Promo Companies Adapt To Brexit’s Impact On Their UK Businesses
With the December 30 signing of the EU–UK Trade and Cooperation Agreement, promotional products companies operating in the UK began 2021 with the new normal of Brexit, with the country sitting outside the European Union (EU) for the first time in 47 years. Brexit and its run-up, which has caused short- and long-term effects that are rippling through practically every industry in the country, pushed many businesses to develop plans on how best to ride out the transition and operate in the UK and across borders after it went into effect.
On June 23, 2016, the United Kingdom held a referendum on whether the country should remain part of the European Union (EU). The motion to leave the EU won with 51.9 percent of the vote. The politically challenging process of determining what the UK’s departure from the EU would look like and negotiating a solution consumed the next four years, with the EU–UK Trade and Cooperation Agreement only being approved on December 24, days ahead of the December 31 deadline.
“The deal with the EU was left to the last minute, leading to a huge rush to try and clarify what was needed,” says Carey Trevill, CEO of the British Promotional Merchandise Association (BPMA). “In the run-up to the end of the transition period, British businesses were told to prepare by self-assessing the areas affecting them. The pandemic certainly was a distraction from what should have been businesses’ major focus in 2020, and the stop-start nature of the UK government’s response left many feeling unprepared and left to weather the storm. The government’s tone didn’t help, as it indicated that it was businesses’ fault if they were unprepared. Add a rabbit warren of information to wade through and most UK businesses aren’t feeling great about the challenges ahead.”
Trevill adds, “To help break down the varied areas where members were affected, the BPMA provided sessions on key topics affecting the promotional merchandise industry. However, with so much uncertainty and details still unclear, it has not been a clear process for our members.”
Negotiating the UK’s exit from the UK was fraught with push back from both sides during the process. Looming above it all was the specter of a “No Deal” Brexit, in which the UK would crash out without any trade agreements in place. Analysis from Her Majesty’s Treasury projected such an exit would result in a 7.5-percent contraction in the country’s GDP over the next 15 years.
Geiger’s UK-based subsidiary GeigerBTC was formed in 2018 when the UK’s BTC Group merged with the Lewiston, Maine-headquartered distributor. It has since expanded further in Europe with acquisitions in the UK and the Netherlands.
“It was at the last minute that a Brexit deal was announced,” says Jo‐an Lantz, MAS, Geiger president and CEO. “Our team in the UK had to anticipate and prepare for multiple possible outcomes, including either a deal or no deal, and the potential impact on our ability to service clients.”
Lantz says, “To prepare, several months ago we moved customers’ decorated inventory to our Rotterdam distribution location, and a secondary location in Germany. We conducted ‘drills’ in distribution to counteract possible delays and tariffs. With inventory in place, we were confident and assured our clients we would be able to maintain service levels whether a deal or no deal took place.
“The UK leadership team also worked proactively months in advance to monitor cross-border business. They worked closely with our production partners to prepare for either deal or no deal outcome.”
In 2017, PF Concept International B.V., the European subsidiary of supplier Polyconcept, acquired SPS (EU) Limited (SPS). Based in Blackpool, UK, SPS manufactures and markets promotional products serving the UK, Ireland and Europe.
“PF Concept is very well positioned to deal well with Brexit,” says Ralf Oster, CEO of PF Concept. “We prepared ourselves on higher stock levels and increased branding capacities in the UK to serve our local customers with our entire portfolio. The impending Brexit event was one of our investment rationales in 2017 for acquiring SPS to be able to further strengthen our leadership position.”
Manchester, United Kingdom-based distributor Brand Addition has offices in the United Kingdom, Ireland, Germany, Hong Kong, China and the United States. Karl Whiteside, the group managing director, says, “As a team in both the UK and Europe, we have been meeting and discussing the potential Brexit impact on our business for years. As we all know, it wasn't until December 24, 2020, that the deal was announced. Since then, we continue to learn and understand the requirements of not only shipping from the UK to the EU, but also from the EU into the UK. Additionally, we evaluated our sales and distribution footprint with our European customers and where necessary, we were able to move stocked inventory to the EU to get in front of some of the shipping and VAT challenges due to Brexit regulation changes. This will continue to be an ongoing analysis in support of our customer base.”
It is still the early days of Brexit and questions remain on how it is affecting companies and their business in the UK, and the effects it will continue to have in the future. Trevill expects that there will be changes ahead for promotional products companies in the country. She says, “We are inundated with queries on duty, taxes and origin of goods—particularly those incoming under WTO [World Trade Organization] rules into areas where free-trade agreements exists. We are also experiencing challenges with carriers who will no longer transport certain goods via road due to the new customs complexities and exporters who feel this is ‘too difficult’ to export to the UK. Obviously, this is great for British manufacturers and with a greater emphasis to ‘Buy British,’ this will help rapid growth for some sectors.”
Geiger is also mapping out the post-Brexit landscape. Lantz says, “As the finer details of the Brexit deal are becoming clearer, there are certainly nuances within the agreement that will change the way we manage our supply chain. Country of origin of the product is a critical factor in future cross-border transactions and will influence the route of supply we use. The goal is to prevent multiple cross-border movements. For example, we will use the most direct route for merchandise that originates in China to delivery. We will be looking at each order to make sure the most direct supply chain is used to prevent multiple duties being applied. Again, our production partners are supporting us in this task."
Oster shares PF Concepts’ expectations: “Brexit does require some changes in administrative and logistic flows, which PF Concept did organize and adapted internally and with our forwarders during the last year. At the start and moment, we experience some lead time increases from the UK to Continental Europe caused by IT capacity constraints within the UK administration at the border, but we do believe this will not last. We count on to get back a normal delivery schedule, after the challenging start for the UK.”
As to whether Brexit will cause his company to change how it operates in the UK and across international borders, Whiteside says that the short answer is “yes.” Expanding, he says, “The trade regulations are going to vary by country versus one entity with the EU. The INCOTERMS [International Commercial Terms] available from local couriers, small parcel and other carriage providers also vary based up on VAT registration by country. These new developments alter both the freight component of the equation as well as the invoicing component for our customers and our suppliers. Both sides—the UK and the EU—continue to provide more guidance and clarity to the shipping requirements and VAT implications. While clarity is good, it also continues to change some of our assumptions made even one week prior. Regardless of the challenges, Brand Addition remains committed to supporting our customers and our suppliers to provide the most cost-effective supply routes to ensure timely delivery of our client's creative branded merchandise. Additionally, we will continue to look at which of our warehouse distribution hubs make the most sense to minimize the impact of Brexit while still offering in market inventory and delivery solutions that our customers continue to count on.”
Trevill adds, “With a UK national lockdown now in force as well, BPMA members are digging deep to see the way forward. We will overcome the changes in time as we settle in but with rules still changing in the year ahead, we will all need to stay one step ahead to keep on top of the red tape to stay profitable.”