What Brexit means for business operations in Europe

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.