How exporters can avoid pitfalls posed by Brexit
A hard Brexit threatens to disrupt supply lines, but collaboration and creative thinking can go a long way
DON’T you wish the unbelievable, incalculable and uncertain mess called Brexit would go away? I, for one, am sick and tired of the political shenanigans, yet every single day, new chapters open up. But this is not a novel. It has serious implications. Last week, I described the challenges and coping strategies for Circle K, a fuel distributor and convenience retailer, that imports from the UK. Today, I want to detail some of the opportunities for organisations that export to Britain. Main challenges in a hard Brexit scenario: • CURRENCY. The volatility in sterling is already a hot topic that you may be well used to. But post-Brexit, experts warn of possible parity between the euro and sterling as a worst-case scenario. For narrow-margin products like food, that could potentially swallow the full margin. • TARIFFS. With a no-deal/hard Brexit outcome, the EU and UK will resort to the World Trade Organisation’s tariff scale. In other words, where countries want to protect industry and jobs locally, they apply tariffs. This happened recently when the US applied tariffs of 25pc on Kerrygold and other Irish butter. See wto.org for a tariff scale relevant to your products. • SUPPLY CHAINS. Paperwork and customs controls for those that have never traded outside of the EU will present a significant learning curve.
That’ll require new skills, extra costs and time. In the meantime, how would such border delays and congestion affect lead times? What about VAT, shelf-life dates, stock level requirements and working capital? In summary, if you export to the UK and/or Northern Ireland, your life will be different. It will potentially affect your competitiveness and/ or your margin. Do you pass these increased costs on to your customers? Can you cut your costs? Or can you find alternative markets?
Key steps to take: 1 REFOCUS ON THE IRISH MARKET
Not only do the problems and risks related to a hard Brexit apply to Irish companies, but don’t forget that they also apply to UK firms exporting into Ireland.
The sterling drop may be in their favour, but the potential tariffs and customs challenges might cancel out that advantage.
In conversation with a number of our food producers, I’m told that the buyers in Irish retailers are now in a more collaborative frame of mind with local producers.
They, of course, don’t want ‘out-of-stocks’ of core lines. Through open dialogue, answers to those risks are being found via new listings, collaborative brand-building and own-label products sourced locally.
I spoke to one producer who has a state-ofthe-art manufacturing facility. The company is currently in conversation with UK manufacturers who won’t want to lose their share of the Irish market. Together, they are exploring the possibility of contract manufacturing for them here in Ireland. That eliminates tariffs on imported finished goods and customs delays.
2 WIDEN YOUR EXPORT FOOTPRINT
Working closely with Bord Bia, many companies have reduced their dependence on the UK market by investing and taking space at international trade shows. But watch for taste, packaging and language differences. Representatives from Bord Bia told me there is growth, for example, in PCFs (prepared consumer foods) and gluten-free products. They also said retailers in mainland Europe are not as advanced as the UK ones are with own-label. Many Irish exporters have that skill and should exploit it in Europe.
However, to improve your chances of success, research and innovation are critical. You should go to trade fairs, visit stores and engage with the Bord Bia library.
3 DON’T IGNORE THE UK MARKET
The dietary habits in the UK are very similar to our own in Ireland, so Irish suppliers will continue to have a market there and a role to play.
However, in a tight-margin industry like fast-moving consumer goods, competing on price with the additional tariff and currency costs may be too challenging.
Instead, East Coast Bakehouse, for example, will focus on the quality and premium end of the market, with high-protein cookies.
4 REFRESH YOUR SOURCING
If your raw ingredients come from the UK or, indeed, by land-bridge from mainland Europe, then in a hard Brexit scenario, there are likely to be delays to processing shipments through customs. It’s time to explore other sourcing options direct from mainland Europe and elsewhere.
5 EVALUATE YOUR FUNDING REQUIREMENTS
If you need to consider new funding arrangements, speak to your bank. There are Government schemes in place through the banks that may be worth exploring. I understand that the process is clunky and the take-up is very low. But don’t let it stop you talking to your bank anyway.
6 MAKE SAVINGS ON OVERHEADS
If you choose to absorb the extra cost to remain competitive, then where might you make savings elsewhere? Can you do it in your product mix, general overheads, sourcing, people or through the use of technology?
7 ENGAGE WITH YOUR CUSTOMERS
Talk to your customers now. Share your thinking with them to reassure them of your intentions to maintain your current service levels, regardless of what happens. For sure, they are already planning. Do their plans include you? THE LAST WORD While I have focused here mainly on food companies, they are not the only exporters. I spoke this week with Richard Sloan, managing director of Sonas Bathrooms, the market-leader in Ireland.
“We currently offer a ‘just-in-time’ 24-hour national delivery service, which includes Northern Ireland, and that accounts for 15pc of our overall business,” he said. Sonas will engage with customers individually to agree an appropriate delivery system. That sums it up for me in three words.
Engage: this Brexit thing is a reality so get serious about it. Discuss: sit down with your key stakeholders and identify the risks and opportunities together. And collaborate: those stakeholders are in the same boat as you and will be more open to collaboration than ever before.