Welsh bicycle firm hit by £250,000 bill for Brexit
ABUSINESS co-owner says Brexit cost him around £250,000 extra in just the first two months of this year.
Frog Bikes, a children’s bike manufacturer which employs around 50 people at its Pontypool factory, has a customer base that stretches across the globe.
However, the effect of Brexit and the UK’s trade agreement means the company has spent much of this year adapting to a challenging new way of doing business.
“I couldn’t say there was anything positive,” said Jerry Lawson, cofounder of Frog Bikes, discussing Brexit’s impact on the company. “There’s extra paperwork, and there’s extra costs. And there’s a whole lot of unknown.”
Mr Lawson co-founded Frog Bikes back in 2013 with his wife Shelley. The pair were searching for bikes for their children and, after not finding anything suitable, they decided they would go into business creating their own range of affordable bikes for kids. After three years of growth, in 2016, the company opened its Pontypool factory with support from the Welsh Government. It is from here, on an industrial estate just outside of Mamhilad, that Frog Bikes are assembled before being shipped off to customers around the world.
“The business is growing,” said Mr Lawson. “The UK [market] last year grew 18%.”
In its eight years, Frog Bikes has grown a loyal customer base overseas as well as within the UK, selling more and more bikes each year to places like the USA and Hong Kong, and EU countries such as Germany, France and the Netherlands. However, in spite of all of its success and continued growth, 2021 has been a difficult year for the company due to circumstances outside of its control.
The reason? Brexit, says Mr Lawson.
“We had positive and seamless trade prior to the Brexit vote,” he said. But, he explained, much of that had changed now.
The Brexit-related problems began as soon as the referendum result was announced in 2016, as Frog Bikes found itself preparing for a range of different possible scenarios.
“The challenge we had was that we didn’t know what Brexit actually was going to look like, so we did lots of scenario planning,” said Mr Lawson.
On Christmas Eve last year it was announced by the UK Government that a trade deal had been arranged with the EU in the form of the EU-UK Trade and Co-operation Agreement.
Much of the talk at the time discussed the “Canada-style” trade deal as a means of avoiding tariffs on goods arriving from the EU. However, for businesses like Frog Bikes, there remained a lot of uncertainty about what the 500-page-long document would mean for them.
“The difficulty then was, we had no idea what it really meant other than everybody talked about seamless trade and no barriers to trade,” said Mr Lawson.
Just over four months into this new arrangement, however, the Pontypool-based bike manufacturer has not found much truth in claims about easier trade.
“We’re getting stuck in customs both on this side and in European countries,” he said, discussing one of the major issues Frog Bikes had encountered since January. “The paperwork is also incredible. To begin with, some of the countries wanted the paperwork in their language.”
Until Brexit, standard customs had not been done that way, and the company did not need customs declaration forms for stores in the EU.
“Now we send them a commercial invoice with a whole lot of customs information. Plus, it’s four or five times we have to print it.”
The customs declaration includes information about the country of origin, shipping codes, and information about VAT, among other things.
Additionally, the European stores Frog Bikes sends its products to may also have to pay VAT, courier fees and consignment fees to receive them under the new trade deal between the UK and the EU.
“Spanish stores are being charged 60 euros per consignment. They might be charged a commission or finance fee by the courier. So, they can get the import VAT back but they can’t get the consignment fee, and they can’t get the commission fee or finance fee that is charged.”
“So, if we only send three bikes to them, that works out at about a 50 euros increase to the consumer per bike. And that then means it’s a real barrier.”
The worry, he added, was that the company would simply not be able to do business with some European stores in the future if it became unsustainable.
“We are gripping onto them by the skin of our teeth at the moment because a lot of them are very frustrated and concerned. I don’t know how long we’ll hold onto them if we can’t find a way around the delays, the paperwork and the extra costs. A store we’ve known for seven years who we’ve been trading with... came back and contacted me because they’re really struggling. They don’t know what the costs are every time.”
On top of this, to try and minimise the costs for the consumer, Jerry explained that the cut of profits stores in the EU took home from selling Frog Bikes had decreased.
“If we reduce the margin the stores get by 2% or 3%, that means the price increase to the consumers is lower,” he said.
Prior to Brexit, the EU accounted for roughly 47% of the company’s business. Now, however, Mr Lawson explained he could see that percentage decreasing.
“Unless we find a workable solution to the barriers, the non-trade barriers, we can see that diminishing because we will lose these stores. And we know that because we talk directly with the stores. And when we have lots of stores in these markets, and they’re all feeling the pain, it has a risk for our business. And the challenge then is, if we lose those sales, where will we make it up?”
In addition to uncertainty surrounding import fees for European stores, Frog Bikes, like countless other manufacturers, has seen growing component costs and a huge rise in shipping fees.
As a result, the company spent more than £250,000 in Brexit-related costs by February this year – two months after Brexit came into effect.
“That’s wiped out our profit for last year, completely,” said Jerry.
He explained that, in all of his years in business, 2021 was the most difficult period he had experienced.
“We’ve we’ve had various different things over the years. There was the dot-com burst, you had the banking crisis, but this is much worse. And if I look at how we were faring last year, based on the pandemic, this is much worse than that as well.”
Are there any positives at all to come out of Brexit for the bike company?
“I guess it makes us more resilient,” Mr Lawson laughed.
However, for Frog Bikes, the foreseeable future will be spent learning how to adapt to the new way of doing business in a post-Brexit world.
“We’ve got a good team, they will find solutions, it’s just taking longer,” said Mr Lawson.
“I’m positive we’ll find a solution. It’s just slightly painful, the emotional rollercoaster of running a business.”