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Impact of Brexit hits South West businesses, as exports remain at historic lows.
Posted on: 01/04/2021
British Chambers of Commerce South West: Impact of Brexit hits South West businesses, as exports remain at historic lows whilst exporters concerned for future growth and loss of competitiveness.
It is little over two months since the Brexit transition period came to an end, and businesses across the South West have been feeling the effect of higher trade barriers, according to a British Chambers of Commerce South West survey.
Of the over 500 businesses that responded, more than half (53%) of exporters said they had been impacted by the new UK-EU Trade and Co-operation Agreement (TCA), compared with 22% who recognised no change. The balance of international sales and orders reported by exporters has also fallen to historic lows in the manufacturing sector and remains strongly negative across all sectors – at minus (-) 28% of export orders and minus (-) 22% of export sales for manufacturing and minus (-) 33% for both export orders and sales for services businesses.
Firms highlighted a number of significant ‘adjustment problems’ that created problems for their operations, including unclear government guidance and general business confusion, logistical difficulties, additional VAT obstacles, a breaking down of trust with customers and general worsening of trade conditions.
Delays at the border, a lack of capacity within logistics firms and unfamiliarity with new paperwork were all common complaints.
Paul Jayson from the Motorcycle Broker in Totnes, Devon said his business had seen, “six-to-eight-week transport times, tariffs from the EU and outside the EU, transport costs increasing to make it impossible. The paperwork has put off EU importers and the increase in costs due to tariffs and paperwork often doubles prices.”
Phil Ward of Eskimo Design in Bristol had a similar experience and commented, “Where to start? Material imports delayed at customs, additional direct costs to freight forwarders for customs clearance and hugely increased internal administration.”
Alfred Van Pelt from Something Different based in Bridgwater, Somerset said: “Since 2021 our sales to the EU have collapsed dramatically. Hauliers were unprepared, resulting in significant delays, misinterpretation of the rules and dispersed accountability. Furthermore, VAT, duties and increased freight cost made our goods unprofitable for our customers to buy. Likewise, our Business to Customer (B2C) customers in the EU had to take on extra charges, which they are unfamiliar with. European customers, whether individuals or businesses, are reluctant to buy from the UK.”
Traders laid blame for logistical and paperwork issues on both sides of the channel. In addition to a hold up in shipments, businesses expressed anguish at the increased cost burden of trading with the EU since the trade deal came into effect.
“The percentage increase of prices was a shock,” said Sacha Macey from Yurts for Life from Staverton in Devon.
“Massive increase in transport costs and paperwork [is] enough to put customers off trading with me.” adds Macey.
David Daly of Makero from Newton Abbot in Devon said, “Delivery into Europe has been affected, with lead times becoming much longer. My courier is now asking for both an export fee and has increased my pricing by 22%. This is a shocking increase and puts into question the viability of my EU business.”
Whilst some businesses are simply accepting higher prices, longer lead times and reduced profits, some such as a Bridgwater-based firm Something Different have decided to hold off from trade with the EU until things are clearer: “[The European] sides of the business have largely stopped. We continue to sell to all non-EU markets. Sadly, we have had to reduce the number of full-time staff from 19 to 11, and entirely stopped bringing in seasonal staff.” said Alfred Van Pelt, the company’s Managing Director.
“Not just did Brexit cause an immediate drop in turnover and the need for redundancies, but also killed a massive growth opportunity of our business. Our foreign investor had huge plans for the UK entity by becoming one of three European distribution hubs. This would have led in investment in warehousing staffing/IT & technology etc. This is now no longer on the cards as the only distribution that can be done from within the UK (cost effectively) is to UK postcode addresses.” Van Pelt continued.
Others meanwhile stated that they were moving parts of the businesses to the European mainland. Phil Ward from Eskimo Design said, “Prior to Brexit, we sold 30% of our product to the EU and imported roughly 50% of our raw materials from the continent. This is now impossible. One major supplier is considering pulling out of the UK completely. We’re reviewing moving manufacturing operations to Poland to serve the EU market.”
Paul Jayson from the Motorcycle Broker added: “The business has grown from a one-man band to creating seven further jobs in Devon. We were going to open a new plant, creating two more jobs with expansion plans to create a further four jobs over the next two years. The jobs we would be creating will now all go to a new mainland EU country where we will have to start a new company. Our only options to survive or thrive are to move the majority of our businesses to mainland EU.”
It was clear from businesses responding to the survey that unless these issues were swiftly addressed, the reported 40% drop off in trade between the UK and EU in January would be a worrying sign of things to come for the region.
Accordingly, nearly half (47%) of exporters predict that trade with the EU will decrease, compared with just 3% who think it will increase and 32% predicting it will remain the same.
Challenging predictions of a UK-global trade boom post-Brexit, only 11% of exporters feel that the TCA would increase their sales in non-European export markets, with a further 9% of exporters saying that it would harm global exports.
For all businesses (not just exporters) – the current and future impact of Brexit was less pronounced than amongst exporters – for obvious reasons.
Over a third (38%) said that they had been affected by the TCA, whilst another third (36%) said they had not.
Commenting on the findings, Stuart Elford Chair of British Chambers of Commerce South West said:
“Our survey demonstrates the very substantial impact of Brexit on local exporting businesses. This backs up the official national data that our exports to Europe have had a major short-term shock.
“Apart from the first impact of the global pandemic seen in Q2 2020, our latest survey results on manufacturing exports sales and orders are the worst in the South West since the global financial crisis of 2009. Services exporters sales and orders has been under significant pressure throughout the pandemic, but remain very weak when compared to our South West business surveys over the past thirty years.
“Some of it is hopefully short term – with firms being hit by both Covid and Brexit disruption. This has been exacerbated by the lack of any meaningful time to adapt to the new Brexit rules and the high level of disruption in export logistics and at Dover. However, many firms are reporting losing customers and trust among their European buyers, as extra costs and obstacles make it harder to compete in this market.
“Worryingly for the region, many more exporters think they will see a fall in European exports than is made up for an increase in exports to the rest of the world. Businesses and government will need to work much harder to make Global Britain a reality, with more investment in helping firms break into alternative markets now vital.
“A common exporter complaint is also excessive or incorrect application of the new rules by European customs agents alongside frustration at lack of clarity from the UK government. We hope the UK government can use diplomacy to reduce the level of current frictions being applied in Europe. We can’t afford to let a bad start to the year cement itself into permanent damage to the UK.”
 Of the 553 respondents, 322 said they exported goods/services
 According to recent ONS statistics: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/january2021
Dorset Chamber can assist with import / export advice and documentation www.dorsetchamber.co.uk/international-trade/our-services/
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