Business after Brexit: a tale of red tape and higher costs

Just over two months since the UK entered into a new trading relationship with the European Union, following the end of the Brexit transition period on January 1, the Financial Times has returned to three small British businesses involved in trade with the bloc to find out how they are getting on.

This is the second instalment of their journey adapting to life outside the EU single market.

The tea maker

The owner of the organic teas specialist Hampstead Teas has already made her first big decision in the wake of the biggest upheaval in trading relations between the UK and the rest of Europe in nearly five decades.

“We’re setting up shop in the EU,” says Kiran Tawadey, who founded her company 25 years ago after bringing five chests of high-grade Darjeeling tea from her native India and selling the contents in 250g packets to local shops and cafés. She now sells 100,000 kilos a year.

Tawadey, who currently employs nine workers blending, packing and shipping her teas out of a plant in Milton Keynes, said the decision to shift distribution to the EU had been taken after a “simply awful” 10 weeks battling EU customs formalities.

“It has taken eight weeks to clear a single consignment of teas into Italy, which is completely unacceptable, and we’re now waiting to hear what the storage charges will be. It is time to move to Europe,” she said, adding the company was in the process of negotiating a lease in a distribution centre in a northern EU country.

Email correspondence documenting Tawadey’s efforts to get her goods released from customs demonstrates the mind-numbing complexity of complying with labelling and packing requirements for a product like organic teas.

Each tea requires certificates of analysis, photographs of the product with the outer case, specific stickers containing details of the Italian importer, each for nine pallets of goods — or around 12,000 individual units.

Hampstead Tea’s packaging and raw materials, such as chamomile, also mostly come from the EU and prices are rising with the additional bureaucracy, adding further impetus to the decision to shift operations across the Channel.

“We are waiting on our company incorporation in the EU and then will move stock into a warehouse there,” she explained.

Tawadey said she made the decision to set up a distribution hub in the EU reluctantly but it was the only way reliably to service clients that include big clients such as French supermarket chain Monoprix, Italian grocery giant Esselunga and German-organic health food retailer Alnatura.

“We’ve had such unbearable conversations with customers that we really love and cherish, and we can’t continue the negativity in this way,” she said.

Distributing from an EU hub will enable Tawadey to first shipping to her EU entity from the UK, thereby absorbing any delays, and then delivering onwards to customers in the EU reliably and without the added complications of facing multiple VAT regimes. 

“People in the EU expect to pay for goods and then for them to pitch up. If they have to get on to a customs agent and then push the goods into a warehouse, and that takes an extra half day that causes a package to miss a delivery slot then customers are screaming,” she explained.

Where distributing from the EU ultimately leads for the future shape of Hampstead Tea is still to fully play out. But Tawadey says the first decision has been forced on her. “I have no choice really, but it still makes me both sad and cross,” she said.

The Haulier

For Paul Jackson and his Peterborough-based haulage company Chiltern Distribution, the Brexit change has been one of significant inconvenience rather than catastrophe.

Since the new EU border came into force Jackson, who often himself drives one of his fleet of 50 temperature-controlled trucks, has suffered delays of between two and seven hours at the border while paperwork is processed.

His concern is that more than 10 weeks into the new trading arrangements those delays are still occurring. Earlier this month, Jackson was held at the Spanish border for six hours carrying a load of fruit to the UK, forcing him to pass the cost on to his customers.

“The problem, it turned out, was not the fruit but the fact that it was in a new trailer which couldn’t be matched on the system. There always seems to be something and if the ‘computer says no’, then you’re just stuck,” he said.

Brexit has also started to change his working patterns, with the company now picking up more loads at Portsmouth as EU shippers load unaccompanied trailers on to ferries to help bypass border issues.

“At the end of last year, when we were trialling that system there were about 10 tractor units doing pick ups, but now it’s about 70 — I can see that this is increasingly going to be the way,” he said.

Jackson’s fears for the future are that EU clients will get increasingly unwilling to pay the delay charges and that when the UK does finally introduce border checks on EU exporters those delays will be compounded as loads get trapped in UK customs formalities.

The government announced earlier this month it had pushed back starting full border checks by another six months. Jackson opposed the move as he believes it would only delay EU exporters’ preparations, spreading out the pain of adjustment.

“If this extra time was going to be used constructively to ensure that we’re all playing on the same pitch come January, then maybe it’s worth while, but do we think that’s going to happen? The worry is people will just carry on regardless,” he concluded.

The aerospace components manufacturer

After a few initial delays with freight forwarders after January 1, Produmax’s shipments of parts for the aerospace industry have largely since passed over the border without hitch — but not without cost.

The extra administrative expenses from dealing with the customs, duties and export declaration forms via its freight forwarder are passed on to Produmax’s customers. 

This means that the Shipley-based manufacturer risks becoming less competitive compared with rivals in the EU when selling into the bloc. The same applies when it ships goods within the UK to Northern Ireland, which is the destination for about a third of its exports, including the former Bombardier plant now run by US’s Spirit AeroSystems.

“It’s no longer a level playing field,” said finance director Mandy Ridyard. “That doesn’t seem right that there is a cost to export to our own country.”

So far, the flow of parts for her factory imported from the EU have not encountered much delay, after an initial period of trials back and forth over the border with the EU. 

But with the global aerospace industry at a low ebb given the lockdown on international flights, she worries about what will happen when demand also picks up. “We are not at full rate at the moment.”