Andy Scott Managing Director Marine Components International here gives his verdict on the Brexit deal.
The last minute Free Trade Agreement with the EU prior to the end of the Transition period was very welcome, however what was not expected, (and it may be that I missed this with all the masses of detail that we had to go through), was the fact that it only affected Goods of UK origin as far as exporting concerned.
MCI, like many other UK Marine Distributors, import a considerable amount of product and then sell it to wherever we have customers and suppliers agreements. Unfortunately it isn’t a case of supplying UK manufactured product instead, since a large proportion of the goods we supply are not manufactured in the UK - it became and still would be even more expensive to do so.
The effect now is that we currently have to pay the import duty into the UK on those goods, and then our customer in Europe has to pay import duty again on their receipt into the EU. Unless of course, the UK Distributor can/has already decided to absorb that cost – reducing profit.
In our case this means that we are paying up to 8% import duty on some items, and we have a decision to make to either absorb the Customers Duty as well now, or pass it on in our prices to the export customer, potentially making the product more uncompetitive in Europe.
We also now have to either absorb or pass on the additional document costs, like Customs declarations and Export documents, that are incurred not only by ourselves in additional time need to prepare and double check, in order to not have any hiccup at the border, but also all freight companies are having to charge for their services with the increased documentation and procedures. For a single pallet of goods, this can mean as much as £150.00 just for the indirect freight companies charges.
So short term effect for us is increased costs and time, which we either will have to try and absorb, and/or share with our customers, almost certainly reducing our and their profit margin.
Medium to long term, we of course have options, such as creating a “Customs Warehouse” for our imported goods, which means that duty is not payable until the goods leave that warehouse and if exported again, UK duty is not payable – not a cheap option, and probably only practical/cost effective for those moving higher volumes; using a third party “Customs Warehouse”, which again is pretty costly; or setting up/working with an EU customer/contact, a Warehouse Facility in an EU country for importing directly, again a pretty high cost not only in the facility but also staffing.
So, in the short/medium term, our costs will increase, margins will decrease, and to be honest, I cannot see any benefit to any company that imports and then exports goods. You could argue that the principle (idealist), of Brexit, was to help increase UK manufacturing/jobs etc. but to my mind that has ignored the fact that the UK is and has been for a long long time, a nation of traders, bringing in the best products from other countries and re-selling them, so from that point of view it does not seem particularly positive for companies like us.
I am however old enough to remember a time before we were part of the EU, and had to deal with all the different currencies (that was fun), and our customers had to deal with duties, for each country not just one for the EU, and we did pretty well then. One of the reasons for that was that the Pound was strong enough to give us some benefit in purchasing from overseas, meaning that we were able to compete, another was the (correct) perception, that due to the British Standards that were applied to most goods, overseas companies had a confidence in product being supplied for the UK. The hope is that with being out of the EU, in the long term, we may get back to a strong pound, and that will enable us to make reasonable margins, by reducing product costs, and compete, but in the meantime, we will do what we have always done, and that is find a way to deal with the changes. From our point of view, that includes continually looking at new innovative products and partnering with high quality manufacturers. I am personally very positive about our future very much for that reason, following on from the UK Trader origins of supplying high quality products, and service, i.e. our/UK’s reputation for being reliable and trustworthy.