UK exporters consider 'worst case scenario' plans

Many exporters to the EU are still struggling with the added cost and complexity of shipping goods to the UK's largest export market, three months after the new post-Brexit border procedures kicked in.

An initial 41% plunge in goods going to the EU in January was described by the government as "teething problems" which it said were hard to separate out from the impact of COVID-related disruption.

The government insists that "overall freight volumes between the UK and the EU" have been back to their normal levels since the start of February, and that there is no general disruption at UK ports.

However, haulage groups insist recent figures on freight volume tally the number of vehicles and ferry movements, rather than the value of the actual goods traded between the EU and UK and many more lorries than before are returning to the EU empty. An admittedly small sample of members of the Federation of Small Business found that one in four exporters had paused sales to the EU and 11% were considering abandoning exports to the bloc completely.

Unsustainable

Scott Clarke is a director at Rex London, a specialist gift company selling goods all over Europe. He described January as "chaotic". There were delays and confusion at customs, additional freight costs, and extra charges for his EU customers in the form of duties and taxes. Many of his shipments weren't getting through at all and were returned to his warehouse in west London.

"We had hundreds of boxes we tried to send in January, and they all came back," says Scott.

"There was probably a three or four week period at the beginning of the year where we couldn't supply our customers at all, which is a big deal for us because over half of our business is with Europe."

He acknowledges that things have got better, but many of the difficulties they have faced are here to stay.

"It has calmed down a lot. We can supply our customers in Europe now. But we're three months in, and this doesn't seem sustainable in the longer term," he adds.

"There's been a lot of talk about teething issues. There were teething issues, but they were just part of the underlying problems that haven't gone away."

'Everyone loses'

What's the solution? For Scott, it's to establish a warehouse in Belgium so he can better serve his customers in Europe, without customs delays and extra costs. It's something they previously saw as a "worst case scenario" option, and he says there'll be negative consequences for the UK.

Scott says trying to export direct from the UK has been "chaotic"

"Splitting off part of our business and sending it to Belgium probably means that further growth is going to be happening there. Instead of taking on new staff here, we'll employ them there. Instead of making more profit and paying more tax here, we'll pay it there. Basically, everyone is losing out here," he says.

He's not the only one looking at establishing a base in the EU. The BBC has spoken to a number of investment agencies around Europe - including in Germany, Belgium, Austria and France. All of them say they've seen a big increase in the number of UK businesses expressing an interest in moving some of their operations across the channel. The Netherlands is emerging as a favourite destination.

Michiel Bakhuizen is from the Netherlands Foreign investment Agency. They have been in talks with over 600 UK businesses since the Brexit referendum, and the monthly numbers have increased since the start of this year.

"In January, 40 companies made enquiries, in February it doubled to 80 companies, and up until the middle of March it was 40 again, so interest is really growing. The numbers have more than doubled on the average month in 2020," says Michiel.

"Interest has grown since January, because of the real difficulties Brexit is causing some companies in the UK. They're talking about administrative hurdles, supply chain related problems, licensing issues, so those problems are real and that's why those companies are showing interest in the Netherlands and other countries."

Michiel is keen to point out there are downsides for the Netherlands too.

"The Netherlands is not 'winning' this. If you look at Brexit from a macro perspective, the Netherlands just lost its second biggest trading partner, moving outside the European Union and the single market," he says.

"Obviously attracting foreign business towards the Netherlands is growing because UK businesses need a future in the European market, and the Netherlands is there to help them to secure that, but in the end Brexit is not good news for the Netherlands."

Dried up

For other exporters to the EU, shifting some of the business closer to their customers just isn't an option.

Sarah Braithwaite's company, Forage Plus, specialises in nutritional products for horses, which have proved to be very popular with European customers in recent years. They're based in North Wales, but up until January, they were able to ship their goods to 20 European countries within a matter of days. Not anymore. One package she sent to Sweden in January still hasn't arrived, with customs officers there requesting additional documentation to clear it, from manufacturing flow charts to photos of individual products. But there are other issues too.

"It's been frustrating, demoralising, upsetting. For a while we just thought it was a hold-up at customs, just the sheer volume of shipments and they couldn't cope. And then we realised we weren't going to be able to get our parcels into Europe without our customers paying quite big import duties," she says.

Rather than shipping to other businesses in Europe, Sarah sends her goods directly to customers, who have been faced with unexpected duties and taxes, as high as 40% of the original price, depending on which EU country it goes to. Together with customs delays, it's meant that orders have dried up, and she's had to refund thousands of pounds.

"For us, as a company shipping into Europe, a typical month would be around 160, 170, 180 orders into 18 to 20 different countries. Today, when I asked my staff how many we have into Europe, there are none. How many orders have we had this month? Two or three," she says.

"If a customer orders from Europe today, we can't actually get it to them. In some instances we can't get it to them at all, and in others, they're charged such a large amount of import duty that they're just not going to do that. We're going to lost that custom."

Sarah hasn't given up entirely and is trying to find ways to keep supplying her customers. A Dutch warehouse isn't on the cards though.

Sarah Braithwaite's EU sales have dwindled to next-to-nothing

"It's unrealistic to say, set up some kind of European warehouse when you haven't got the finances or the manpower. We would have to employ new people. How are we going to employ new people when we've just lost £300,000 worth of business? It's just not realistic, it really isn't."

The government has set up a £20m Brexit Support Fund for small and medium-sized businesses and is also providing export helplines, and webinars with a network of 300 international trade experts.

This assistance has been welcomed and the Federation of Small Businesses has called for an increase in the size of the support fund.

But the provision of this support is perhaps a tacit acknowledgement on the part of the government that something that was once easy and cheap is now difficult and expensive. Given that the EU accounts for nearly half of all UK exports, that is a reality that cannot be good for the UK economy.

'Match fit'

Much-vaunted trade deals with countries including the US, Australia, New Zealand and others have not yet arrived and the government's own analysis said deals with all of them would add less than 1% to UK GDP in 15 years' time and fail to offset the hit to trade with the EU.

The tariff-free trade with the EU that the Brexit deal secured is welcomed by business but tariffs are only a small part of the picture. What many businesses are discovering is that exporting requires time, investment and expertise. For decades, sending goods to Berlin was as easy as sending goods to Birmingham - as a member of a single market without trade borders or barriers, it wasn't really exporting at all.

Michael Gove said he hoped the exporting expertise firms are acquiring (reluctantly in many cases) will make them "match fit" to grasp new opportunities beyond the EU.

But back in west London, Scott says the last three months have highlighted the challenges businesses face in sending their goods anywhere around the world.

"One of the great irritations for me is the idea that we're going to suddenly be free to export more around the world. It's just not true. Exporting is really difficult. I think if anything, people will now know how difficult it is."