The paperwork now that’s involved in selling to even Northern Ireland is prohibitive,” he said. In addition, tariffs on the items have to be paid twice: when they enter Britain from China and leave for Ireland.
“There was always going to come a time when it made sense for us to have a hub in Ireland,” Webb said. “All that Brexit has done is brought that day a little closer.”
The added costs and challenges of Brexit have arrived while businesses are desperately trying to navigate the constant tumult of the pandemic, which has led to international shortages of goods, exorbitant shipping costs and surging commodity prices, particularly for energy.
At Netherton Foundry, the first thing that lands in Currie’s inbox each morning is an email from his purchasing manager of the top 5 expenses that have increased in price overnight. Luceco sees increases, too: It used to spend 2 million pounds a year on sea containers shipping its goods from China. Now it spends 16 million pounds. For customers, Luceco’s prices have jumped 12 percent.
Recently, butter and cheese prices have risen 20 percent to 30 percent, said Michael Harte, managing director of Bridge Cheese, which imports some of its cheeses from Europe and sells bespoke blends to food manufacturers and wholesalers, such as pizza companies, in Britain, on the Continent and in the Middle East. And there are soaring energy prices to contend with. Bridge Cheese absorbed these extra costs as long as it could, but since September has passed on double-digit price increases to its customers.
“As opposed to singular issues, everything is layered on top of each other,” Harte said.
In an effort to keep Brexit-related costs under control, Bridge Cheese is willing to export only large orders because goods going to the European Union now all have to undergo veterinarian inspections to certify they met health regulations and to check labeling and storage. It costs the same to have 20 pallets inspected as it does just one, Harte said.
One of his frustrations is that Brexit means there is a “massive market on your doorstep” that can’t be reached competitively for specialty products, he said. In the nine months through September, exports of food and drink to the European Union dropped 14 percent from the year before, according to an industry group. Cheese exports were down 13 percent, it said.
And there are more Brexit impacts to come. Starting Jan. 1, Britain will impose customs checks on goods being imported from the bloc. Also in the new year, companies will have to prove their products are sufficiently British-made to qualify for tariff-free trade. From the middle of next year, additional export border checks, including physical inspections of plant and animal products, will begin.
While the British government insisted on the success of its European trade deal, it was keen to shift companies’ focus to the promises of trading with countries farther afield. The real opportunities lie in the Indo-Pacific, officials have said.
Companies have sought out more distant customers, but out of necessity, not choice. Since the start of the year, Netherton Foundry’s sales to the United States have increased, but they haven’t made up for the sales lost in Europe.
Some specialised retailers in Europe have remained customers, but the everyday cook shops haven’t, Currie said. A dedicated cohort of individual customers remain, too. Many of them are “real Anglophiles,” he added.
“But we must be losing lots of people who are mildly indifferent to us,” he said. “It’s those lost opportunities that we have at the moment, and those are hard to measure.”
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