While British importers and exporters wrestle with the UK’s new EU trade border this January, some businesses have taken a more radical approach to addressing the challenges posed by life after Brexit: give up on cross-Channel trade altogether.
One such company is Aston Chemicals in Aylesbury, a medium-sized business that imports and distributes specialist chemicals for some of the world’s leading cosmetics brands. It dispatched its last ever load to Europe on December 18.
“It was emotional after 30 years of trading, and we hoped it wouldn’t come to this,” said Dani Loughran, Aston Chemicals’ managing director, “but the duplication of EU chemical regulations, the risk of tariffs because of rules of origin, border delays and increased freight and administration costs left us no choice.”
It is difficult to predict how many small and medium-sized UK companies will take similar steps when confronted with significant additional costs and bureaucracy imposed by the UK’s new trading arrangement with the EU.
Trade groups expect some companies will wait and see how the new rules bed down, while others — such as Aston Chemicals — have already taken pre-emptive action, either giving up trading altogether or rejigging operating models to serve two markets separately.
Aston will no longer send weekly truckloads of chemicals to the EU from Britain, but instead import all the chemicals for its EU customers directly into a subsidiary in Poland, effectively separating its EU and UK supply lines.
Ms Loughran said that as a result of booking the business in the EU the company will pay more tax there and employ fewer people in the UK, having already cut its UK warehouse staff headcount by one-third.
Industry sentiment surveys in sectors that are likely to be affected, such as chemicals, pharmaceuticals, food and drink and manufacturing in integrated supply chains, show a widespread expectation that Brexit will have a significant long-term impact. The expectation is that the effects will not be as immediately obvious as the short-term port disruptions that the government has warned of, but will eventually change the way many businesses trade.
Make UK, the manufacturing lobby group, for example, found that its “balance of export orders” index — the proportion of companies expecting worldwide exports to rise or fall — was forecast to drop sharply to minus 14 per cent this quarter, while the balance on investment intentions was minus 11 per cent.
The motor vehicles sector is also downbeat, with a forecast export order balance of minus 33 per cent in the first quarter of 2021, compared with plus 20 per cent for the same quarter last year after Boris Johnson’s election victory led to a short-lived investment boom.
Stephen Phipson, head of Make UK, said that many manufacturers had been wary of exporting in the first few weeks of the year as they wanted to see the impact of Brexit. But he predicted that borders would be under more strain in the coming weeks as stockpiles built up in the transition period, which maintained previous trading arrangements with the EU, ran out.
Similarly, a third-quarter business confidence survey by the Food and Drink Federation found that 59 per cent of those members who responded predicted a decrease in exports to the EU during 2021.
The biggest factor for many smaller UK companies is the range of “non-tariff barriers” that confronts them as a result of the UK becoming a so-called “third country” operating outside the EU’s common regulatory umbrella.
For Renee Watson, founder and head of explosions at The Curiosity Box, which makes science kits for children in Eynsham village, Oxfordshire, it is the cost of certifying her products separately for regulators in the UK and EU that may tip the balance.
It will cost £500 a product to obtain the new “UKCA” safety marks, which indicate conformity with UK safety standards and which — for now at least — essentially duplicate the EU’s existing CE mark, which confirms a product meets the bloc’s safety, health or environmental requirements.
With about 36 products to register she estimates she is facing a bill of about £20,000. “I wish I had that sitting in the bank,” she said. “But we need to make sure we are compliant and can absorb the costs as schools will not be able to afford it if we passed them on.”
For now the company has paused exporting until it has worked out whether it can carry the costs of different certification marks, including in Northern Ireland where a separate “UKNI” mark is required.
Ms Watson said she feared the company may never resume trading in Northern Ireland — but she remains hopeful that EU exports would continue even if “deprioritised while the dust settled”.
For others such as Shane Burnett, the founder of Premium Plus UK, a Bournemouth-based dental medical devices maker, the decision has already been made. Last year he hastily opened a new subsidiary in Poland to handle his EU customers, which make up 65 per cent of his client base.
He said that strict EU rules on importing medical devices simply made it unviable to use the UK as a distribution hub for the products he imports from China. He has let four staff go in the UK as the business shifts across the Channel.
“It would cost a fortune to do all that paperwork because now each EU customer becomes an ‘importer’ and that’s financially unviable,” Mr Burnett said. “It makes much more sense to ship the whole lot into Poland in one big hit, do the customs and then distribute round the EU.”
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