The UK’s trade agreement with the EU allows businesses to benefit from tariff-free trade with the bloc. However, many companies must still rethink their operation and distribution models post-Brexit.
Under the UK-EU Trade and Cooperation Agreement, a key treaty presented to parliament in April, businesses can trade goods between the UK and the EU on a tariff-free and quota-free basis, as they did before the transition period ended.
But there are significant challenges. For example, according to the “rules of origin” protocol, for British companies to benefit from tariff-free trade, about 50% of a product’s value must now come from the UK alone to reach the value-added threshold to export to the EU without tariffs. This refers to the location where the goods were wholly grown or produced or where the last substantial manufacturing work took place.
This has significant implications. Many British manufacturers and retailers, including the clothing, food and automobile industries, source materials and components for their products from outside of the EU.
As a result, some companies have seen exports to the continent collapse thanks to increased transport costs and customs duties, surprise VAT charges, tariffs on exports to the EU and supply chain delays. Conversely, some UK customers will have to pay import duties on products they buy in Europe, adding considerable cost and waiting time.
Opening sites in the EU
According to an Institute of Directors survey published in June, 17% of businesses that previously traded with the EU – the UK’s largest trading partner – have stopped, either temporarily or permanently, since January 1 and nearly a quarter have had to relocate operations or staff.
To adapt, some companies have introduced Europe-only websites or opened distribution centres on the continent to supply their customers within the bloc. Brie Read, CEO and founder of fashion brand Snag, based in Livingstone, Scotland, opened a warehouse in Venlo, Netherlands. The firm sends 1,000 parcels, or 30% of its orders, to Europe every day.
“With the uncertainty surrounding Brexit we just knew we had to find a solution in order to continue to deliver our products,” says Read. “We felt confident that expanding our distribution facilities was the best way to meet growing international demand.”
Read says that following “chaos” in January – with Snag’s first shipment of goods from the UK to the Netherlands taking three weeks – it now takes about three days on average. “As freight companies and customs agents get more familiar with the new customs processes, we expect things to gradually get more efficient and hopefully cheaper over time,” she adds.
By opening the Venlo facility, Read says Snag has continued to fulfil EU orders with no disruption. “We’ve been able to avoid extra red tape when selling into the single market if it comes from our Dutch base,” she explains.
For other firms, the UK-only distribution model has worked in the short term. However, the impact on customer service means it’s likely to be detrimental longer term.
Paul Jayson, who runs the Totnes-based vehicle trader Motorcycle Broker, says since Brexit his company has stopped serving the EU, which accounted for about 15% of the company’s sales, despite previously buying all its bikes from the region. “We’re a global company,” says Jayson. “We’re growing. But we’re struggling to get motorcycle parts.”
The company is now sourcing parts from non-EU countries, such as Australia, Japan and the US. But this can take up to six months, whereas before parts from the EU would take just a week. “I’m going to have to put prices up,” he adds. “It’s cost me jobs and it is more difficult.”
While Brexit has led to more investment in high-value motorcycles, Jayson says the long-term future of the company now lies on the continent. “The lionshare of the company will move to Belgium,” he says. “We have to do it.”
The risk to customer care
But the move to operate from Europe could cause various issues for businesses and their customers.
Simon Spurrell, who runs Macclesfield-based specialist cheesemaker The Cheshire Cheese Company, decided to stop selling to the EU – which made up about 20% of sales in 2020 – on a bulk wholesale basis. The cost to ship a consignment to the EU rose from about £300 to £1300.
“We had no other choice,” says Spurrell. “Unless we were shipping very large amounts, it was utterly impossible for us.”
But while the company had many offers of locations to build a warehouse on the continent, Spurrell believes that it did not make sense as a business. “As a small company, we can’t take that risk or afford it,” he says.
Laura Rudoe, who runs Evolve Beauty, an eco-friendly cosmetics company in Hertfordshire, said she had set up a warehouse in Ireland in July to export to the EU, which represents about half of its business.
But while the Brexit logistical requirements haven’t affected demand much, she says it is “not a uniform picture” across Europe, which could worsen customer experience and loyalty. For example, countries such as Portugal, Spain and Greece are demanding EU-certified licences for cosmetics, which do not yet exist in the UK post-Brexit, forcing them to instead send exports through Ireland.
That leads to extra costs and a greater carbon footprint, which may put off their eco-conscious customers, says Rudoe. What’s more, orders processed through Ireland can currently only be paid via PayPal as the company wades through paperwork. “It makes the situation a little bit more complicated,” she says.