Months ahead of the end of the transition period, there was, understandably, significant uncertainty around Brexit. In the midst of the pandemic, two thirds of businesses admitted their Brexit preparation had been disrupted by COVID-19 and less than a quarter (23%) had high confidence in their ability to cope with the extra administrative burden of Brexit, with two thirds (67%) of large firms very or extremely concerned about longer delays in their supply chain impacting business post-Brexit.
So, now that Brexit is officially in effect, how have businesses in reality been affected by not just Brexit, but also COVID-19? And how has the level of certainty around the future changed? What impact did businesses’ level of preparedness for Brexit have on these outcomes and how do businesses expect supply chains to perform in 2021?
As Andrew Tavener, Head of Marketing at Descartes, argues, with the next phase of Brexit changes commencing July 2021, there are lessons to learn about the value of preparation. When it comes to successful international trade, planning is not just essential for compliance – it makes a tangible difference to successful business operations.
In March 2021, Descartes commissioned independent research to assess the specific elements of EU trade that have been affected, as well as the resultant disruption, the level of preparedness for Brexit and the expected performance of supply chains in 2021.
- Mixed performance: 43% of businesses have been impacted negatively by Brexit in 2021 – but 19% of businesses are thriving in a post-Brexit world
- Disruption reality: 90% of businesses have faced disruption since the end of the transition period
- Economic impact of Brexit: 53% expect their 2021 turnover to be lower than if the UK had remained in the EU – and the average reduction is 29%
- Preparation delay: 46% of Brexit preparations happened during 2020, especially during the second half of the year
- Pandemic impact: 76% had their Brexit response disrupted by COVID-19
Reports have highlighted that delays importing and exporting goods to and from the EU have worsened since Brexit was introduced at the start of the year, possibly leading to stock shortages and price rises for consumers. But, as this recent research reveals, the post-Brexit trade situation is far more nuanced. Yes, disruption is a reality: 9 in 10 companies have experienced disruption in their ability to trade in and out of the EU in 2021.
At the same time, almost one fifth (19%) are actually thriving in a post-Brexit economy, with 35% of electronics, computer and telecommunications companies enjoying a positive outcome.
So what differentiates those businesses that are enjoying post-Brexit success?
The immediate effect of the Brexit and COVID-19 double whammy is clear: European trade overall is down. French exports to the UK fell by 13% in January compared to the average of the previous six months and French imports from the UK plummeted by 20% per cent, according to French customs officials. German exports also fell, down roughly 30% year-on-year – accelerating a decline in trade between the two countries since the Brexit referendum in 2016.
But is this drop in trade justified – and will it continue? Confidence is a huge component of successful business and our survey confirms that nearly two in five companies think the economy wasn’t ready for the end of the Brexit Transition Period on 1st January 2021. This lack of preparedness by individual businesses has had a severe knock-on effect on the rest of the supply chain: even a company that is totally prepared can have its businesses disrupted if suppliers have failed to make the required changes.
But is this the reality after the initial, expected border glitches? If companies have the right paperwork and processes in place, delays should be minimal. And while traffic volume dropped initially in January, in response to the stockpiling undertaken by many companies, figures are back up. By February, it was reported that UK-EU freight trade was back to 90% of normal levels at Dover. With markets beginning to re-open as lockdowns ease and vaccination programmes take effect, there is a huge pent-up demand for goods in every sector – so are companies ready?
COVID-19 and Brexit preparation
In March 2020, when companies should have been gearing up for Brexit, the vast majority were wrestling with global disruption to supply chains, unknown customer demand and the need to put many staff on furlough simply to survive. Three quarters (76%) of companies confirm that COVID-19 disrupted their Brexit response. Hardly the best preparation for the biggest upheaval in European trade in 50 years.
Given the very different experiences of a post-Brexit trading environment so far, a lack of consensus regarding the future is to be expected. Yet the divergence in opinions is stark: while 62% of those negatively affected by Brexit are less certain about the full ramifications of Brexit on their business, 82% of companies positively impacted since Brexit are more certain.
It is extremely telling that the businesses that are thriving post-Brexit are those that started to prepare sooner: 24% in the second half of 2019 and 33% in the first half of 2020. Furthermore, these companies took a holistic approach, taking into account the diverse requirements of post-Brexit trade and making the required changes prior to 2021.
Preparing early not only allowed these companies to work closely with experts who understand the complexities of global trade but also train staff in new supply chain software and procedures to ensure they were confident and up to speed on 1st January.
With the next phase of Brexit changes – an end to deferred import declarations from July 2021 and safety and security filings required from 1st January 2022, there is still much for businesses to prepare for.
There is little doubt that the huge demand for customs brokerage services is having an impact on prices – and smaller companies are struggling to gain access to services, with brokers not taking on new clients. But this is not a finite market – and there are a number of new organisations stepping up to provide additional services.
Alternatively, companies can invest in dedicated supply chain software solutions and handle customs declarations in-house. With a cloud-based solution, all the vital customs and shipping data is secure yet accessible 24×7. It provides immediate insight into landed costs – allowing integration with point of sale systems to provide customers with an immediate, complete and accurate view of all costs, from tax to delivery. This approach not only adds control but also provides companies with an easy route to scale up exports in both the EU and the rest of the world, without adding costs.
Brexit has thrown many businesses into a spin, especially those whose plans were derailed or delayed by COVID-19. But as this research shows, when it comes to business success, planning is crucial not only for compliance – but also growth and resilience. Those companies that prepared earlier are performing better, they are more confident about the future and they are able to maximise the opportunities left by competitors unwilling or unable to trade in the EU.
With the changes due from July through to January 2022, early preparation is, once again, key to avoiding expensive disruption. Plus, once companies have successfully embraced trade with the EU, why not expand into the rest of the world? An effective post-Brexit EU trading model opens the door to a huge new global opportunity.
For more information see www.descartes.com/brexit and to download a copy of Beyond Brexit Research Whitepaper see https://www.descartes.com/lp/brexit-realities-whitepaper