Yes, Brexit WILL seriously affect Exporting U.K. Manufacturers
It really shouldn’t be necessary to explain the impact that leaving the free market and customs union will have on what’s left of our large British manufacturing businesses. The ones who rely on a ‘Just in Time’ supply chain. A JiT supply chain like Nissan in Sunderland, reliant on the arrival of thousands of parts from all over the EU, arriving in a 15 minute window to maintain a functioning production line. I’m sure you can work this out for yourself
This is from a small business owner who knows the facts:
I know very little about the workings of the Common Agricultural Policy, fishing waters, Erasmus, Euratom and 1,000 other things. I do know more than almost every politician and media writer about business, and specifically manufacturing and exporting.
Because I know the facts, not the headlines, I have known since long before June 2016, that if vote leave won, our business would be finished. It is not just our business, but many more in manufacturing and its supply chains, working class jobs, factory jobs, office jobs, technical jobs from servicing machinery to programming robots and more.
While you read consider the industrial units found in every UK town, and often village, along with the huge car plants in our cities.
Our business, which I shall call RIP, produces specialist sports products, following an idea my partner had many years ago. It started small, with 3 product lines produced by a nearby factory. Every penny made was reinvested and we grew and grew, taking export opportunities as they arose from day one. We now have an industrial unit with a £200k mortgage, produce all our own products, 10 staff, £800k turnover, £500k exports, three quarters of which are to the EU, annual profit £10-£70k, typical tax paid per year: £18k business rates, £48k PAYE, £38K VAT, £10K Corporation Tax. I think that’s quite a good contribution to the economy for a girl who left school on her 16th birthday, and a guy who was thrown out long before.
We are not heroes, just a tiny, solid, part of the British economy. We try to be good employers. 16-year-old apprentices start on £5.50 with paid formal training and the average pay on the production team is over £10 hour after 6 months – keep in mind this is low skilled work, and we are a small business. It has been a great privilege to give opportunities to people, who have ability but have never had a chance before.
So, here is why Brexit is such a spoiler:
We process around 60 orders a week, retail, wholesale the lot, order value average £700, between £5 – £20,000. We are good at what we do, and compete with Chinese made, American marketed products. I can process and ship around 20 UK or EU orders per day, because an EU order takes about 45 seconds longer than a UK one (declare value from the invoice I have to make anyway, email customer tracking number). Shipping to the EU costs £13 for a box up to 35 kilos (yes, it’s that cheap), so no issue to recover from customers. Once a month I need ½ hour to send ESCL and Intrastat reports to HMRC as part of EU export. BUT the minute I go to countries outside the EU, but in the customs union i.e. Norway, Switzerland etc, I must produce 5 extra invoice copies, with a manufacturers declaration, harmonised commodity code (to be fair we do that anyway now in our product data), and manually sign them. So: an additional 20 minutes, and time is money. Then I must pay a £25 customs clearance fee – so I can no longer split shipments, and be flexible for the customer, because that fee is per shipment, regardless if 1 box or 20. Then if an order for Switzerland is over £6k, I must apply for for SD11 (I think) from the Chamber of Commerce, wait to receive it and complete it. This adds 2 weeks for the form to come back and at least 2 hours (profit slips away).
For non-EU shipments it’s the same story but with 5 x customs invoice (10 for UPS, sorry guys but you do lose them all the time); and a much longer process for booking shipments. Waiting for quotes for air versus ocean shipment (not an issue for Europe, goes on lorry through tunnel), and also supply packing lists, airway bill or bill of lading copies to receiver and shipper, for China and Australia I must produce declarations regarding “no wood” packaging. There is frequently additional work to check the package status, provide extra documents or information etc – all of this is not profitable. We instinctively prefer EU work to non-EU.
There is a further issue of business culture – and please excuse the generalisations here but they are my experience of many years:
The huge majority of our European (rather than EU) customers have the same business practices and ethics to us, we all know where we stand and what to expect in terms of communication, documents, product quality and payment, it’s all good business. Whereas, Canada and Australia are so laid back they can barely be bothered to check a delivery address or product description, leading to extra admin work later down the line. America is split. They either are too laid back as previous, or in complete document over drive, demanding huge lists of procedures on labelling boxes, copying all correspondence to 6 recipients, and delaying shipment for confirmation from third parties. The latter is the worst in that the administration ends up exceeding the product value on all but the largest orders. The Chinese work entirely to their own tune, always on holiday, understand English perfectly when it suits them and not at all when it doesn’t. I recently sent goods where they failed to tell both me and the freight company that the delivery was to a bonded warehouse (generated additional £1k charges for bonded lorry, this is all something to do with not going through customs!). I have been asked for a refund due to quality 2 years after an order was sent to a Chinese factory – but ask anyone who imports from China and they do not do refunds.
Emerging markets are of little use to us. Europe shares our weather, our culture and our sports habits. Sports safety equipment from the UK is unlikely to boom in India in 2019. Let’s be straight, Health and Safety in the workplace is almost non-existent there, so unlikely to be massive in leisure.
There is demand in Brazil – but here is another fact you won’t hear from Liam Fox: Brazil imposes 100% import duty on all imports to protect its own producers and they are hardly likely to drop that policy just for the UK because it chose Brexit.
Then there is just the plain reality – EU countries deal with each other because they are close, so it is quick, cheap and easy to do business. It will never be cheap to get goods to New Zealand. Tariffs are not the big issue here (I often wonder about the lamb, although someone recently told me it is because their volumes are huge).
I could tell you much more, but you must be super bored by now. I get so frustrated hearing politicians discuss these issues – they do not understand my reality, just as I do not understand theirs.
To conclude: Brexit will finish us because we will lose our smaller value orders due to the increased customs costs. Even with a Norway style deal, an extra £25 on a £50 or £100 order is a deal breaker. Then, we will lose more business as costs increase and shipping flexibility to EU reduces. We need at least 1 skilled staff person at £30k per annum to process the exports. The combined effect along with new pension costs, increased business rates and higher input costs due to falling £, put us in a loss making position. As a manufacturer competing against China, we are already highly efficient. There is nowhere else to claw it back.
This leaves us closed (why let the loses add up and up), with £200k due on an industrial property, and you may wonder, why not let it or sell it – which we will gladly, but the nearest unit to us has been on the market for 6 years, and that is a long time to find the mortgage payments, plus business rates which must be paid after 6 months empty.
We have worked 60 hours a week, with babies on laps and 2 days maternity leave and at the end of 2015 we had become confident in our business. Now this confidence is to be snatched away by Brexit. I am however much more disappointed about the perhaps unintended, but in my opinion foreseeable, emboldened confidence Brexit has given to the fascists in the UK.
Make no mistake, the single market is a beautiful thing for business and allows you to easily expand your business abroad. Those produce regulations you must comply with are the CE scheme – which has effectively replaced the British Kite marking scheme, and let’s face it, we like our electrical goods, children’s toys and safety equipment made to a standard it does not kill or injure us. I can assure you the UK Trading Standards does not have the resources to enforce the law now, let alone without the back up of EU agencies.
If you voted Leave, I do not disrespect your reasons, but I doubt Brexit reality will deliver what you wanted. I hope you can spare a thought for me and the team at RIP, along with thousands of other small business, because we are normal hard-working people, who already know what it means to go without.
The sad irony of spending 18 months with a sinking feeling in my stomach, of wondering when to tell my staff their jobs are finite, of whether it is viable to relocate to another EU country while my kids are mid GCSE and a thousand other concerns, is that if Brexit is cancelled tomorrow, my heart has gone from the business and it will be a relief to walk away into the penniless unknown.