Entrepreneurs

Can Technology Solve The Post-Brexit Woes Of British Exporters?

Just a few months into the U.K.’s new relationship with Brussels, British exporters to the EU are struggling with mounting Brexit red tape and border disruption. Half (49%) of U.K.-based exporters were facing extra costs and delays in shipments to and from the continent, due to extra border checks and paperwork, according to the British Chambers of Commerce (BCC).

Before Brexit, shipments could be transported with minimal paperwork and delivered to destinations in other EU member states relatively seamlessly. Now there is a U.K. export declaration process, an exit border clearance process, a transit country process when cargo transits third countries, and an import declaration process at the destination country.

Sam Tyagi, founder and CEO of document management platform KlearNow, which is working with hundreds of U.K. businesses exporting to the EU, says: “Goods that used to flow freely must now include additional documentation and other requirements, for example, phytosanitary certificates, testing and analysis reports, and other health and safety restrictions. Products such as perishable foods have an added time constraint that is causing a lot of headaches, while makers of some products, like perfumeries, have stopped shipping altogether until they can implement the required protocol.”

Red tape is seriously impacting business for Plymouth-based ethical fishmonger Sole of Discretion, which buys fish exclusively from inshore from small boats, which benefits coastal communities. Around 35% of their annual sales come from a customer based in Belgium. The two companies have a shared ethos of preserving fish stocks and the livelihoods of the small-scale fisher.

The company normally makes twice-monthly exports of fish, but since the start of 2021 it has failed to send any, because the haulage company they use has yet to agree to collect their fish, citing too many problems with border control.

Founder Caroline Bennet says: “We made our third attempt to export yesterday, again without success. This time it was rejected because the label had ‘U.K.’ rather than ‘United Kingdom’. Every week we are given new rejection reasons. I don’t know why they couldn’t give us this information from the start.”

The additional workload is taking its toll. Every shipment now requires eight documents, compared to the previous single document, effectively an address label. The excessive red tape incurs a huge cost both in terms of time and effort that cannot be simply charged to their customers in Belgium.

Increasing domestic sales to compensate for lost EU sales isn’t necessarily a solution, as Bennet explains. She says: “We need to change domestic consumption habits, weening them off the ‘big five’; cod, haddock, farmed salmon, tuna and prawn, which make up 80% of all fish consumed in the U.K., while our European customers buy pollack, ray, ling, pout, lemon, megrim, etc. Eating a wider variety of species will make a difference, simply eating more will put further pressure on already depleted stocks.”

The company has been approached by Chinese and Singaporean buyers in recent years, but has no interest in selling beyond the U.K. or Europe. “I don’t believe that international trade fits well into our sustainable business model,” she says. “Many want airfreighted fish, for example, which in my view is not sustainable.”

Bennet believes that prices will inevitably rise to cover the extra costs of the paperwork, and fears that smaller operators will be deterred by this, leaving the trade of international goods to the larger, corporate brands. “This is a huge loss for ‘foodies’,” she says. “Small scale operators of niche, artisanal produce will decide there is enough demand locally and give up selling abroad.”

U.K. companies are also struggling with EU sales because of VAT management and other added costs that must now be factored into pricing and profit margins.

EU customers of British organic baby clothes retailer MORI are being asked to pay up to 60% additional costs to clear goods for delivery. The company’s pre-Brexit 2020 revenue from EU sales was €1.5 million. Now, they are forecasting a potential 13% revenue loss until a long-term solution can be implemented, which could include setting up a third-party logistics (3PL) warehouse in the EU.

CEO and founder Akin Onal says: “The practicality of establishing a warehouse in the EU depends on which 3PL partner we choose and the integration process. It requires a project team, budget and planning, and for a business of our size, an additional amount of resources and management time.”

Such a move would eliminate the duty on sales for orders placed by EU customers, reducing costs, making prices more competitive, and increasing the growth potential for the business. The downsides, however, include the operational complexities associated with multiple warehouses, including making significant adjustments to stock management systems, reduced flexibility, and the need for extra management staff.

“Establishing a warehouse in the EU is the only long-term solution that will allow us to truly be competitive in Europe,” says Onal. “If our customers continue to have to pay up to 60% in extra costs to clear goods for delivery then we continue to lose out to our EU competitors, and any marketing efforts and spend are hard to justify.”

The U.K. government has described the challenges for exporters as teething problems that will be resolved. But as Sam Tyagi points out, while new processes always involve a learning curve, transitioning from a manual entry process based on an old archaic business model is more than just a teething problem. The answer, he says, lies in digital transformation.

“Automation and AI can improve efficiency and increase collaboration between all supply chain partners,” says Tyagi. “Companies should follow the technology trend and digitize global trade activities. New processes can be easily implemented and maintained by utilizing technology.”

KlearNow has developed an all-digital customs business network with a web-based platform through which exporters, importers, transporters, and agents can collaborate via a common tool, eliminating the need for the multiple parties involved to manually rekey data.

“This kind of automation improves communication, simplifies data processing, and streamlines recordkeeping, while boosting the speed of export and import filings directly with customs authorities,” says Tyagi.

The upside of all this is that the U.K. is also free to negotiate bilateral and multilateral trade deals independent of any EU influence, which could have handicapped opportunities in the past. Tyagi adds: “Although there are shipping costs associated with moving products further around the globe, those costs may be offset by other benefits resulting from expanding into new markets beyond Europe.”

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