“A catastrophe” is how Henrik Follmann describes Brexit’s impact on his family’s chemicals company. Based in northern Germany, it recently scrapped plans to expand its UK factory because of Britain’s departure from the EU.
Follmann Chemie had planned to invest about £2.5m in making more adhesives at the plant it bought three years ago in Andover, southern England, to boost exports to EU clients. But its chief executive said this plan was wrecked by the extra difficulties of shipping goods both ways across the English Channel: “Brexit has been a nightmare, building up costs and time.”
“We were going to build extra production and storage to supply customers on the continent, but we delayed it and have now taken a strategic decision to cancel this and to expand in the EU instead,” said Follmann, the third generation of his family to run the company.
Follmann has had a tougher Brexit than many companies. But its experience of increased costs and delays to shipments between the UK and the EU is typical of many businesses grappling with the extra bureaucracy and pitfalls created by the new customs checks.
Even though the UK and EU agreed a last-ditch trade deal to avoid tariffs on most goods when Brexit came into force on January 1, trade between the two has been disrupted by higher shipping costs, transportation delays, health certificate requirements and more complex customs requirements at the border.
The UK’s Office for National Statistics on Wednesday said British exports to the EU in the first three months of this year fell 18.1 per cent from the previous quarter, while imports from the EU were down 21.7 per cent. In contrast, UK trade with non-EU countries grew slightly in the same period.
There have been signs of a partial recovery from the initial post-Brexit disruption, as UK trade with the EU increased in March, albeit at a slower pace than with other countries. But for the first time since comparable records began in 1997, the UK imported more in March from outside the EU than within it, underlining how British trade has shifted away from the bloc.
“It is probably too soon to talk about the long-run effects of Brexit on trade, even though we have seen these big moves in the data recently, it could be that firms are starting to learn how to deal with these customs procedures,” said Lisandra Flach, economics professor at Ludwig-Maximilians-University in Munich.
The UK has been steadily declining as a trading partner for the rest of the EU since the 2016 Brexit referendum. Its share of exports from the 27-country bloc has fallen from more than 17 per cent before the vote to 14 per cent last year, according to Eurostat. In January and February of this year, the UK’s share of EU exports outside the bloc fell below 13 per cent.
Follmann said he feared that some big UK clients were considering shifting some production to the EU to serve customers in the bloc. There are already signs that foreign direct investment in the UK has been weighed down since the EU referendum.
In the five years to March 2021, the number of FDI projects into the UK was up only 12 per cent compared with the previous five years because of sluggish investment growth from North America and western Europe, the main investing regions, according to data from fDi Markets, an FT-owned company tracking foreign investments. This was well below the 33 per cent expansion across EU countries.
The number of foreign greenfield investment projects into the UK fell 40 per cent in the 12 months to March 2021 compared with the previous 12 months. While this is largely the impact of the pandemic, the drop was larger than the 30 per cent contraction registered for investment into the EU.
“A lot of adjustments by companies have already happened in the years before Brexit,” said Flach, who co-wrote a report for the German government on the impact of the UK’s departure last year.
Germany accounts for a quarter of all EU exports to the UK meaning it has been affected more than most countries by Brexit disruption. Many of the small and medium-sized companies that are the backbone of Germany’s export-focused economy have struggled with the extra customs checks and bureaucracy now needed to ship goods to the UK.
“There is no vaccination against Brexit,” said Klaus Winkler, chief executive of Heller, a specialist in making crankshaft machines to mill engine parts that is based in Nürtingen, near Stuttgart in south-west Germany. It has a UK plant that assembles many of its machines in Redditch.
“A lorry travelling from Nürtingen to Redditch takes twice the time and we have to put a lot more hours into all the bureaucracy,” said Winkler. “It is quite cumbersome. We had to increase the stock levels and have maintained them because it hasn’t improved.”
Paul Maeser at the BDI, Germany’s main industry association, said many smaller companies had asked it for help with the new UK customs requirements. “Some of them have said they just can’t cope with this any more, so they won’t continue to serve this market,” he added.
Heller and Follmann have encountered problems with the rules of origin clauses in the Brexit trade deal. These stipulate that all goods must be able to demonstrate that they “originate” in the EU or the UK — containing about 50 per cent UK content for most products — in order to qualify for zero tariff treatment.
Some of the products Follmann exports to the UK are made by third parties outside the EU, meaning they have started to incur tariffs. “We didn’t anticipate that,” its CEO said, adding that container shipping costs to the UK have risen 20-30 per cent.
Winkler said some Chinese clients needed Heller’s products to be built in the EU, not the UK, meaning it has had to rework its production to assemble more machines in Germany.
The UK has pushed back full customs checks on some products entering from the EU until January, which means that even some of the continent’s biggest exporters are concerned that Brexit disruption could get worse.
BMW, which has factories in the UK and the EU, said: “We welcome the fact that the Brexit deal resulted in a zero tariff trade arrangement, however, the additional administrative complexity has added costs to our businesses and the full weight of this will not be felt until full UK customs controls are implemented in January 2022.”
Source: Economy - ft.com
